Does GNP mean anything?

I just came across Caterina’s post on Robert Kennedy’s GNP speech.  It prompted me to read again A Steady-State Economy by Herman Daly.

Herman Daly says there is no reason that GNP should always increase.  For wealthy countries, a steady-state or zero-growth economy may be better.

One of the problems with GNP is that it counts only the benefits, not the costs, of new technology:

Tetraethyl lead provided the benefit of reducing engine knock, but at the cost spreading a toxic heavy metal into the biosphere; chlorofluorocarbons gave us the benefit of a nontoxic propellant and refrigerant, but at the cost of creating a hole in the ozone layer and a resulting increase in ultraviolet radiation. It is hard to know for sure that growth now increases costs faster than benefits since we do not bother to separate costs from benefits in our national accounts. Instead we lump them together as “activity” in the calculation of GDP.

Daly recommends wealth redistribution to an ideal multiple of 100x, e.g. the richest have 100x the wealth of the poorest.  For comparison’s sake:

  • Plato thought the richest people should have 4x the wealth of the poorest
  • In today’s academia and civil service, the multiple is 10x to 20x
  • In the US corporate sector, the ratio is 500x

This is not to say that pure economic growth isn’t valuable in the developing world:

For poor countries GDP growth still increases welfare, at least if reasonably distributed. The question is, What is the best thing for rich countries to do to help the poor countries? The World Bank’s answer is that the rich should continue to grow as rapidly as possible to provide markets for the poor and to accumulate capital to invest in poor countries. The steady state answer is that the rich should reduce their throughput growth to free up resources and ecological space for use by the poor, while focusing their domestic efforts on development, technical and social improvements, that can be freely shared with poor countries.

It’s a long essay and I’ll post more later.  One question for those of us in the capitalist world is how to measure our success beyond personal wealth creation.  In other words, would we still be contributing to the economy if the true costs/benefits of our work was measured more accurately.

Here’s the link to Robert Kennedy’s speech on GNP.


One thought on “Does GNP mean anything?

  1. If you look at the biggest GNP’s you almost have to conclude it’s main use is not as a measure of national well-being, but as one of national shame, environmental destruction, bad health, and general misdirection. It’s beyond belief that economists don’t see through this number and toss it aside once and for all. (I bet they do but their employers don’t let them get away with it.) Matt, you say it was part of the national conversation decades ago, but are you sure about that. Until I hear otherwise, I’m going to go on thinking that RFK was an iconoclast, ahead of his time, one of a kind, and shot for it.


Leave a Reply

Your email address will not be published. Required fields are marked *