August 10, 2009
By ERIC ZENCEY
IF there’s a silver lining to our current economic downturn, it’s this: With it comes what the economist Joseph
Schumpeter called “creative destruction,” the failure of outmoded economic structures and their replacement
by new, more suitable structures. Downturns have often given a last, fatality-inducing nudge to dying
industries and technologies. Very few buggy manufacturers made it through the Great Depression.
Creative destruction can apply to economic concepts as well. And this downturn offers an excellent
opportunity to get rid of one that has long outlived its usefulness: gross domestic product. G.D.P. is one
measure of national income, of how much wealth Americans make, and it’s a deeply foolish indicator of how
the economy is doing. It ought to join buggy whips and VCRs on the dust-heap of history.
The first official attempt to determine our national income was made in 1934; the goal was to measure all
economic production involving Americans whether they were at home or abroad. In 1991, the Bureau of
Economic Analysis switched from gross national product to gross domestic product to reflect a changed
economic reality — as trade increased, and as foreign companies built factories here, it became apparent that
we ought to measure what gets made in the United States, no matter who makes it or where it goes after it’s
Since then it has become probably our most commonly cited economic indicator, the basic number that we
take as a measure of how well we’re doing economically from year to year and quarter to quarter. But it is a
miserable failure at representing our economic reality.
To begin with, gross domestic product excludes a great deal of production that has economic value. Neither
volunteer work nor unpaid domestic services (housework, child rearing, do-it-yourself home improvement)
make it into the accounts, and our standard of living, our general level of economic well-being, benefits
mightily from both. Nor does it include the huge economic benefit that we get directly, outside of any market,
from nature. A mundane example: If you let the sun dry your clothes, the service is free and doesn’t show up
in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon
footprint, make the economy more unsustainable — and give G.D.P. a bit of a bump.
In general, the replacement of natural-capital services (like sun-drying clothes, or the propagation of fish, or
flood control and water purification) with built-capital services (like those from a clothes dryer, or an