The Top 5 Prosperity Measuring Sticks More Accurate Than GDP

The Great Recession is over!  According to Wall Street it ended in 2009 when the Gross Domestic Product (GDP) starting growing again.  Of course for the poorest 98% of us who live near Main Street, we know different, and some indicators show that our standards of living have been declining since 1975.  The GDP is an antiquated tool to measure the situation in a country.  Here are 5 superior metrics that better reflect reality.

GDP is “the market value of all final goods and services produced within a country.”  TradeEconomics.com, who created the chart above, report that the US GDP “expanded 1.8% during the first quarter of 2011 compared to the previous quarter”.  From the looks of that, it appears that the Great Recession is behind us and the nation has recovered.  The bonus checks for their CEOs seem to reflect that.

As an example of how what’s good for the GDP is not always good for the individual, take health care: rising costs may be tough on families, but it boosts the GDP.  “The GDP is a truly terrible measure of things that really matter,” says James Gus Speth. “Finally, there’s a broad consensus on this point. For the first time there’s a chance that this concern will move out of academic and research circles and become a real policy question.” -Time

Here is a chart that demonstrates the US GDP per capita compared to other countries.  As you can see, the US is near the top.  In the second bar, you can clearly see that for the poorest 10% of Americans, the total GDP is irrelevant, they are well below the OECD average, and fall in between Greece and the Czech Republic.  That’s right, the poorest 10% in Greece are wealthier than the poorest 10% in the US.  Where does the GDP flow to?  The top 10% as represented by the final bar in the chart.

Unemployment and underemployment are still both dangerously high, incomes for most Americans have fallen, the foreclosure crisis continues, the price for basic staples and health care continue to rise, and the vast majority of the country is still stuck in this mother of all Recessions, that ultimately can only be compared to the Great Depression.

GDP measures the total market value of all goods and services produced in a country in a given period. But it includes only those goods and services traded for money. It also adds everything together, without discerning desirable, well-being-enhancing economic activity from undesirable, well-being-reducing activity. An oil spill, for example, increases GDP because someone has to clean it up, but it obviously detracts from well-being. More crime, more sickness, more war, more pollution, more fires, storms and pestilence are all potentially positives for the GDP because they can spur an increase in economic activity.

GDP also ignores activity that may enhance well-being but is outside the market. The unpaid work of parents caring for their children at home doesn’t show up in GDP, but if they decide to work outside the home and pay for child care, GDP suddenly increases. And even though $1 in income means a lot more to the poor than to the rich, GDP takes no account of income distribution. In short, GDP was never intended to be a measure of citizens’ welfare — and it functions poorly as such. Yet it is used as a surrogate appraisal of national well-being in far too many circumstances. -LA Times

The Gini Coefficient is where the narrow GDP metric shows why it is grossly inaccurate.  The gulf between rich and poor in some countries translates into the wealth simply not being shared.  Southern Africa and The Americas have some of the most severe wealth inequalities on the planet.  The developed world, in particular European countries, Japan, and Canada have the least amount of wealth consolidation.

There is a certain amount of disagreement regarding precisely how to measure this, but the CIA has Sweden, Hungary, and Norway topping the list with the US falling down at a pitiful 96th out of 135 measured, falling below Cameroon, Iran, Nigeria, Cambodia, and Egypt.  As measured by the United Nations, Denmark, Japan and Sweden top the list with the US at 78th just behind Turkmenistan, Ghana, and Sri Lanka.

So why do we still use GDP as a measure of economic well-being when there is such an obvious disconnect between it and reality?  If the economy expands by 1%, but that and more are gobbled up by the very rich, while incomes fall for the vast majority of the country, GDP expands but it doesn’t show how most people are worse off.

5 Excellent Alternatives to the Archaic GDP Measuring Stick

Genuine Progress Indicator 
Quality of Life Index
The Legatum Prosperity Index
The Happy Planet Index 2.0
Human Development Index

Genuine Progress Indicator

Most economists assess the progress in welfare of the people by comparing the gross domestic product over time, that is, by adding up the annual dollar value of all goods and services produced within a country over successive years. However, GDP was never intended to be used for such purpose. It is prone to productivism or consumerism, over-valuing production and consumption of goods, and not reflecting improvement in human well-being. It also fails to distinguish between money spent for new production and money spent to repair negative outcomes from previous expenditure. For example, one million dollars spent to build new homes may be an indication of progress but one million dollars spent in aid relief to those whose homes have been destroyed is not the same kind of progress. This becomes important especially when considering the true costs of development that destroys wetlands and hence exacerbate flood damages. Simon Kuznets, the inventor of the concept of the GDP, notes in his very first report to the US Congress in 1934: “the welfare of a nation [can] scarcely be inferred from a measure of national income.”  An adequate measure must also take into account ecological yield and the ability of nature to provide services. These things are part of a more inclusive ideal of progress, which transcends the traditional focus on raw industrial production.

Where GDP treats things like crime, depletions of natural resources, and natural disasters as economic gain, the more accurate GPI does not.  The Genuine Progress Indicator includes many other metrics instead.

Quality of Life Index

The Economist Intelligence Unit’s quality-of-life index is based on a unique methodology that links the results of subjective life-satisfaction surveys to the objective determinants of quality of life across countries.

The QLI used 9 factors:
Health
Family life
Community life
Material well being
Political stability and security
Climate and geography
Job security
Political freedom
Gender equality

Ireland, Switzerland, and Norway top the list, with the US coming in 13th.

The Legatum Prosperity Index

The Legatum Prosperity Index is the world’s only global assessment of wealth and wellbeing; unlike other studies that rank countries by actual levels of wealth, life satisfaction or development, the Prosperity Index produces rankings based upon the very foundations of prosperity those factors that will help drive economic growth and produce happy citizens over the long term.

This metric combines a lot of different factors such as Economy, Entrepeneurship & Opportunity, Education, Health, Safety & Security, Governance, Personal Freedom, and Social Capital.  The website is packed full of great information and interactive charts.  The more socially conscious Nordic countries of Norway, Finland, and Denmark top the list, the US comes in 10th.

The Happy Planet Index 2.0

The HPI is an innovative measure that shows the ecological efficiency with which human well-being is delivered around the world. It is the first ever index to combine environmental impact with well-being to measure the environmental efficiency with which country by country, people live long and happy lives. The second compilation of the global HPI, published in July 2009, shows that we are still far from achieving sustainable well-being and puts forward a vision of what we need to do to get there.

The Index doesn’t reveal the ‘happiest’ country in the world. It shows the relative efficiency with which nations convert the planet’s natural resources into long and happy lives for their citizens. The nations that top the Index aren’t the happiest places in the world, but the nations that score well show that achieving, long, happy lives without over-stretching the planet’s resources is possible.

While the US has a huge economic output, the environmental factors provide a heavier counterbalance to the HPI, and the US comes in a dismal 114th.  The more eco-friendly Costa Rica con la pura vida tops the list.

Human Development Index

Somewhat connected to the term “standard of living”, the Human Development Index (HDI) is a comparative measure of life expectancy, literacy, education and standards of living for countries worldwide.

Norway, Australia, and New Zealand top the more accurate inequality-adjusted list,with the US coming in at 12th, just ahead of Belgium and France.