Is GDP Becoming Obsolete? The “Beyond GDP” Debate

GDP is a closely watched indicator of the current health of the economy and an indispensable tool of economic policy. It is not, however, a persuasive indicator of individual wellbeing or collective economic progress. There have been calls to refocus or replace GDP with a metric that better reflects the welfare dimension. In response, the U.S. agency responsible for the GDP accounts recently launched a “GDP and Beyond” program. This is by no means an easy undertaking, given the subjective and idiosyncratic nature of much of individual wellbeing. Indeed, some sources of wellbeing may prove impossible to measure accurately. This paper joins the Beyond GDP effort by extending the standard utility maximization model of economic theory to include those non-GDP sources of wellbeing for which a monetary value can be established using a willingness-to-pay approach. We have termed our measure expanded GDP (EGDP) in our previous work, and the current paper extends that framework to include a welfare-adjusted stock of wealth, derived using the same general approach used to obtain EGDP. This welfare-expanded stock is useful for issues involving the sustainability of wellbeing over time. Finally, we propose a way of connecting GDP and the large literature on happiness and collective wellbeing by incorporating a survey-based subjective index of perceived wellbeing into the conventional ordinal utility framework. Our conclusion is that both the GDP and wellbeing metrics are important but address different questions: the size of the economy on one hand and true extent of economic progress on the other.