We need a measure that captures human welfare, which means quantifying natural capital, financial capital, creative capital, human capital, and social and organizational capital. While the US Department of Commerce’s Bureau of Economic Analysis added some elements of intellectual capital to GDP this year —including a fuller accounting for arts, entertainment, and some research and development activities—these additions are just a start.
Advancements in data collection, statistics, and computing have made it possible to upgrade this decades-old indicator. Governments are now drawing on the work of leading economists to implement measures that can lay serious claim to a nation's welfare. Germany, France, and the United Kingdom, for example, have already started drafting holistic national indicators.
In this country, the state of Maryland has led the way by launching the Genuine Progress Indicator, a more comprehensive, longer-term measure of state-level welfare. Maryland added 26 new policy concerns to the calculation of raw output–from the cost of commuting (which can have significant health effects) to the value of higher education–and is being joined by states including Vermont, Oregon, and Utah in adopting more relevant measures.
The barriers to adopting a national "well-being" index might be more political than technical. We have the means to collect data on health, education, and life satisfaction, but it will be a stretch for today's parties, fresh from a government shutdown and debt ceiling crisis, to agree on indicators. For example, Washington, which can't even bring itself to limit subsidies for oil and gas companies, would have to decide whether the new measurements should subtract the costs of air pollution. Congress would have to decide how to count the costs of family breakdown, or add the value of volunteer services, in addition to assigning a weight to each of these factors.
If Congress cannot come to agreement on all these questions, there is another way forward. A bipartisan commission of top economic experts can determine the specifics of a new system of national indicators. The expert commission–appointed by Congress, vetted by the leaders of both parties, and guided by public input–could achieve this goal by taking some of the politics out of the business of statistics.
There’s bipartisan incentive to fix GDP. The indicator fails economic conservatives (by failing to properly account for debt), progressives (by failing to account for inequality), environmentalists (by failing to account for pollution), businesspeople (by failing to account for entrepreneurship), and social conservatives (by failing to account for time spent with family). Nearly all players have a stake in seeing some improvement to the system.
A new commission would not set out to replace GDP's data collection process, but rather to improve and expand it. Similar to how we measure unemployment with a series of six distinct measures known as U1 through U6, we could start reporting GDP as a series of measures – say, G1 through G5 – to paint a fuller picture of how the country is faring.