As any freshman economics student should know, the Gross Domestic Product, GDP, is a measure of spending, derived from the Gross National Product, GNP, defined by Simon Kuznets during the Depression (click here for econlib). GDP is, at best, an indirect measure of wealth. The Genuine Progress Indicator, GPI, defined by Think Progress in 1995, measures genuine progress.
Consider the case of Joeseph Q. Bloggs, MBA, J.D., Esq., an investment banker. Bloggs has a J.D. from Harvard or Yale, an undergrad degree from Princeton, Dartmouth, Cornell, or another ivy league school, and a high school diploma from the Citadel or an acclaimed private school. As with his colleagues on Wall Street, he is self-proclaimed “Master of the Universe.” He leaves work one night after negotiating a highly leveraged hostile takeover, buys a Lamborghini, and rents the time of an expensive “friend.” He buys her an expensive outfit, and takes her to dinner at an the Four Seasons, or a similar expensive restaurant. He has a few drinks before dinner, a bottle of wine with dinner, and a glass or two of port after dinner. On the way to the Hamptons, he crashes his Lamborghini into a Ferrari driven by another lawyer / banker / actor / “Master of the Universe.”
Both cars are totaled. Bloggs’ passenger, the other driver, his or her passenger, are killed. Bloggs survives.
He is met in the hospital by a highly trained team of medical professionals, paparazzi, a cop, lawyers for his soon-to-be-ex-wife, and his lawyer.
Bloggs has increased GDP. Big time. His car had 40 miles on the odometer. He spent $210,000 to go 40 miles – that’s $5,250 per mile – not counting the cost of gasoline. The GPI, however, is diminished. The highest potential of the resources transformed into the cars, clothes, and jewelry were not realized. The highest potential of the recently deceased people were not realized. Bloggs highest potential is not realized in paying large legal fees in a divorce and in fighting charges of drunk driving and vehicular homicide.
While this example, you might say, is absurd, there are analogous real world events. Consider the antics of Brittney Spears and Lindsay Lohan. When they get into trouble they increase GDP. This does not do anything for GPI.
The Deepwater Horizon disaster of April to August, 2010, the Upper Big Branch disaster of April, 2010, the Kingston Tennessee coal ash flood of December, 2008, the Fukushima nuclear disaster of March, 2011, the developing crisis at the Fort Calhoun and Cooper nuclear plants in Nebraska (here) do not realize the highest potential of the resources used in extracting various resources or cleaning up the messes, when possible. Consider the Purgen plant, a proposed coal with sequestration facility in Linden, NJ. (discussed here on Popular Logistics on Earth Day, 2011). They lower GPI. Consider Pete Townshend’s smashing a guitar at every concert. These are Pareto inefficient. These are economic “bads” not economic goods. But they increase the GDP.
For a more detailed description of GPI, click here for GPI Atlantic, here for Pembina, here for Investopia, here for Bhoomi, or here for my earlier post.
Arguably, Mr. Kuznets has done more for society than Ms. Lohan and Ms. Spears. However, Ms. Lohan and Ms. Spears have done more to increase GDP. In general, when given the choice between two options, the more expensive one adds more to GDP. A less expensive one might add the same or more to GPI. What’s bad on a micro scale for an individual might be good on a macro scale for GDP. While the GDP measures spending, i.e. consumption and waste, GPI measures investment and, as noted above, the development of genuine progress.