Skip to main content

Healthy GDP doesn’t mean a healthy economy

In the second quarter of this year, Canada posted its strongest gross domestic product growth in three years. U.S. GDP expanded a blistering 4.6 per cent (annualized) in the same quarter, and followed that up with a stronger-than-expected 3.5 per cent in the third quarter.

Based on this universally recognized economic yardstick, North America is prospering, maybe better than it has in a long while.

But North Americans aren't prospering better than they have in a long while. Disturbingly large numbers of them have been left out of this supposed economic renaissance.

Story continues below advertisement

In real (i.e. inflation-adjusted) terms, Canada's GDP over the past 15 years has risen, on average, 2.5 per cent a year; yet, the median weekly wage of Canadians has risen an average of just 0.6 per cent a year. There is a well-documented widening of the gap between rich and poor: The top 1 per cent of Canadian earners take home 11 per cent of the nation's total income, while in the U.S. it's 20 per cent. Labour force participation rates hit 37-year lows in the United States and 13-year lows in Canada. Nearly 900,000 Canadians and seven million Americans are stuck in part-time jobs despite wanting to be working full-time.

Looking at this, it's hard not to wonder if GDP doesn't really measure what we have come to think of it as measuring. We have essentially assumed that a growing economy is a healthy economy. But gauging the size of an economy, and its pace of growth of output, may not be synonymous with measuring its health – although we often act as if it is. And, potentially more dangerously, so do large numbers of the world's policy makers.

This is what Joseph Stiglitz has been saying. The Columbia University professor and Nobel laureate in economics, who has become a vocal critic of rising inequality in the U.S. economic system, argues that GDP is a poor measure of how well an economy is truly performing. We've been assuming that a growing economy produces virtuous consequences for its participants, but it's apparent that it's far from automatic.

The implication is that by focusing on GDP as a key end in itself of economic policy, governments have been (inadvertently or otherwise) sacrificing a certain amount of societal economic health in the quest for raw growth. It's something he has been saying since the depths of the recession, and has been repeating as U.S. GDP accelerates while the employment and social outcomes have conspicuously lagged.

"Regardless of how fast GDP grows, an economic system that fails to deliver gains for most of its citizens, and in which a rising share of the population faces increasing insecurity, is, in a fundamental sense, a failed economic system," Mr. Stiglitz wrote in a recent column on the website Project Syndicate.

This is hardly a new notion. Way back in 1934, Simon Kuznets, who designed the U.S. national accounts system (the system by which GDP is measured), cautioned that GDP should not be equated with socioeconomic well-being. Yet, it very often has been over the intervening eight decades.

"At the time it was conceived, GDP was a useful signpost on the path to a better world: A path where increased economic activity provided jobs, income, and basic amenities to reduce worldwide social conflict and prevent a third world war," said a 2009 paper by researchers at Boston University, led by ecological economist Robert Costanza. "That economic activity has created a world very different from the one faced by the world leaders who convened at Bretton Woods in 1944. We are now living in a world overflowing with people and man-made capital, where the emphasis on growing GDP and economic activity is leading the world back toward the brink of collapse."

Story continues below advertisement

Still, it would be a mistake to suggest we should dump GDP as a key gauge of national and global economies in favour of alternative measures of broader societal well-being (such as the United Nation's Human Development Index, highlighted by Mr. Stiglitz in his column). Rather, we need to supplement GDP with further measures, and de-emphasize GDP growth as our end goal, if we want the broader economy to see more fulsome benefits from that hard-earned growth.

I like the analogy I recently heard from an associate of mine, that GDP growth is akin to the economy's heartbeat: An absolutely essential, yet not by itself sufficient, condition for good health. If economists are the doctors here, diagnosing the condition of the economy, they'll always want to start with checking the heartbeat first; without it, the patient is in big trouble, and the critical priority is to re-establish a pulse.

But in North America, where we have something approaching a sinus rhythm again, we need to turn more focus on other health problems that have festered while the patient was being revived. Restoring GDP health is the means to the better well-being that is our ultimate economic goal; it's not an end in itself.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter