By Donella Meadows

–March 8, 1990–

Are you better off than you were ten years ago?

The government says you are — or at any rate the average American is. The per capita GNP (Gross National Product), our most widely watched and quoted economic index, rose every year during the 1980’s except the recession year of 1982.

But two researchers, Herman Daly, Senior Economist at the World Bank, and John Cobb, professor at the School of Theology at Claremont, question the GNP as a measure of welfare and the conclusion that we’re better off. In their recent book For the Common Good they have come up with a new measure, the per capita Index of Sustainable Economic Welfare (ISEW). By that index the welfare of the average American peaked in 1976 and has been going slowly downhill ever since.

The GNP counts up the money we spend on final goods and services in a given year. It adds together haircuts and insurance premiums, food and electricity, plumbing bills and parking fees. If you total your car and have to buy another, the GNP goes up. If the Pentagon buys $800 screwdrivers, the GNP goes up. If someone is hospitalized with AIDS, the GNP goes up.

GNP counts the bads along with the goods. And there are important things it doesn’t count.

It doesn’t count unpaid work in the home. If you bake your own bread, fix your own car, or grow your own vegetables instead of paying someone else to do it, you bring down the GNP, though you may be better off. The GNP doesn’t subtract environmental damage or destruction of natural resources. Cutting down every tree in the nation and selling them to the Japanese would be a brilliant policy, as far as the GNP is concerned. Finally, the GNP doesn’t reflect in any way the distribution of income.

One wonders why we cheer so unquestioningly when the GNP goes up. It is less a measure of our welfare than it is, as writer Wendell Berry has said, a fever chart of our consumption.

Economists have complained for years about the meaninglessness of the GNP; Daly and Cobb have tried to do something about it. They have corrected it so that it comes closer to representing what most people would call progress. Here are some of the changes they make to convert GNP into an Index of Sustainable Economic Welfare:

• Since an extra $1000 adds more to the welfare of a poor family than it does to a rich family, they increase ISEW when income distribution becomes more equitable and decrease it when it becomes worse.
• They subtract from ISEW resource depletion, air and water pollution, increases in noise, auto accidents, commuting distances, and other disamenities.
• They add services performed in the household.
• They exclude most federal government expenditures, which they consider costs rather than benefits (they do include health, education, and highway expenditures).
• They subtract money spent on national advertising.
• They subtract purchases of U.S. capital by foreigners and add purchases of foreign capital by Americans.

According to the GNP Americans are now twice as well off as they were in 1950. According to the ISEW we are 50 percent better off than we were in 1950, but 10 percent worse off than we were in 1976. Some of the factors contributing to the welfare deterioration of the 1980s were less equitable income distribution, increasing foreign ownership of capital, and environmental damage.

Daly and Cobb are under no illusion that their ISEW is the last word, or even a very precise word, on the measurement of national welfare. Many of the numbers are hard to estimate. Exactly what to add and subtract is a matter of dispute. John Cobb has invited economists to criticize the ISEW and suggest something better. He says his purpose is to start a discussion, not to end it; to break the power of the GNP index we use now and to launch a determined search for a better one.

Herman Daly is not convinced that any summary of society in a single number, is a good idea. He would rather people believe their own experience. Though he thinks ISEW comes closer to a useful measure than GNP, he says, “Your own five senses tell you more than this number does.”

But this is a society that conditions people to believe numbers more than their own senses. Its politicians tell the populace with numbing frequency during a decade of mounting debt and declining quality of life that things are getting better. Given that we’re hooked on numbers, it’s good to see an effort to make those numbers more reflective of our real welfare.

Copyright Sustainability Institute 1990