The Great Depression was bad, but how bad was it exactly? In its early days, people spent a lot of time arguing over specific metrics like steel output or share prices, but the US Congress wanted a way to quantify how bad things were for the economy as a whole.
In 1932, Congress commissioned Simon Kuznets to develop such a measure. His report to the Senate called it ‘national income’ and defined it as ‘that part of the economy’s end-product which is attributable to the efforts of the individuals who comprise a nation,’ something economists today call Gross Domestic Product, or GDP for short. It showed that American national income had halved over the previous three years, finally revealing the true extent of the Depression.
A similar exercise was later followed in Britain, when it produced its first official national accounts ahead of the 1941 Budget, to help the Treasury work out how much war the economy could actually finance.
The problem is that all the alternative measures are at best cheap tribute acts to GDP
War affordability also drove William Petty’s Verbum Sapienti in the 1660s, which asked whether England could pay for the Anglo-Dutch Wars. The answer turned out to be yes. Petty put national income at about £40 million in 1665, a calculation based on the fact that 6 million Englishmen each spent roughly six pounds, fourteen shillings and fourpence that year.
So then, is the measure useful beyond sizing war budgets and depressions? GDP has no shortage of critics. Kuznets himself warned the Senate that ‘[t]he welfare of a nation can scarcely be inferred from a measurement of national income’. Robert Kennedy told Kansas students in 1968 that GDP ‘measures everything, in short, except that which makes life worthwhile.’ And Vice President JD Vance opens the economics chapter of his 2026 book ‘Communion’ by arguing that a $6 punnet of Japanese strawberries counts the same in GDP as an ‘inferior’ American one, before concluding that ‘maybe economics is just fake’.
There is a sleight of hand in all of this. That GDP is not a measure of national welfare is true, but it is also beside the point, because nobody claims otherwise. No economist or finance minister has ever asserted that a nation’s welfare can be read straight off its output figures. This criticism rallies against a claim that no one is really making.
More importantly, people who criticise GDP on this basis struggle to give concrete examples to demonstrate the perils of focusing on GDP at the expense of other measurements. Which policy has an advanced democracy adopted because it raised measured output that then damaged the things GDP ignores? The cases usually offered involve resource booms or falsified statistics, which are failures of governance rather than failures of GDP as a measurement.
For better or worse, the most common conversation around GDP has been about what to replace it with. In 1972 Nordhaus and Tobin built a ‘Measure of Economic Welfare’ that counted national income, deducted pollution and added leisure. Since then everyone has invented their own index. The UN has used the Human Development Index since the 1990s, blending national income with life expectancy and schooling. The Happy Planet Index and the Genuine Progress Index combine income with variables like literacy, leisure, life expectancy, inequality and pollution. The Skoll Foundation, dissatisfied with the Happiness Index, created the Social Progress Index, deliberately excluding income altogether.
Despite the abundance of would-be replacements, the institutional desire to move beyond GDP persists unsatisfied. The UN, now presumably unhappy with its own Human Development Index, has published a paper weighing yet more alternatives.
The problem is that all these alternative measures are at best cheap tribute acts to GDP. Within a year of the Human Development Index’s launch, Mark McGillivray found a correlation of 0.89 between its country ordering and the ranking by GDP per head, showing how redundant it was.
Part of the overlap is mechanical, since most ‘beyond GDP’ indices use income as a component. But the other components behave no differently. Rich countries educate their children, provide people with healthcare and keep people alive better than poor ones, not to mention that higher incomes buy more leisure.
GDP per head is also strongly correlated with happiness surveys. Betsey Stevenson and Justin Wolfers found reported life satisfaction rises linearly with income both across countries and within them. Chad Jones and Pete Klenow built a welfare measure from the very things GDP supposedly ignores, such as consumption, leisure, life expectancy and inequality and still found a correlation with per-capita GDP of 0.98.
Because each index tracks income, or something tightly correlated with income, all indices track one another. To no one’s surprise, the top of the HDI table and the top of the happiness table carry the same Nordic, Alpine and North American names.
A few countries flatter their GDP through accounting tricks or unusual circumstances. Ireland’s GDP per head runs 138% above the EU average, the second highest in the bloc, largely because Apple and others moved their intellectual property onshore. But actual Irish individual consumption sits around the EU average. Luxembourg’s figures flatter too, because much of its workforce commutes in from France and Belgium. Workers produce in Luxembourg but consume abroad. These exceptions are rare, well known and largely reinforce the rule.
The best case for GDP is that it is easy to compute, standardised and lets us compare countries and periods. It is not in itself a measure of wellbeing, but it approximates consumption possibilities and living standards. At the end of the day consumer welfare is all about a person’s capacity to consume various things, such as food, warmth, housing, antibiotics, schooling and evenings off.
Every ‘beyond GDP’ index reaches for health and education, but these are things consumption buys, and their quantity and quality are largely determined by a country’s capacity to produce economic output more generally. The UN’s dashboard, and the many other dashboards to follow, will be built at great expense and will all be 90% correlated with GDP or more, leaving us none the wiser.
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