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How We Measure Progress
The GPI starts with the same personal consumption data that
the GDP is based on, but then makes some crucial distinctions.
It adjusts for factors such as income distribution, adds factors
such as the value of household and volunteer work, and subtracts
factors such as the costs of crime and pollution.
Because the GDP and the GPI are both measured in monetary
terms, they can be compared on the same scale. Measurements
that make up the GPI include:
Income Distribution
Both economic theory and common sense tell us that the poor
benefit more from a given increase in their income than do
the rich. Accordingly, the GPI rises when the poor receive
a larger percentage of national income, and falls when their
share decreases.
Housework, Volunteering, and Higher
Education
Much of the most important work in society is done in household
and community settings: childcare, home repairs, volunteer
work, and so on. The GDP ignores these contributions because
no money changes hands. The GPI includes the value of this
work figured at the approximate cost of hiring someone to
do it. The GPI also takes into account the non-market benefits
associated with a more educated population.
Crime
Crime imposes large economic costs on individuals and society
in the form of legal fees, medical expenses, damage to property,
and the like. The GDP treats such expenses as additions to
well-being. By contrast, the GPI subtracts the costs arising
from crime.
Resource Depletion
If today’s economic activity depletes the physical
resource base available for tomorrow, then it is not creating
well-being; rather, it is borrowing it from future generations.
The GDP counts such borrowing as current income. The GPI,
by contrast, counts the depletion or degradation of wetlands,
forests, farmland, and nonrenewable minerals (including oil)
as a current cost.
Pollution
The GDP often counts pollution as a double gain: Once when
it is created, and then again when it is cleaned up. By contrast,
the GPI subtracts the costs of air and water pollution as
measured by actual damage to human health and the environment.
Long-Term Environmental Damage
Climate change, ozone depletion, and nuclear waste management
are long-term costs arising from the use of fossil fuels,
chlorofluorocarbons, and atomic energy, respectively. These
costs are unaccounted for in ordinary economic indicators.
The GPI treats as costs the consumption of certain forms of
energy and of ozone-depleting chemicals. It also assigns a
cost to carbon emissions to account for the catastrophic economic,
environmental, and social effects of global warming.
Changes in Leisure Time
As a nation becomes wealthier, people should have more latitude
to choose between work and free time for family or other activities.
In recent years, however, the opposite has occurred. The GDP
ignores this loss of free time, but the GPI treats leisure
as most Americans do—as something of value. When leisure
time increases, the GPI goes up; when Americans have less
of it, the GPI goes down.
Defensive Expenditures
The GDP counts as additions to well-being the money people
spend to prevent erosion in their quality of life or to compensate
for misfortunes of various kinds. Examples are the medical
and repair bills from automobile accidents, commuting costs,
and household expenditures on pollution control devices such
as water filters. The GPI counts such "defensive"
expenditures as most Americans do: as costs rather than as
benefits.
Lifespan of Consumer Durables &
Public Infrastructure
The GDP confuses the value provided by major consumer purchases
(e.g., home appliances) with the amount Americans spend to
buy them. This hides the loss in well-being that results when
products wear out quickly. The GPI treats the money spent
on capital items as a cost, and the value of the service they
provide year after year as a benefit. This applies both to
private capital items and to public infrastructure, such as
highways.
Dependence on Foreign Assets
If a nation allows its capital stock to decline, or if it
finances consumption out of borrowed capital, it is living
beyond its means. The GPI counts net additions to the capital
stock as contributions to well-being, and treats money borrowed
from abroad as reductions. If the borrowed money is used for
investment, the negative effects are canceled out. But if
the borrowed money is used to finance consumption, the GPI
declines.
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