What’s GDP 2.0 and Why Do We (Desperately) Need It?
Now, we'll be releasing the report itself very soon, but for now, let me begin at the beginning. I’ve been wanting to create an updated GDP for quite some time now. If you’ve read my books, and my writing over the years, I’ve talked about it many, many times. There’s a reason for that: GDP is the invisible hand that really runs our world. Governments shape societies, corporations earn and report profits, people work at jobs, banks invest…all based on it.
And yet something’s wrong with GDP. By now, we know, not just theoretically, but the hard way, that it leaves out too much. Everything from unpaid work to emotional labour to exploitation, right down to, for example, young people feeling “numb” and “traumatized.” But the biggest set of costs GDP doesn’t factor in are to do with climate change.
We don’t have to look around too hard to see that the mega-scale impacts of climate change have begun to arrive with a vengeance—like Canada burning, and the air in major American cities becoming unbreathable, or Asia and Europe flooding, or region after region facing mega droughts and crop failures. And yet, astonishingly enough, GDP doesn’t include all this—what are known as the “social costs of carbon,” which in this case, basically mean “climate catastrophe.”
It occurred to me a few months ago that now, we could finally do it—at last, begin to create a GDP 2.0, adjusting for the costs of carbon. For the first(is) time. Ish, because there have been attempts before. But they’ve been tentative ones, experimental ones, ones that are more “thought experiments” than genuine estimates, and I’ll come to some. Now, for the first time, I think, I can share with you a real estimate. Done using pretty standard methods, to arrive at a result that’s accurate, valid, and generally usable.
So off we went and crunched…numbers. A capital L Lot of capital N numbers. The world’s GDP, its carbon emissions, the adjustments. This isn’t just guesswork, by the way. As I’m going to explain, it’s science, and it’s synthetic: we synthesized multiple strands of research, from hard science, like climate science, and social science, economics, to arrive at our new estimate of GDP 2.0. I think that’s pretty cool, by the way. This is all a beginning, so don’t take it as sort of “this is the number”—this isn’t like that, it’s the hard work of science and investigation, a sort of first, rough draft, and I’ll explain why, but first…
What did we find?
What GDP 2.0 Tells Us (About Why Our World’s Melting Down)
Let me sum up the three key findings for you.
In real, carbon-adjusted terms, our world economy is shrinking, not growing.
The costs of carbon are on the order of 10% of the world economy, and while that might not sound like a lot, it wipes out what little growth there is, and means that we’re in for a lost decade, at least, if not three to five.
As we learn more about mega-scale climate impacts, those costs are likely to climb steeply, revising even today’s growth downwards, further into negative territory.
So: to summarize. When we adjust for carbon, the world economy isn’t growing at all. It’s shrinking, perhaps dramatically so. And it’s been stagnant to shrinking, in real terms, for quite some time. And we face an economy that’s going to keep shrinking, in real terms, unless we fix the problem.
I know that’s a lot to chew on. Maybe even overwhelming. Let me try to help you understand it, and the best way, funnily enough, isn’t more math or Big Ideas, but just a little bit of…
The History of How We Think About “the Economy”
So before I get to the results, let me help you understand why GDP is so obsolete and out of date.
The short answer is: it was invented a century ago, and never updated. People think of GDP as issued by some kind of supercomputer in the heavens, but the truth is that it’s based on survey data. It’s a human creation, which was invented in the 1930s, during the Great Depression, to help us get out of it, and back then, job one was just seeing the economy for the first time. So a brilliant economist named Simon Kuznets created then this new marvel called “GDP,” which was a crude lens into the economy.
And back then, if you think about it, it makes eminent sense that we didn’t include the costs of climate change, because they were scarcely a twinkle (or tear) in anyone’s eye.
But now they are.
So. What did we find? Like I said, we found that when we adjust for carbon, the global economy is actually shrinking, not growing. In other words, in real, carbon-adjusted terms, the global economy is shrinking. Now, you might grumble, “but that’s what I guessed!” Fair enough—the point, though, is that now we’re not guessing. We have a hard estimate, and with that, we can do a lot. Like…
That’s a finding that should explain a lot. Like: how can the economy be said to be “booming,” but people doing so badly, and feeling so pessimistic, like the economy’s…not actually doing well at all? Now we can sort of reconcile that Great Divergence, as I call it, because in reality, no, the economy’s not doing well. It just appears to be, when we don’t count the costs of carbon, which end up being massive enough to wipe out whatever “growth” there is left.
Economists call these uncounted “externalities,” and GDP should have been updated to include externalities of all kinds, from emotional labour, to the trauma young people face, to unpaid work, and many, many more, for decades now. It’s a thing that should be continuously updated, like most other things in our world—but it isn’t, because, well, politicians got involved, and economists got lazy.
And so the more externalities have piled up, they’ve begun to “dominate” the reported number, rendering it an illusion, beginning to outweigh it. That’s how you get to where we are now: the absurd situation where the economy’s said to be “doing great,” but people are by miserable, pessimistic, and stressed, their living standards going into free-fall.
A Shrinking World Economy is Leading to Civilizational Flickering
So what does all that imply? By now, you should have an inkling, if you’re a regular reader: stagnant or shrinking economies produce destabilization and collapse, and this number helps us explain, too, why things around us appear to be collapsing by the day—because in reality, again, no, our economies aren’t growing.