GDP does not reflect well-being

In two weeks, world leaders will descend on Copenhagen to negotiate a new climate change agreement.

In two weeks, world leaders will descend on Copenhagen to negotiate a new climate change agreement. Stakes are high, yet many observers’ hopes are low. Canada, in particular, is poised to disappoint. Why?

Our politicians are fearful. A new TD Bank-sponsored study shows that, under a recommended 10-year climate action plan, Canadians’ incomes would continue to rise countrywide. However, GDP growth in Alberta and Saskatchewan could slow down. Apparently, that’s too big a political risk. So, just what is this precious GDP?

GDP — gross domestic product — estimates the value of all the things produced by a country in a year. It was invented in the 1940s to figure out how to win the war without driving up prices.

GDP was never meant to measure quality of life. In fact, those who developed it warned explicitly against confusing GDP with well-being. Yet today’s economists argue we’re now making precisely that mistake. Why? It’s simple: GDP is easier to measure.

Sadly, a narrow focus on GDP produces twisted outcomes: bad things seem good and good things seem irrelevant. Costly car accidents, prison construction, over-exploiting natural resources — you name it — these all boost GDP. If there’s money flowing through a cash register, it’s “good.” If not — as with a clean environment, product quality, neighbourhood safety — it doesn’t count.

GDP tells us nothing about sustainability, let alone fairness or security. Maybe it’s time to remind our leaders that there’s more to life than producing more stuff.

– Kai Chan is an assistant professor and Canada Research Chair at the Institute for Resources, Environment, and Sustainability (IRES) at UBC. Jordan Levine is a PhD student at IRES and at UBC’s Liu Centre for Global Issues.

 
 
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