How does it matter? SEEDing the thoughts for measuring economic prosperity”

Tuesday, May 3, 2016

How prosperous is your country?

If one were to pose this question to a randomly picked subset of people from all over the world, there is a high possibility of receiving answers centered around the term ‘GDP’, or the Gross Domestic Product. Since its inception during the Great Depression in the United States, this microeconomics term has become the standard for measuring the economic prosperity of a country.

But, does it really matter? How do we know that we are on the right track while determining a country’s growth on this measure?

Dr. Dirk Philipsen, an economic historian and Senior fellow at the Kenan Institute for Ethics at Duke University (and author of The Little Big Number – How GDP Came to Rule the World, Princeton 2015), and Brent Lane, the Exec. Director at the Center for Competitive Economics at Kenan Institute explore and question the fundamentals of GDP based economic growth and other existing economic indicators while proposing alternative methods to measure growth and prosperity.

Their research is a part of the Kenan Creative Collaboratory project. Titled SEED- Smart Economics for the Environment and human Development- this project involves community members from diverse backgrounds in helping design economic performance indicators that actually promote sustainable and equitable development, rather than merely document indiscriminate economic output.

Dirk & Brent Dr. Dirk Philipsen at the Food for Thought workshop

Dirk Philipsen introduced the audience to the shortcomings of using GDP as a performance metric by narrating the story of the ‘Calories Doctor’:

“Imagine a doctor prescribing a high calorie intake diet to a malnourished patient. At first, this is a good thing.  The patient grows stronger and more resilient with more calories.  And a gradual increase may do some good for a long time.  But if the medical profession decides, based on this positive track record, that amount of calories is the best indicator for health, we have a problem.  Further increasing calories, or GDP, at an exponential rate, inevitably causes immense problems. At some point it leads to higher costs than benefits. Today, we may well find ourselves at a point where further increases in GDP do more harm than good – climate change, resource depletion, inequality.”

Dirk showed how GDP measures quantity rather than quality, more rather than better, and ignores all vital aspects of life not traded in the marketplace (healthy ecosystem, freedom, etc.).  It is thus an increasingly poor measure of performance. Quoting Tim Jackson, he summarized one pervasive result for us: “We buy things we don’t need with money we don’t have to impress people we don’t like”.

Brent later concluded this talk with his creative definition of the term GDP, calling it ‘Grandpa’s Definition of Prosperity’. He also suggested a variety of alternative measurement techniques.

It was yet another intriguing Food for Thought series (held on the 11th of April 2016) that generated a good discussion on a widely accepted concept and helped the audience understand the significance of “What we measure”.

Next time someone says: “Our country is prosperous because of its high GDP”, we know what to say: “Really?”