Are we in a recession? The classic definition is “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.” (Google) Certainly the GDP falling by a heart-stopping 9.5 percent in the second quarter of 2020 got everyone’s attention.
But what is GDP? As the website Investopedia explains, “Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.” (https://www.investopedia.com/terms/g/gdp.asp)
Gross Domestic Product is historically how we’ve measured our economy. It’s worked reasonably well as an indicator, but now some are asking if there aren’t better measures. In other words, does GDP give us the whole picture?
The GDP by itself doesn’t measure such factors as environmental damage, social inequality, and wellness. This is causing economists to look for other measures. For example, there is now a Happiness Index, based on survey results and published in a World Happiness Report (https://worldhappiness.report/ed/2020/). We have the largest economy in the world, but in terms of happiness surveys, we’re not in the top ten.
Someone looking for a better way is Kate Raworth. She calls herself a renegade economist, teaches at Oxford University’s Environmental Change Institute, and has written Doughnut Economics to get us to rethink our understanding of what economics is and does.
Why a doughnut? It’s a symbol of balance — people living in the hole are struggling, falling short on the essentials of life. Yet go beyond the outer edge, and factors like the environment go out of balance. The key is to live within the limits of the doughnut itself.
This doesn’t mean less growth, but growth that is sustainable. Remember, money is no guarantee of happiness.
To hear more about doughnut economics and the limitations of GDP as an indicator, listen to, or read the transcript of, Freakonomics podcast #429 “Is Economic Growth the Wrong Goal?” (https://freakonomics.com/podcast/doughnut-economics/ )