Australian Economy

GDP measures economic growth and recessions but what if we’re counting the wrong things?

GDP figures are out today, our quarterly look at what’s happening in the economy. 

Gross domestic product is a key focus for markets and governments, as the benchmark assessment of the nation’s economic performance.

But what if we’re counting the wrong things?

“It gives us a big-picture idea of growth,” says researcher Cressida Gaukroger, “but it misses out on a range of things that are really valuable to people in their everyday lives.”

Cressida Gaukroger
Cressida Gaukroger is senior policy advisor at the Centre for Policy Development.(Supplied)

The problem with GDP is that it’s just focused on economic activity — the movement of money for tradable goods and services. (Here’s how we reported last quarter’s figures). 

For example, it doesn’t count a person’s preventable early death as a negative, but tables the cost of a casket and funeral expenses as a positive impact.

“GDP has been increasing over a long period in Australia. But other measures of quality of life and happiness have not been increasing at the same rate as GDP.”

GDP judges pain poorly

Aerial picture of a building complex inundated by muddy brown water, with inundated sheds and paddocks in the background.
Floods in Lismore caused deaths, emotional distress and the destruction of property and livelihoods. GDP change will not show those “human” factors.(Supplied: Rod Evans)

A simple example is fossil fuels, Dr Gaukroger says.

We can have excellent “growth figures” through rising GDP but they won’t account for the future costs of dealing with climate change exacerbated by the burning of carbon-intensive fuels.

GDP acts similarly in the aftermath of natural disasters.

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