The Poison Beer of Gross Domestic Product, by Herman Daly
Reflections and Chronicles From the End of Time: Metamorphosis, by Carlos Cuellar Brown
Can we Solve Both the Economic Crisis and the Environmental One? Seeking New Models in Uncertain Times, by Mia Gray and Betsy Donald
The Ecological Crisis is a Political Crisis, by Kevin MacKay
Climate Uncertainty Monster: What's the Worst Case?, by
Judith Curry
The Healing Practice of Cultural Humility, by Charlene Leung
A Gender Equal Partnership for Planetary Stewardship, by
Geoffrey Holland and Riane Eisler
Human Predators, Human Prey ~ Society as Ecosystem in a Time of Collapse, Part I, by Richard Heinberg
Human Predators, Human Prey ~ Society as Ecosystem in a Time of Collapse, Part II, by Richard Heinberg
Human Predators, Human Prey ~ Society as Ecosystem in a Time of Collapse, Part III, by Richard Heinberg
Diverging Demographic Destinies: A Fifty Year Perspective, by Keith Zeff
How to Feed 10 Billion by 2050 Without Destroying the Planet, by Olivia Rosane
A Not-So-Nobel Prize for Growth Economists, by Brian Czech
Tipping Elements - the Achilles Heels of the Earth System, by Potsdam Institute for Climate Impact Research
Did the Club of Rome Ever Disavow "The Limits to Growth"?
A Story of Ordinary Disinformation, by Ugo Bardi
The Third Curve ~ A New Lens to Understand our New Economic Reality, by Mansoor Khan
Geo-Engineering ~ An Idea Whose Time Ought Never Come, by
Adam Sacks
We Have Been Warned ~ Will We Respond in Time?, by
Stuart Scott
Rebelling Against Extinction, by George Monbiot
Living on the Frontlines of Resistance, by Medea Benjamin
The Curse of Thomas Malthus, by Andrew Curry
A Plan to Address Income Inequality, by Keith Zeff
A Global People's Bailout for the Coming Crash, by
Adam Parsons
Strategy Document for the 50th Anniversary of Earth Day in 2020, by Earth Day Network
From Homo economicus to Homo ecologicus
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The Poison Beer of Gross Domestic Product
Herman Daly
Originally published by
Steady State Herald, 3 October 2018
under a Creative Commons License
Disaggregating reported Gross Domestic Product (GDP) growth to reveal the differences in growth by income class, as per the Schumer-Heinrich Bill, is a good idea. After all, telling us, say, that average income grew by 4% is not nearly as informative as telling us that the richest ten percent received the entire growth increment while the bottom ten percent suffered a decline in income. Average income and growth rates are like the famous recipe for “50% rabbit stew”—one rabbit, one horse. We already know the extreme inequality in the distribution of wealth, of income, and of the growth increment, even without the Schumer-Heinrich Bill. However, if that information is incorporated every time new GDP figures are reported it will be much harder to ignore. Of course, that is exactly why the bill will be opposed by those who want us to believe that we are all getting 4% better off every year or that “a rising tide lifts all boats”, when in fact a rising tide in one place means an ebbing tide somewhere else.
Once we correct GDP for ignoring distribution, then perhaps we can go on to correct other defects, such as the fact that it adds defensive expenditures made to protect ourselves from the unwanted costs of growth (pollution, depletion, congestion, crime, etc.) while failing to subtract as a cost the damages that made the defensive expenditures necessary in the first place. For example, damages caused by an oil spill are not deducted, but expenditures to clean up the spill are added; depletion of soil fertility is not deducted, but expenditure on fertilizer is added, etc.
In addition, the very concept of income in economics is defined as the maximum amount that a community can consume this year and still produce and consume the same amount again next year, and the years after. The income from a fishery is its sustainable catch; the income from a forest is its sustainable cut. Consuming more than that is capital consumption, not income. Yet, as far as GDP is concerned, we can cut the entire forest and catch every fish this year and count it all as income—there is no rule against counting consumption of natural capital as income in GDP accounting.
If our main goal is to increase GDP rapidly, then we will not want to slow it down for concern about equity of distribution, or by correcting the asymmetric accounting of defensive expenditures, or by correcting the fundamental economic error of counting capital drawdown as income. Maximizing GDP growth will lead to less concern for distributional equity, more depletion and pollution, and more consumption of natural capital.
I am reminded of a story told by G. K. Chesterton. A pub was serving poison beer and customers were dying. Alert citizens petitioned the local magistrate to close down the offending establishment. The cautious magistrate said, “You have made a convincing case against the pub. But before we can do something so drastic as closing it down, you must consider the question of what you propose to put in its place…”. Contrary to the magistrate you don’t need to put anything in the pub’s place. Nor is it really necessary to put anything in the place of the poison beer of GDP. As it happens, however, there are in fact better things to put in its place, such as the Index of Sustainable Economic Welfare, the National Welfare Index, and the Genuine Progress Indicator.
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ABOUT THE AUTHOR
Herman Daly is an emeritus professor at the University of Maryland School of Public Affairs and a member of the CASSE executive board. He is co-founder and associate editor of the journal Ecological Economics, and he was a senior economist with the World Bank from 1988 to 1994. His interests in economic development, population, resources and environment have resulted in more than 100 articles in professional journals and anthologies, as well as numerous books.
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