Measuring the Green Economy
How economists measure climate progress, why GDP is misleading, and the search for better metrics of sustainable prosperity.
The GDP Problem
Gross Domestic Product, the dominant measure of economic health, is deeply misleading on climate and sustainability. GDP counts all economic activity positively, regardless of its nature. A hurricane that destroys homes boosts GDP through reconstruction spending. Deforestation increases GDP through logging revenue. Pollution that causes health crises generates GDP through medical treatment. GDP tells us how much money is changing hands but nothing about whether people or the planet are better off.
Simon Kuznets, who developed national income accounting in the 1930s, explicitly warned against using it as a measure of welfare. Yet GDP became the dominant metric for economic performance and the basis on which governments are judged. This matters for climate policy because actions that reduce GDP (shutting coal plants, limiting extraction) may increase genuine well-being, while actions that boost GDP (expanding fossil fuel production) may decrease it.