And while GDP fails to provide us with an accurate picture of economic activity, it fails even more in illustrating our true welfare. This is one of the main arguments in Pilling's new book, the Growth Delusion.
When BP spilled oil in the Gulf of Mexico in a major environmental catastrophe in 2010, the GDP in the US went up as a result of expenditure on salvaging work. Likewise, cutting down the Amazon forest actually raises GDP in the region.
In these instances, the economy appears stronger (according to GDP measures) despite clear damage being done to the planet. In fact, almost nothing would increase a country's GDP more than a war – with all the government expenditure and frantic production this brings.
Another major limitation is that inequality is not portrayed in GDP. In a world where 1% of the population owns more than 50% of the wealth, perhaps we should be asking who benefits from economic activity – not simply how much economic activity there is.
GDP even fails to capture our true welfare from consumption, an area which is supposed to be one of its strong points. For example, it is likely that people now listen to more music than ever before – without physical purchases. Long-distance phone calls were once expensive, but can now be made for free, so do not form part of the GDP calculation.
But GDP isn’t all bad. It may not be completely accurate, but data and measurements have improved over the years and will continue to do so. And it was never designed to capture our society’s welfare and longer term environmental sustainability, so we can’t blame it for that.
Our problem remains though. GDP’s grand figure attracts attention, gravitates towards the centre of economic debates and ultimately masks the most fundamental issues in our economies and societies. Speaking out about the limitations of GDP is a good step but it’s not enough. The power of GDP’s simplicity will eventually win again.
As Pilling suggests, what we really need is another index. To that end, a number of ideas have been proposed by academics, while the United Nations and the Bhutanese government argue for measure of happiness. It’s now time we furthered this discussion in earnest.
But whatever index (or combination) we choose, in order to catch on and be of use, it must be accessible to the wider public and very easy to use. Then, as citizens, we could ask that our politicians aim to maximise something other than GDP.
Universally agreeing on a new index will not be easy. It will be hindered by national priorities, differing cultures and political party agendas. Yet we succeeded before with GDP, and we can certainly do so again. Or, we can just sit back and let the current obsession with GDP consume our economies – and our planet.
This article was originally published in The Conversation on 13 February 2018.