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                  WHAT IS WRONG WITH THE GDP?

Since its introduction during World War II as a measure of
wartime production capacity, the Gross National Product (now
routinely measured as Gross Domestic Product -- GDP) has become
the nation's foremost indicator of economic progress.  It is now
widely used by policymakers, economists, international agencies
and the media as the primary scorecard of a nation's economic
health and well-being.

Yet the GDP was never intended for this role.  It is merely a
gross tally of products and services bought and sold, with no
distinctions between transactions that add to well-being, and
those that diminish it.  Instead of separating costs from
benefits, and productive activities from destructive ones, the
GDP assumes that every monetary transaction adds to well-being,
by definition.  It is as if a business tried to assess its
financial condition by simply adding up all "business activity,"
thereby lumping together income and expenses, assets and
liabilities.

On top of this, the GDP ignores everything that happens outside
the realm of monetized exchange, regardless of its importance to
well-being.  The crucial economic functions performed in the
household and volunteer sectors go entirely ignored.  The
contributions of the natural habitat in providing the resources
that sustain us go unreckoned as well.  As a result, the GDP not
only masks the breakdown of the social structure and natural
habitat; worse, it actually portrays such breakdown as economic
gain.


GDP TREATS CRIME, DIVORCE AND NATURAL DISASTERS AS ECONOMIC GAIN

Since the GDP records every monetary transaction as positive,
the costs of social decay and natural disasters are tallied as
economic advance.  Crime adds billions of dollars to the GDP due
to the need for locks and other security measures, increased
police protection, property damage, and medical costs.  Divorce
adds billions of dollars more through lawyer's fees, the need to
establish second households and so forth.  Hurricane Andrew was
a disaster for Southern Florida.  But the GDP recorded it as a
boon to the economy of well over $15 billion.


 GDP IGNORES THE NON-MARKET ECONOMY OF HOUSEHOLD AND COMMUNITY

The crucial functions of childcare, elder care, other home-based
tasks, and volunteer work in the community go completely
unreckoned in the GDP because no money changes hands.  As the
non-market economy declines, and its functions shift to the
monetized service sector, the GDP portrays this process as
economic advance.  The GDP also adds the cost of prisons, social
work, drug abuse and psychological counseling that arise from
the neglect of the non-market realm.


     GDP TREATS THE DEPLETION OF NATURAL CAPITAL AS INCOME

The GDP violates basic accounting principles and common sense by
treating the depletion of natural capital as income, rather than
as the depreciation of an asset.  The Bush Administration made
this point in the 1992 report of the Council on Environmental
Quality.  "Accounting systems used to estimate GDP" the report
said, "do not reflect depletion or degradation of the natural
resources used to produce goods and services."  As a result, the
more the nation depletes its natural resources, the more the GDP
goes up.


GDP INCREASES WITH POLLUTING ACTIVITIES AND THEN AGAIN WITH CLEAN-UPS

Superfund clean-up of toxic sites is slated to cost hundreds of
billions of dollars over the next thirty years, which gets added
to the GDP. Since the GDP first added the economic activity that
generated that waste, it creates the illusion that pollution is
a double benefit for the economy.  This is how the Exxon Valdez
oil spill led to an increase in the GDP.


           GDP TAKES NO ACCOUNT OF INCOME DISTRIBUTION

By ignoring the distribution of income, the GDP hides the fact
that a rising tide does not lift all boats.  From 1973 to 1993,
while GDP rose by over 50 percent, wages suffered a decline of
almost 14 percent.  Meanwhile, during the 1980s alone, the top 5
percent of households increased their real income by almost 20
percent.  Yet the GDP presents this enormous gain at the top as
a bounty to all.


    GDP IGNORES THE DRAWBACKS OF LIVING ON FOREIGN ASSETS

In recent years, consumers and government alike have increased
their spending by borrowing from abroad.  This raises the GDP
temporarily, but the need to repay this debt becomes a growing
burden on our national economy.   To the extent that Americans
borrow for consumption rather than for capital investment, they
are living beyond their means and incurring a debt that
eventually must be repaid.  This downside of borrowing from
abroad is completely ignored in the GDP.


The above text is excerpted from The Genuine Progress Indicator:
Summary of Data and Methodology, Redefining Progress, 1995.
Copies of the full reports are available for $10.00 by contacting:

Redefining Progress,
One Kearny Street, Fourth Floor
San Francisco, CA 94108 415-781-1191 Fax: 415-781-1198.