Putting a dollar figure on progress

Maryland, others craft indicators to measure what gross domestic product does not

September 11, 2010|By Jamie Smith Hopkins, The Baltimore Sun

Measuring economic growth is fairly straightforward work and shows that America's lot has steadily improved over the past seven decades. But with crime, climate change and longer commutes, are we really better off?

Maryland's state government is attempting to answer that question by quantifying in dollars the big influences on our well-being that seemingly defy calculation, such air quality and traffic congestion. Its new Genuine Progress Indicator is part of a growing movement to stop using gross domestic product, the closely tracked yardstick of goods and services produced, as a simplified stand-in for measuring quality of life.

The country of Bhutan, tucked between India and China, measures "gross national happiness." Our neighbors to the north are rolling out the Canadian Index of Wellbeing. And a public-private effort called the State of the USA is compiling several hundred indicators — on subjects such as health and education — in the hopes that it will revolutionize the way Americans identify and fix problems.

"You can only manage what you can measure," said Chris Hoenig, the State of the USA's chief executive.

The indexes that boil down a variety of data into one bottom-line number on progress offer a similar — and sobering — message. Once you subtract out the costs of social and environmental ills, it turns out that life hasn't improved nearly as much over the last generation as economic growth would suggest, the measures claim. Some show quality of life declining even as the economy boomed.

"In the mid-'80s you start seeing this separation between economic activity and social well-being," said Sean McGuire, director of sustainability policies at the Maryland Department of Natural Resources, who pitched the idea of an indicator for the state.

In Maryland, the gulf is fairly wide. The total value of the economy, according to the gross state product: about $220 billion. The value estimated by the progress indicator: just under $150 billion.

GDP wasn't intended by its creators to answer the elusive quality-of-life question. Understanding what was happening to the economy seemed pressing enough at the time, with the country in the grips of the Depression. The estimate of national income that economists produced in the 1930s later grew into the GDP as it is today.

The Commerce Department considers it one of the great inventions of the 20th century, and economist Simon Kuznets won a Nobel Prize for his work on it. But even as he was developing it, he warned that the number had limits. "The welfare of a nation can scarcely be inferred from a measurement of national income," he said in 1934.

Nonetheless, GDP has become a powerful symbol. Its growth, or shrinkage, moves markets and presses politicians into action.

McGuire believes a progress measurement has great potential as well — to make policymakers rethink how communities are growing and whether they're getting good value for taxpayer money spent.

"When we invest, what are we really investing in — for the short term or for the long term?" he said.

The state's indicator, launched this year at green.maryland.gov/mdgpi, is modeled after a national yardstick developed by researchers dissatisfied with the GDP. The Maryland version draws on dozens of numbers to put a dollar figure not only to activities with a clear market value — such as personal consumption — but also on the cost of underemployment, the value of volunteering and the like.

GDP treats all spending in the country as a net plus, other than the dollars going to imports, even if the results feel like a loss. So a community where adults drive long hours to work in cars that must frequently be replaced, where every child is in day care and no one has time for vacation would produce much larger GDP — but probably a less happy population — than one with shorter commutes, fewer hours on the job and more time with family.

GDP "doesn't count a lot of things that are really important to us," said Matthias Ruth, director of the University of Maryland's Center for Integrative Environmental Research, which the state enlisted to help put the indicator together.

Even the Bureau of Economic Analysis, which produces the GDP, is exploring ways to get at economic well-being with its other data. But it's not trying to change the headliner figure.

"There could be differences of opinion about whether particular kinds of spending do or do not contribute to well-being," noted Brent R. Moulton, who oversees the agency division that calculates GDP. "There's a reason for wanting to have a measure that is just a pure measure of production. Which isn't to say that other measures don't have their role."

Progress measurements also have critics, some of whom think the exercise is too subjective. What constitutes progress? How can you really measure it?

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