GDP is going out of fashion...
...And so it should!
For a long time there was no standardised approach for measuring the economic output of a country. But some time after the Great Depression and during World War II, the concept of Gross Domestic Product (GDP) was born.
It's true that in the 17th century English economist and philosopher William Petty developed a basic form of GDP to combat unfair taxation by landlords during Anglo-Dutch warfare. Following the Bretton Woods conference in 1944, the World Bank and International Monetary Fund established GDP as the standard measurement of the size of a country's economy. So it's a pretty well-established concept.
So what is GDP exactly?
The Bank of England describe GDP as a measure of the size and health of a country’s economy over a period of time.
It is calculated as Household Spending + Investment + Government Spending + Net Exports (net exports means the value of imports less that of exports). Household spending makes up the lion's share of UK GDP at around two-thirds: you can read the latest reports on UK GDP here.
Thoughtfully the BoE's website goes on to explain some of the shortcomings of the popular measurement:
- The output, or value created by volunteer work is ignored
- Caring for family (say, your children or an elderly relative) is not included
- Income distribution across the population isn't factored
- Environmental costs are fully excluded
On wellbeing and happiness
In May 2019 New Zealand became the first Western country to design its entire budget around the wellbeing of their population. This was a major step for considering the quality of people's lives beyond the financial output they create. You can read their 'wellbeing budget' here.
The UK's Green Party share the outlook of our Kiwi friends and put it eloquently:
"Measuring whether an economy is growing isn’t the same as measuring whether it’s healthy. Using GDP as the main indicator of success doesn’t leave space to consider people’s wellbeing, the state of our natural resources or whether economic prosperity is being shared equally."
Markets, media, and business are completely absorbed in the fetishisation of GDP growth, to the detriment of society and the environment. The American Institute of Stress reports that 40% of workers find their job very or extremely stressful, and 26% feel burned out by their work.
Stress levels are rising among workers and that will likely only worsen as young people's anxiety, depression and low self-esteem sky rocket, driven by social media and up-to 9 hours of mobile phone usage each day.
Extra reading
Tim Jackson's 2009 article 'Prosperity without growth' was subsequently published in paperback and is widely available. You can also get the 16-minute summary from Blinkist (an app we strongly support).
