Why is the economy interested in measuring the economy

Everyone looks at GDP - rightly?

Seventy-seven trillion euros are hidden behind just three letters: GDP. That is the sum of the gross domestic products of all countries in the previous year. Every car or ice cream sold, every haircut and every bypass surgery from Australia to Cyprus is included. When economic researchers announce, as recently for Europe and China, that the economy is growing by 0.1 and 0.2 percentage points more slowly than previously expected, billions of euros of our hoped-for prosperity will fizzle out.

In view of these dimensions, it is understandable that politics, media and companies keep an obsessive eye on this key figure. However, skeptics of the GDP fixation question whether we are measuring what is really important.

Blind spots

The criticism of the GDP is as old as the indicator itself, says someone who should know: The economist Martin Kocher sits in front of the cameras every quarter in his function as IHS boss with his colleague, the Wifo boss Christoph Badelt, and announces In the context of the economic forecast, the current and expected GDP growth.

Some weaknesses are obvious for Kocher: Housework, care or child-rearing do not flow into the GDP unless you pay someone else to do it.

More problematic than blind spots are hidden costs that seem to have a positive impact on GDP. A factory that pollutes a river with chemicals contributes just as much to economic performance as the one that cleans the water again. The same applies to the sale of armaments that may be used to wreak havoc. Destruction thus appears positively in GDP.

That cannot be completely dismissed. A cleaning crew who wipes up an oil spill or a surgeon who sews soldiers back together spends his salary at the hairdresser's, buys school snacks for the youngsters and pays taxes. What is not included in the calculation are the alternative uses for committed cleaners and talented doctors, had they not repaired the damage. Some might have prepared the promenade nicely, others saved an accident victim. GDP is all about quantity, not quality.

This shortcoming is serious when GDP growth causes long-term damage to the environment. The greenhouse gases from the last century are currently contributing to climate change. What to do?

Looking for new indicators

Because GDP cannot be equated with prosperity and certainly not with well-being, there are many attempts to establish alternative indicators. Researchers try to deduct economic costs such as CO2 emissions, deforestation and pollution from GDP. A "green GDP" therefore only includes economic performance that is sustainable.

In addition, economists try to determine whether, in addition to growth and sustainability, quality of life can also be expressed in numbers. This has resulted in a series of composite indicators such as the United Nations Human Development Index (HDI). In addition to GDP per capita, this also takes into account educational opportunities and life expectancy.

So far, however, no alternative measure has been able to overthrow GDP from the throne. There are reasons for this, as IHS boss Kocher explains: The composition of mixed indicators always contains a certain political evaluation. The GDP is at least "somewhat objective". Another advantage is that GDP per capita goes hand in hand with almost all alternative indicators. Those who achieve greater prosperity place more value on an intact environment.

Many critics of GDP are less bothered by the calculation than by the fixation on its steady growth. In a world of finite resources, we will hit the wall at some point, say representatives of the post-growth movement. The economist Ann Pettifor, advisor to the British Labor leader Jeremy Corbyn, embodies a radical turning away from GDP growth as a leitmotif of economic policy.

Growth wasn't always everything

Compared to the STANDARD, she describes her research on the origin of the concept of growth. In the early 1960s, the OECD would have popularized the concept of GDP growth. "Before that, we never spoke of economic growth, but of different levels of economic activity," says the economist. "We should get away from the concept of growth if we want to do business sustainably." In practice, the level of employment, output and inflation should be highlighted. The aim should be to keep this stable instead of striving for eternal improvement. A fixed CO2 budget should serve as a framework, suggests Pettifor.

The US economist Tyler Cowen contradicts this vehemently: "Exponential growth is really important." Imagine if the United States grew only one percentage point slower annually between 1870 and 1990 - then Americans would have had the same standard of living as Mexicans at the end of the period, he argues. Although the GDP should be expanded to include sustainability and life satisfaction, Cowen is essentially convinced: "Economic growth, understood correctly, will contribute more to the reduction of poverty and social improvements than traditional equalization."

One thing is certain: GDP is not out yet. This is analogous to democracy, sums up Kocher: "The GDP is a bad measure, but it is the best we have to break the economy down to a value." (Leopold Stefan, July 29, 2019)

The GDP

The gross domestic product is the most important key figure of the economy. Every student learns that we use it to measure the monetary value of all goods and services that are produced and provided in a country each year. In the early 1930s, the American economist and statistician Simon Kuznets invented GDP in its modern form. Soon the US government focused on assessing production capacity during World War II. But Kuznets had already noted that the GDP does not reflect the welfare of a people. However, many economists emphasize how closely many indicators of prosperity are related to GDP.

The alternatives

It has always been obvious that economic growth depends on the consumption of resources. The big question, however, is: How sustainable is our consumption? The Dutch economist Roefie Hueting has been working on his environmentally friendly GDP indicator for over fifty years. The result: Environmentally Sustainable National Income (eSNI). This adjusts the national income (an expanded GDP). The difference is to show the proportion of our growth at the expense of future generations. According to these calculations, this proportion is around 50 percent.

For many years the World Bank has missed the "Wealth of nationsThe development bank deliberately uses a broad term: capital such as machines, factories, etc. is supplemented by real estate, raw materials and agricultural land, forests, etc. Human capital, measured in terms of lifetime income, is also included Global prosperity grew by two-thirds. The driving force was the level of performance of the inhabitants in emerging countries such as China, India and Brazil. In poorer regions such as sub-Saharan Africa, however, prosperity per capita has declined.

Life is about more than bare numbers like GDP and other economic data, as the OECD writes. That is why the organization has been raising the Better Life Index (BLI). The special thing about it: In addition to official statistics, the BLI is based on surveys. The index summarizes a total of eleven areas of life - from income to education and the environment to security and life satisfaction. In the overall ranking, Austria was last in 17th place out of 40 countries. Norway does best. The indicator is not only used for comparison, but also highlights national strengths and weaknesses.

The Himalayan Kingdom of Bhutan has been calculating this since 2008 Gross National Happiness (BNG). Officials survey citizens randomly over several hours about their worries, wishes and satisfaction. Unsurprisingly, Bhutan's GNP rose along with GDP. The Happy Planet Index (HPI) tries to reconcile life expectancy, satisfaction and the ecological footprint. Austria ranks 43rd out of 140 countries. However, the combination of quite different factors limits the informative value. This can be seen from the fact that Luxembourg and Chad are the two worst performers in the HPI.

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