Measuring the market: spoiling the planet

Best-selling author and rock-star thinker Yuval Noah Harari says gross domestic product (GDP) is the most powerful story in the world, and as such a key driver of societies.

• Main feature: Making it count

New Zealand journalist Max Rashbrooke points out it is regularly described as if it is a living thing: "It is said to be struggling or doing well, in good shape or in pain ... ''

It's the measure - the value of economic transactions in a given country - that often dominates all else at elections, playing a decisive role in whether governments rise or fall.

But for all its exalted status, Rashbrooke calls it contrived and Auckland academic Prof Marilyn Waring says we need to move on to a post-GDP world.

Among the problems with it, Prof Waring says, is that it is not clear what it is telling us.

For example, the fluid financial behaviours of internet giants, the likes of Facebook and Google, make their burgeoning contribution to economic activity hard to capture, similarly the quicksilver instruments of global finance, and even the contribution of some New Zealand businesses when their manufacturing is done offshore using inputs from myriad locations.

In fact, the economist who devised the calculations behind GDP in the 1930s (originally as gross national product), Simon Kuznets, later became one of its biggest critics, having warned from the start that "the welfare of a nation can scarcely be inferred from a measure of national income''.

Bobby Kennedy, younger brother of JFK, said that GDP counts "air pollution and cigarette advertising, and ambulances to clear our highways of carnage ... [but] does not allow for the health of our children, the quality of their education or the joy of their play''.

Diane Coyle, an economist and a former United Kingdom Treasury adviser wrote in 2009: "GDP's shortcomings have become especially obvious recently in its failure to account for inequality. The aggregation of individual incomes or expenditures into GDP ignores distributional questions''.

Which is to say, GDP might give you a figure for how much a nation has, but it won't tell you whether the top 1% has most of it.

And perhaps most pressingly, GDP ignores the damage done in the pursuit of growth.

"We have had to live with GDP as an indicator for 65 years and it may well have measured the market, but it has helped to spoil the planet,'' Prof Waring says.