What society would consider the 210 million gallon Deepwater Horizon oil spill a net benefit to its overall success and progress? America would. The positive economic activity generated by the cleanup and rebuilding process and the billions of dollars paid by BP under damage settlements should ultimately more than offset the economic cost of the spill. In the eloquent words of Chief U.S. Economist Michael Feroli, the positive economic activity will “likely mean a near- to medium-term boost to activity that might offset the drags.”
Is this good news? Is economic growth the true measure of progress and quality of life in a society? It is, according to the commonly-accepted and most prominent indicator of a country’s success: gross domestic product (GDP). GDP has been called the “godfather” of economic indicators. GDP measures the market value of all goods and services produced by an economy (here is a similar definition; here is a more thorough description of GDP). Essentially, GDP measures the amount of money changing hands, while ignoring the consequences of these transactions and most activity outside of economic transactions. As explained by this report, GDP fails to measure the true health of an economy for four main reasons: (1) GDP does not distinguish between good spending and bad spending (oil spills), (2) GDP does not account for the distribution of economic growth (inequality), (3) GDP does not account for the depletion of natural capital and ecosystem services (environmental degradation), and (4) GDP does not include the value of activities with no market price (volunteer work).
