Since its introduction during World War II as a measure of wartime production capacity, the Gross National Product (GNP), now routinely measured as Gross Domestic Product (GDP), has become the nation's foremost indicator of economic progress. It is now widely used by policymakers, economists, international agencies and the media as the primary scorecard of a nation's economic health and well-being.
Yet the GDP was never intended for this role. It is merely a gross tally of products and services bought and sold, with no distinctions between transactions that add to well-being, and those that diminish it. Instead of separating costs from benefits, and productive activities from destructive ones, the GDP assumes that every monetary transaction adds to well-being, by definition. It is as if a business tried to assess its financial condition by simply adding up all "business activity," thereby lumping together income and expenses, assets and liabilities.
But how can we be curtain that higher GDP is better for our way of life if GDP does not calculate social costs such as pollution?