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Entries tagged "gpi"

Spending is Not Growth: The Case Against GDP

August 6, 2013 ·

Maryland Governor Martin O'Malley meets with GPI representatives, by Tom Nappi at Annapolis, Maryland / FlickrGross Domestic Product (GDP) is a measure of final market value of goods/services produced by a country in a specific time period—nothing more, nothing less. It is easy, however, to fall under the misconception that GDP is a reliable indicator of economic growth or of a country’s well-being.

One of the core problems with GDP is that it only adds. That is, GDP calculates any kind of spending as improving the health of an economy—a limitation that is clearly problematic.

As an example, how does GDP account for an economic disaster? The oil spill British Petroleum (BP) caused in the Gulf of Mexico in 2010 is a perfect example of the limitations of GDP. The transactions made to replace assets damaged or destroyed by such a disaster are not differentiated in final GDP scores, to the tune of about $20 billion in the 2010 oil spill.

Not to mention, an oil spill negatively affects the local economy in so many ways that GDP does not account for: for instance, fishermen losing their jobs and livelihood, restaurants temporarily closing or going out of business entirely, and tourism in the area rapidly declining. Moreover, the local ecosystem is completely thrown off balance and damaged, sometimes irreparably, for many years to come.

Hurricane Katrina provides another significant example of GDP’s limitations: With about $250 billion in cleanup costs, the hurricane’s effect on GDP certainly did not reflect the well-being of New Orleans citizens or economy in the years following the disaster. Thousands of former residents were permanently displaced, and the city is still struggling to approach pre-Katrina population figures. As of 2012, the city has reached only 80 percent of its former population.

Although Louisiana’s GDP initially dropped off after the disaster, as the cleanup effort began it quickly began to climb, approaching pre-disaster numbers within only five years. Yet while the state’s GDP was rapidly recovering, the city itself was not: Alyson Plyer, the chief demographer at the Greater New Orleans Community Data Center, estimated in 2010 that the city was only “five years into a 10- to 20-year recovery project.” Going by GDP alone, however, the disaster seemed to be a hiccup rather than a monumentally disruptive catastrophe.

Economic disasters like the BP oil spill and Hurricane Katrina demonstrate the inherent limitations of GDP as a measurement of economic growth, health, or the well-being of citizens in an economy. GDP scores are simply not built to accommodate these negative externalities that affect people, wildlife, ecosystems, and communities.

However, alternative methods have been developed to more accurately account for these externalities. The Genuine Progress Indicator (GPI), developed by ecological economists in the 1980s and 90s, is much better equipped to measure activities that diminish financial and social well-being and negatively impact the environment. GPI, for instance, quantifies externalities such as ozone depletion or loss of wetlands as harmful costs—whereas GDP is not able to differentiate these harmful costs from positive economic activity so long as dollars are being spent.

Some states have already started to move away from GDP because of its inherent limitations: Despite early opposition, Maryland—in conjunction with the University of Maryland’s Center for Integrative Environmental Research—developed and implemented a GPI tool for policy-makers in early 2010. The tool, which measures how indicators of well-being interact with and affect each other, uses 26 different indicators from economic, environmental, and social categories to calculate GPI.

Maryland’s successful adoption of GPI will hopefully encourage other states to follow suit and develop similar measurements for a more sustainable economic future—one that values its citizens and the environment more highly than the dollar.

 

Michael Faul is an intern for the New Economy Working Group project.

Beyond the Jobs Report: A Call for a Transformational Economy

November 2, 2012 ·

Don't count on the latest round of good economic news to have much of an impact on the elections. There are very few undecided voters left and these minor changes aren't likely to change anyone's mind.

But it's still worth noting that the Bureau of Labor Statistics found  that the country gained 171,000 jobs and that unemployment inched up to 7.9 percent from 7.8 percent. Both numbers are good. Unemployment only edged up because  so many jobless Americans became confident enough to look for work again.

President Barack Obama can rightly brag about improved economic numbers in recent months. There are more jobs. Gas prices are down. The economy is modestly expanding. Consumer confidence has bounced to a four-year high and the Dow Jones Industrial Average recently hit an all-time high. Clearly, the economy is faring well under his leadership.

But, let's be honest. As tough a row as Obama has had to hoe — inheriting a deep recession and a giant budget deficit — our nation knows how to create jobs at a much greater pace and grow our economy more equitably. It's up to us, we the people, to create a better society by electing better policymakers and lawmakers.

In the 1950s, with a top marginal tax rate of about 90 percent, we had the necessary revenue to help veterans get college diplomas, to create good jobs, and to grow a middle class.

Yes, racism was an even-bigger problem then than it is now. However, the progressive taxation we had at that time generated enough revenue that most of the country's residents regardless of race, gender, or economic status could have been brought into the middle class had it not been for rampant discrimination.

The same potential exists today, even more so because we're an even wealthier country now. We can greatly expand the number of good-paying, full-time jobs with a fair and economically sound approach to our federal budget priorities and long-term debt reduction. It's time our leaders stopped cow-towing to corporate interests by masquerading as adherents to the ideology of government minimalism.

If we cut wasteful Pentagon spending, restore top marginal tax rates to Reagan levels, close corporate tax loopholes, end tax breaks that benefit only the wealthy, cancel subsidies to polluting oil and gas companies, and impose a tiny tax on speculative Wall Street transactions, we will have the revenue we need to rebuild our infrastructure, create sustainable energy sources, improve public schools, expand access to health care, and build a sustainable economy that provides all Americans with a decent standard of living.

Then, not only will we see an expansion in our economy, but the right kind of expansion — one measured by something like a Genuine Progress Indicator (GPI), rather than the Gross Domestic Product (GDP). We need to measure not just general economic expansion but our overall wellbeing.

Either Obama or Romney can do this. Either a Democratic or Republican House and Senate can do this. It's not about politics. Or ideology. This isn't rhetoric and this isn't short-term analysis of monthly jobs numbers. This is common sense. And it's the transformational approach we need.

Karen Dolan is a fellow at the Institute for Policy Studies (www.ips-dc.org), where she's studying alternative metrics to the GDP, such as Maryland's Genuine Progress Indicator.

Shell-shocked Again, this Time because of Aurora

July 27, 2012 ·

The night of Friday, July 20 was destined to make headlines — but never for this.

After three years of spiraling anticipation, the premier of The Dark Knight Rises was supposed to be the pinnacle of the American movie-going experience. But, in the aftermath of the midnight mass shooting in Aurora, Colorado, the nation wasn't enthralled by the big screen. Instead, we were collectively shell-shocked by this latest murderous rampage, which killed 12 dead and wounded 58 others.

As we mourn these senseless deaths, the media is sensationalizing the life and disappointments of James Holmes, the 24-year-old sole suspect behind the tragedy. Was he an obsessive fan with a blurred vision of reality? A lonely boy looking to be heard? Or an ambitious student weighed down by pressures to succeed? An entire narrative is spinning around him. It's a mythology that looks to craft as much fascination with the shooter as there was for the Batman movie itself.

M Glasgow/FlickrBut the particulars of Holmes' biography, riveting as they may be, should not become our take-away from what happened in Colorado. The heart of this story is not the state of James Holmes but the state of our country.

We've become a nation of jumbled values. While parents, politicians and everyone in between declare community safety a sacred right, movies glorify violence. And as we all mourn Colorado's needless deaths, gun-rights groups rail against the thought of stricter gun control.

But beneath the NRA's narrative of freedom and self-defense, "good, traditional American values," lies a simple truth: The gun industry is exactly that — an industry. And theirs is a profit motive so brutal that, according to one study, the gun industry is "working to recruit future customers among America's children…through advertising campaigns and even video games."

They're also working to keep guns ready at hand, pouring over $5,500,000 last year to lobby politicians.

How easy was it for Holmes to buy his weapons? Very. Colorado has some of the flimsiest gun laws in the United States: The assault rifle, shotgun, and handgun Holmes bought in the span of only a few months were all perfectly legal and raised zero flags. And where local distributors failed, there was always the unregulated online market, which outfitted Holmes with thousands of bullets and ballistic gear.

Each gun or bullet sold is profit in someone's eyes, so it's no wonder that every time we talk about gun control, a deafening uproar emerges. And there's little incentive for politicians to take a stand, either. Industry is industry, after all, and any production will raise GDP. Perversely, the more guns we churn out, the better off we call ourselves. Politicians get swelling statistics to market off to voters, the gun industry gets tenuous regulation, and we get ever more gun fatalities.

There's a defect in our priorities. We look at price tags and call it "value." But what of those dozens of victims in Colorado? Or the other estimated 100,000 people killed or injured by guns each year?

If we really must attach a dollar sign to understand, the University of Chicago Crime Lab pegs the annual cost of gun violence at $100 billion. But for all the media attention the Aurora shooting has gotten, most gun crimes flit silently under our radar — out of sight, out of mind. The societal damages they inflict are buried under headlines and forgotten.

For these unheard victims, it's time we get our values straight. We can't simply take gun sales at face-value. We must consider the staggering costs they carry along. The Genuine Progress Indicator (GPI) is one possible step in that direction. The GPI, an alternate measurement to GDP, broadens our concept of wellbeing by integrating social, economic, and environmental indicators in its calculations of progress. One of these indicators, sure enough, is crime.

The Maryland GPI, for example, factors in not only direct out-of-pocket expenses, but also the more profound damages of crime, like trauma and fear, when determining its state-wide wellbeing. That way, when Maryland's legislators evaluate gun policy and regulation, they will realize the deeper, more substantial impacts that will work their way throughout the state.

The Colorado shootings have made one thing certain: We need to reorient our values. We need progress to be defined not by gun sales, but by the safety of our communities. And so we need a yardstick that will show both politicians and the public the true costs of our gun-wielding culture and the dangerous, short-sighted policies they have spawned. Only then will we have taken to heart the true message of Friday's tragedy. Only then will it not have been in vain.

Vicky Plestis is an intern at the Institute for Policy Studies, where she helps research alternative models of measuring economic progress. www.ips-dc.org

A New Set of Tools for Measuring Economic Progress

October 24, 2011 ·

Maryland's government is embracing an alternative way to monitor the state's wellbeing called the Genuine Progress Indicator, which brings depth to the analysis of the state's economic growth. At the Institute for Policy Studies, we are looking for lessons in Maryland, as well as in similar exercises being undertaken elsewhere. This is the second in a series of posts about this work. This was the first one. A longer version is running as an op-ed via the Institute's OtherWords editorial service.

More than 70 years after its emergence, the desirability of GDP growth is so entrenched in our national and international discourse that it's hard to imagine it any other way. The revered indicator's expansion or contraction can swing national elections. Conversely, talk of GDP declines can drive a country to war.

During tough economic times such as these, it's particularly surprising to have a leader bucking the tide. Yet Martin O'Malley is doing just that. Maryland's governor is the first in the United States to embrace a set of alternative indicators that bring depth to the analysis of his state's economic growth. Under O'Malley's leadership, the state's officials are now gathering and annually updating economic, social, and environmental data that help measure the overall wellbeing of Maryland's citizens.

The 26 underlying indicators, which collectively comprise the "Genuine Progress Indicator," are a more meaningful gauge of the overall economic health and wellbeing of Maryland residents than standard economic measuring sticks. For example, the state tracks things like volunteerism, time spent with family and loved ones, and air quality in its quest to gauge its real progress. These indicators may lack concrete economic value, but studies show they help make a society more healthy and vibrant.

GPI assesses what's left behind when the "gross product" expands. Is the landscape more or less toxic than before? Is the air and water cleaner or dirtier? How well-educated is the populace? Is public transportation decent? Is crime more common? Are too many people spending more time commuting to jobs than at home with their kids?

Maryland leads the nation in measuring overall societal wellbeing through the GPI, but there are similar efforts underway elsewhere in the United States, as well as in Canada, France, and even Bhutan. Yes, Bhutan, a tiny country nestled in the Himalayan mountains. There, "gross domestic happiness" carries more weight than the gross domestic product.

It's time to recall Simon Kuznets' warnings about the limitations of the GDP and to pick up where he left off by embracing a new set of tools that will help shape good social, environmental, and economic policy — not just for Maryland, but for our entire country and the world.

Daphne Wysham is a fellow at the Institute for Policy Studies, where she's conducting research around ways in which alternative metrics to the GDP, such as Maryland's "Genuine Progress Indicator," can be used to build a more sustainable society. www.ips-dc.org

The Dawning of GDP's Hegemony

October 12, 2011 ·

Maryland's government is embracing an alternative way to monitor the state's wellbeing called the Genuine Progress Indicator, which brings depth to the analysis of the state's economic growth. At the Institute for Policy Studies, we are looking for lessons in Maryland, as well as in similar exercises being undertaken elsewhere. This is the first in a series of posts about this work.

Simon Kuznets warned that GDP was not a valid instrument of social policy, but his creation became a barometer for the entire global economy. Archive photo.It was the height of the Great Depression and policymakers could see the symptoms of economic malaise everywhere. Unemployment soared to 25 percent. Food lines at soup kitchens wrapped around city blocks. Farmers watched helplessly as crop prices plummeted, then lost their farms. The evidence was clear, yet in the 1930s, Congress lacked any tools with which to accurately measure just how the economy as a whole was faring. With no commonly accepted national income data, they had no guideposts upon which to base sound economic policy.

And so Congress turned to a young and promising Russian-American economist. U.S. lawmakers asked Professor Simon Kuznets of the National Bureau of Economic Research, who would go on to win the Nobel Prize in economics, to develop a data set to assess the state of the national economy. In 1937, Kuznets presented a vast volume of data on income to Congress. It became the Gross National Product (GNP).

With remarkable foresight and humility, Kuznets warned that his newly minted GNP shouldn't be used as an instrument of social policy. It could never adequately measure the things we value, he said, such as housework or caring for elderly parents. Nor, he warned, could the GNP distinguish between the growth of good and bad jobs. The data would be the same if workers earned their pay from employers who endangered their lives or guarded their health and safety. "Goals for more growth should be more growth of what and for what," Kuznets said.

Alas, Kuznets' warnings on the GNP — later renamed the Gross Domestic Product (GDP) — went unheeded. Instead, the GDP became the barometer of health not only for the U.S. economy, but for the entire global economy.

To be continued…

Daphne Wysham is a fellow at the Institute for Policy Studies (IPS) and the founder and co-director of the Sustainable Energy and Economy Network (SEEN). She is conducting research around ways in which alternative metrics to the GDP, such as Maryland's "Genuine Progress Indicator," can be used to build a more sustainable society.