In the 1930s he [Simon Kuznets] was asked by Congress to come up with a measure of national income. He did a fantastic job and came up with this measure, which we now know as GDP. But at the time when he created it, he gave us a caveat. He said, “This measure should in no way be mistaken for the measure of a nation’s welfare.” Did we listen? No. Kuznets said “It doesn’t include all the incredible valuable unpaid caring work of parents, all that cooking, washing, sweeping, cleaning, raising the kids that’s done every day. It doesn’t include the value of communities and the things that communities produce and do for each other that doesn’t show up in the national economy. It’s just a flow measure. We’ve got to also look at the stocks, what’s happening to the underlying financial capital, but also natural and social and human capital.”
He saw this was a very thin measure and gave us a caveat. It got ignored because there’s nothing like the temptation of a single number for policymakers to latch onto. When you can measure one country’s growth over years, but also compare it to other countries, then you’re in some sort of competition that we’ve not been able to let go of for over 80 years. It’s just too narrow a measure. And I think we’ve become addicted over those 80 years to this Peter Pan idea that an economy is doing better if it’s always growing.
Authors: Kate Raworth, Simon Kuznets
Source: Knowledge@Wharton
Subject: Economics
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