Wasted GDP in the USA

The article questions the extent to which GDP accurately measures human development, particularly in affluent nations. The central research question explores how HDI data can assess the correlation between income levels and welfare performance, and the extent of "wasted GDP." The author notes that while economic growth initially improves welfare, this relationship isn't always linear, especially in wealthy countries. Scholars have long questioned the link between GDP growth and wellbeing, leading to the development of alternative welfare measures. Economic activity invariably impacts the environment, with higher GDP generally correlating with greater environmental damage. The concept of "wasted GDP," drawing from Hickel's work, posits that GDP is wasted when it fails to contribute to welfare improvement. The USA is chosen as a case study due to its high income levels coupled with substantial ecological pressures, its global economic and political influence, its status as a prominent example of a liberal welfare regime, and its initial high HDI ranking. The UN Human Development Index (HDI) has seen the USA's ranking decline significantly despite continued economic growth, underscoring the need for the "wasted GDP" concept. The introduction also reviews the ongoing debate on progress in a sustainability perspective, contrasting economic growth agendas with criticisms regarding environmental costs and exploring alternative measures of progress and wellbeing such as the Index of Sustainable Economic Welfare (ISEW) and the Genuine Progress Indicator (GPI). Herman Daly's concept of "uneconomic growth," where marginal disutility exceeds marginal utility, is presented as a related but distinct concept. The article concludes the introduction by outlining its structure, covering HDI calculation, prior research on economic growth and human development, and research on human development's relationship to sustainability.

The literature review examines the relationship between economic growth and human development. Amartya Sen's early work highlighted the contrast between traditional economic development measures (income) and quality of life indicators (life expectancy, literacy). Studies have shown varying correlations between GDP growth and life satisfaction, with some suggesting a peak level of quality of life at a certain point of economic development (Max-Neef's Threshold Hypothesis), while others indicate that higher income positively contributes to life satisfaction. The review discusses criticisms of the economic growth agenda concerning environmental costs, including the work of Meadows et al. and Daly's steady-state economics. The author also explores the UN Sustainable Development Goals and the potential contradiction between promoting economic growth and ecological sustainability, highlighting the work of Hickel and Jackson advocating for degrowth and post-capitalism. The review contrasts different approaches to the relation between GDP growth and wellbeing, including Daly's concept of uneconomic growth and the Genuine Progress Indicator. The discussion then turns to the strong correlation between high HDI values and negative environmental impact, referencing studies that combined HDI data with Ecological Footprint data, leading to calls for incorporating environmental impact into human development assessments and resulting indices like the PHDI and SDI. Finally, the review examines the methodology and limitations of existing indices in capturing the complex interplay of economic growth, welfare, and environmental sustainability, setting the stage for the introduction of the "wasted GDP" concept as a new analytical tool.

The methodology section defines "wasted GDP" as the portion of a country's GDP that does not contribute to human welfare. It uses nonincome HDI (the geometric mean of health and education indices within the HDI) as a measure of welfare performance. The methodology involves comparing a country's nonincome HDI and GDP per capita to better-performing countries with lower GDP per capita. The percentage of wasted GDP is calculated as the difference between the country's GDP per capita and the average GDP per capita of the better-performing countries, relative to the country's GDP per capita. The analysis uses both a comparison with all better-performing countries and a subset of the top 5 performers by lowest GDP. The methodology then extends to estimate the ecological pressures (CO2 emissions and material footprint) associated with wasted GDP by multiplying the percentage of wasted GDP by the country's total emissions and footprint. The author acknowledges that this calculation assumes a constant relationship between GDP and ecological impact across all sectors, recognizing this as a simplification. The methodology section highlights the differences between the "wasted GDP" concept and other related approaches like the Genuine Progress Indicator, Daly's uneconomic growth, and Hickel's Sustainable Development Index. It emphasizes that "wasted GDP" focuses on the efficiency of GDP in supporting welfare regardless of whether GDP is growing, making it applicable across different economic perspectives. Finally, it emphasizes the use of established HDI data and methodology, contrasting with Hickel's more significantly altered SDI methodology.

The key findings section presents the results of the analysis of the USA's HDI performance. The USA's HDI value increased over time but its ranking significantly declined, falling from #1 in 1990 to #21 in 2021, despite solid income growth. Analysis of the nonincome HDI components (health and education) reveals mixed performance; while education improved, life expectancy showed stagnation and decline in recent years. The comparison with 27 countries having higher nonincome HDIs than the USA shows that 21 countries achieved this despite having lower GDP per capita. This indicates considerable "wasted GDP" in the USA. The analysis further calculates the wasted GDP. When compared to the top 5 performers by lowest GDP per capita, the USA's wasted GDP is estimated at 37.5%, implying the USA could achieve similar or better nonincome HDI outcomes with 37.5% lower GDP per capita. The analysis, including all better performers, estimates wasted GDP at 26.9%. These findings suggest that the USA could have reduced its CO2 emissions by at least 1.268 million tonnes (all better performers estimate) or as much as 1.767 million tonnes (top 5 performers estimate), representing 3.6%-5.0% of global emissions. Similarly, the USA's material footprint could have been reduced by at least 2.625 million tonnes (all better performers estimate) or 3.659 million tonnes (top 5 performers estimate), representing 2.7%-3.8% of humanity's global material footprint. The findings are presented in tables and figures showing the comparative HDI and GDP per capita values, emphasizing the significant gap between the USA and better-performing countries.

The discussion section interprets the findings concerning wasted GDP in the USA, highlighting the significant potential for improving human development outcomes while reducing ecological pressures. The analysis demonstrates that the USA's current approach to economic activity isn't maximizing its potential for improving human development and that other countries with significantly lower GDP per capita have achieved better results in health and education. The findings suggest a need for policy changes that prioritize human wellbeing and needs, drawing parallels with the policy choices of better-performing countries. The discussion links these findings to the broader theoretical debates on economic growth, sustainable wellbeing, and degrowth, connecting them to Daly's concept of optimal economic scale and the need for increased efficiency. The discussion section acknowledges limitations such as the simplification of assuming a linear relationship between GDP and ecological impact and calls for further research on economic growth, its effects on human development, and its environmental consequences, including exploring alternative economic models.

The study concludes that a significant portion of US GDP is wasted due to inefficient policies that fail to maximize human development outcomes. The findings highlight the potential for achieving similar or better HDI levels with a smaller GDP, reducing ecological footprints significantly. The author advocates for a shift in policy priorities toward human wellbeing and needs to improve the efficiency of resource utilization and lessen environmental impact. Further research is encouraged to explore the implications of the wasted GDP concept in different contexts and to investigate alternative economic models that prioritize both human development and environmental sustainability. The limitations of the current study, such as the simplified relationship between GDP and ecological impacts, are acknowledged, further emphasizing the need for more detailed future analyses.

The study acknowledges several limitations. The estimation of CO2 emissions and material footprint related to wasted GDP assumes a constant relationship between GDP and ecological pressures across all economic sectors, which is a simplification. The analysis relies on existing HDI data and methodology, which have their own limitations and potential biases, and the choice of better-performing countries for comparison introduces some subjectivity, potentially affecting the estimates of wasted GDP. Further research is needed to address these limitations and refine the methodology. The analysis primarily focuses on a comparison with current best-performers, and does not account for potential for improvement in these countries themselves, thus producing conservative estimates of wasted GDP.