Time For a New Economic Yardstick

Lorenzo Fioramonti, The World After GDP: Economics, Politics and International Relations in the Post-Growth Era

The Gross Domestic Product has proven a mediocre economic measurement at best. It totals the cash value of all economic transactions, but doesn’t measure costs and benefits commensurately; car wrecks and traffic congestion have cash value, but lovingly restoring Grandma’s classic Fairlane doesn’t, unless we sell it. I grew disgusted with GDP fifteen years ago, when national leaders presented shopping as the solution to the 9/11 attacks.

South African economist Lorenzo Fioramonti begins this dissertation with a brief history of Palau, an island nation once touted as miraculous for its powerful economy. After independence, it parlayed massive mineral reserves into Earth’s largest per-capita GDP. But that wealth wasn’t distributed equally, and GDP didn’t include non-priced factors, like environmental decay. When the minerals were tapped, the miracle proved illusory. Palau is now poor, physically blighted, and without hope.

Fioramonti sees a parable of modernity here. Economic measurements aren’t value-neutral; what economists count inevitably becomes what leaders and entrepreneurs pursue. Price elasticity causes an inverse relationship between market price and social value, meaning things we struggle to measure in dollars, like the environment or human communities, get forgotten… until catastrophe strikes. But it doesn’t have to be this way. Fioramonti progresses from grim history to optimistic forecasting.

GDP arose during World War II, for specifically wartime purposes: to quantify America’s ability to manufacture military supplies. Quoting several other economists, Fioramonti compares GDP to the Manhattan Project, a wartime planning tool that somehow persisted into peacetime and remains impervious to changing conditions. (It even triumphed in the Soviet Union, eventually, because the preferred Leninist measurement failed to account for the service industry.)

Lorenzo Fioramonti

But even GDP’s chief inventor turned against his creation. Contemporary critics deride GDP for its inability to incorporate environmental costs: dirty air and flammable rivers have no price, and therefore no economic weight. But GDP pioneer Simon Kuznets realized his invention didn’t encompass human costs. Worn-out workers, sundered families, and communities severed from their roots have consequences, but no price, so they don’t get figured into the GDP.

And this only includes what happens visibly. Early in this book, Fioramonti uses a familiar, but still impactful analogy. He writes that “food cooked at a restaurant and purchased by consumers is registered as part of a nation’s economy, but the same food cooked at home and shared with family and guests is not.” We could continue: grocery shopping counts, gardening doesn’t; replacing old socks counts, darning them doesn’t.

This leads directly into Fioramonti’s most important precept for creating an alternate economic measure: “one important step in shifting attention is to make the invisible visible. This is what ‘post-GDP’ scholars and activists are trying to achieve.” This proves more ideal that systematic. Though Fioramonti lists several alternate economic yardsticks devised since around 1975, none encapsulates every possible contingency. We need complementary measures, Fioramonti writes, not one-size-fits-all.

Among other topics, Fioramonti spends considerable time on what officials euphemistically call the “informal economy.” This sometimes means off-the-books accounting, like the Mafia, but it also includes everything productive we do that doesn’t generate money. Volunteer work, time spent with family, and home-cooked dinners all create value, but in ways that lack price, and therefore the GDP cannot track them. Does mom’s home cooking have no economic value?

“The GDP-induced categorization of work,” Fioramonti writes, “also hides the fact that only a fraction of people’s time is spent on formal jobs.” But other systems of measurement can include these pastimes. If the economic devaluation of environmental destruction doesn’t convince you the GDP measures the economy badly, then maybe you’ll be convinced when other measurements place value on your hobbies, community, or family. The GDP considers these wasted time.

I repeat, because Fioramonti does, that economic yardsticks are never value-neutral, despite what ardent capitalists claim. The GDP rewards whatever costs money, hides whatever “externalities” get buried off the books, and encourages reckless, interest-bearing debt. Fioramonti does a remarkable job detailing this history. Committed followers of events, like me, may have some prior familiarity with Fioramonti’s descriptions of what already exists, though he collates diverse sources in new, enlightening ways.

Then, when we’re convinced the status quo cannot continue, Fioramonti provides us the alternative. These aren’t just alternate accounting systems. They’re innovative value measurements, means of rewarding productive behaviors beyond slapping price tags on everything. Our world is changing, bringing the marketplace with it. If we don’t change our economic paradigms appropriately, history will surely leave us holding the bag for costs we’re not yet prepared to pay.