17th November 2012 9:00
GDP is the only measure by which people look at the economy. It measures how efficiently labour, capital and land are being utilised in an economy, although it doesn't take into account a variety of factors, including social and environmental, such as sustainable development and social well-being. GDP measures all transactions on goods and services, whether it be a positive or negative externality.
It's a short-term balance which doesn't take heed of the long term implications of accumulating national debt. Robert F. Kennedy once proclaimed, "It measures everything, in short, except that which makes lives worthwhile." It is difficult to put an objective number on indices such as happiness and ecological loss. With increasing GDP, there are several adverse consequences such as rising inflation, worsening trade balance, increase in bond yields leading to higher interest rates, working longer hours, the dehumanisation of the population, environmental damage from using up more land and excess spending on material goods and services influenced by mass advertising.
Internalising the environmental externality is what mainstream economics has tried to do, however they cannot put an objective value on non-tangible assets.