Lower GDP, but Higher Quality of Life?

gpivsgdpWhen GDP falls, we call it a recession, and we all know that is a bad time.  Unemployment is up, the stock market is down.  Earnings fall, social services falter, teachers are laid off, deficits rise.  We all look anxiously at economic numbers, waiting for recovery, for GDP to rise.

But here’s the truth that we do not like to see:  in a world of limited resources and many people, our fixation on increasing economic growth is luring us into disaster.  Already we are using more resources than is sustainable.  We can’t keep producing more each year.  We have to ask instead:  “What’s the difference between quantity and quality?  How can we have less quantity of stuff but still have more quality of life?”

An economist could take you on an all-day tour of how to calculate Gross Domestic Product (GDP).  But to put it simply, GDP attempts to quantify how much we produce in a year of goods, services and information.   GDP, as most governments calculate it, misses a lot of productivity.  It leaves out the services we provide to each other without the exchange of money, and doesn’t include unreported (black market) transactions.  But even if it isn’t precise, repetitive measurement of GDP is supposed to give us an indication of how an economy is expanding, or falling into recession.

If we accept GDP as a measure of economic expansion, however, then it is fair to ask what fuels that expansion, what resources the expansion is consuming, and what space the economy is expanding into?  Because the economy is not a virtual world where new resources can be infinitely added and energy is free.  Humans are an integral part of a biological network, subsisting on energy from the sun, and living inside a thin geophysical envelope.  We have only the earth and biosphere as it is, and must do our best to live enjoyably within it without degrading it.

That there are limits to growth is not a new argument.  Until recently, however, those who voiced that argument were drowned out by the majority, who countered that resources are ample to our needs, and that any shortages that do arise from time to time can be overcome through new sources, or new methods.  Those who suggested that GDP does not measure quality of life were put down by pointing to the historical rise in the standard of living of the industrialized nations, and by presenting the following inductive argument and rhetorical question:

a)    Economic growth is historically associated with increases in living standards;
b)    Increased living standards are desirable and good;
c)    Therefore, economic growth is desirable and good.
“Would you deny the underdeveloped world their chance at a better life?”

Unfortunately, in this case inductive reasoning fails.  The dramatic improvements in living standards over the past 300 years occurred because the human race found a new, fantastic source of energy:  coal, oil and natural gas trapped in the crust of the earth.  Essentially all of the technology of a modern economy is directly or indirectly based on the energy of fossil fuels.  The lifestyle today of the average citizen of an advanced industrial nation is supported by an energy flow several times greater than that which supported her ancestor of 1700 – and there are many more of us alive today to be supported.

Proposing that developing economies grow their economies to provide living standards improvements presumes the underdeveloped world could grow their economies in the same way that the industrial nations have.  The problem is:  they can’t. The United States has about 5% of the world’s population and consumes 20-25% of global fossil fuel energy.  The U.S. consumes similar percentages of other natural resources.  And it has done so for many years, thus building up its industrial and social capabilities.  At the same time, we have already caused atmospheric changes that will create climactic change:  the world needs to begin burning less fossil fuel, not more.

Meanwhile, the population of the planet has doubled and doubled again since 1900.  The argument is offered that population growth decreases when development increases, and that is hopefully true.  But even with just the people we have now, there simply aren’t enough energy, mineral, or biological resources in the world to support U.S.-style economic growth for the underdeveloped countries.   If development requires an increasing GDP, there is no solution to this problem.

Well then, what if we simply use energy and resources more efficiently, so that we can continue to produce more stuff, but use less matter and energy in production?

Efficiency, driven by intelligence and applied technology, is certainly key to our survival.  But the question above still presumes that producing more stuff is desirable.  The best way to improve efficiency, however, is to make goods that last longer rather than more goods, and services of higher quality rather than more services. The call to inventive efficiency is really a call for higher quality in our goods and services, not for a means to produce in greater quantity.

It is time to put aside, explicitly and decisively, the objective of higher GDP.   GDP measures quantity, not quality of production.  GDP presumes that a growth in production is a growth in quality of life, when in fact we have reached a point that the opposite is true. Not even our current level of goods production can be sustained, much less continual increases.  We must instead take up new measures of efficiency and of quality of life, and manage to those, not to GDP.   As soon as we completely change our mindset of growth for a mindset of quality and efficiency, we will find that there are tremendous opportunities to improve our lives and lifestyles.

For more information on GDP and alternative measures of development, see:

IEEP Patrick ten Brink’s Presentation on Beyond GDP indicators… http://tinyurl.com/5vbgv3

Beyond Growth, by Herman Daly  (book) http://cli.gs/VsSYNm

Calvert – Hendersen Quality of Life Indicators (website):  http://cli.gs/Bg1U16

Flynn Research, Sustainability and Quality of Life Indicators (report) http://cli.gs/nPYVgz

Chapter 5 of Herman Daly’s Steady State Economics (1977)   http://cli.gs/Zjbm5Q

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7 Responses

  1. paul liesenberg says:

    i have long thought that GDP is an interesting statistic, but very incomplete as a benchmark for an economy’s success. whenever a secondary consideration becomes a primary goal, it is usually called an unhealthy obsession – but not when it comes to western economies’ and their focus on GDP and growth.

    isn’t it time -as you say- that we put people’s happiness first and we try to quantify quality of life and declare *that* a primary goal of success for an economy? as in work-life balance, physical and mental health and well-being of the average citizen…

    conotnuous economic growth is not and will never be a realistic goal – in any mathematical model constant growth results in a loop that loops, and thus in discontinuities, so it is mathematically ignorant to even assume constant growth is possible. it is amazing that western economies are often understood to be based on such a naive and flawed assumption.

  2. Bryan K Long says:

    Thanks for the comment, Paul. Of course, economists will tell you they are not ignorant of these limits, and that there are many papers written on this topic. Yet I haven’t seen an introductory textbook yet that explicitly puts economics into an ecological context. And that’s what is most important: teaching these concepts as the basics, not as an “advanced topic”.

  3. Chip Pitts says:

    To your excellent post, Bryan, I would add that GDP measures only aggregate growth, and in its focus on efficiency completely neglects equity: the indispensable distributional perspective. In recent years, that means that the myopic focus on GDP growth has blinded people to the growing inequality within and among countries, the obscene levels of executive compensation that result in CEO’s earning 400 or 500 times that of the average worker, the fact that real wages have been stagnant or in decline, that families now need two wage earners to maintain the same standard of living that one wage earner did in prior generations. Massive inequality has practical costs in terms of real human lives, diminished motivation, and damaged future productivity. All of these pressures on the middle class, poor people, and victims of discrimination limit potential human development.

    To this one might add reference to the artificiality injected by focusing only on a financial indicator; such an indicator is only one element of the sustainable “triple bottom line” (of people and planet as well as profits). A strictly monetary indicator, moreover, enhances susceptibility to financial bubbles, social/governmental distortion of the relative importance of the financial sector, and quantitative figures achieved through speculation as opposed to qualitative figures and outcomes that more accurately describe real production of value (broadly defined, i.e. to transcend short-term growth in profits or income).

    In short, yes, it’s well beyond time to shift emphasis from traditional GDP measures and deploy new human development and happiness/well-being measures of the sort you mention. Amartya Sen and Martha Nussbaum did path-breaking work in focusing on human capabilities like those that fed into the U.N.’s Human Development Index. And Sen’s classic book on the subject, Development as Freedom, very usefully highlights the ways in which development truly is freedom and freedom is both the means to and an end of development.

    Now we all must advance and add precision to that thinking in ways that attract social consensus in the U.S. and around the world, so that we can use such measures to create a more sustainable 21st century economy that works for all people and the planet as a whole.

  4. Bryan K Long says:

    Thanks Chip, excellent additions. And I wouldn’t mind so much the inequalities of wealth, although it does get obscene, if we saw a more equal distribution of health and welfare. It’s one thing when one human can fly first class while another can’t afford to fly at all, but quite another when hundreds of millions have inadequate food, shelter, and basic services.

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