COVID-19 Has Also Killed GDP


To understand how and when we will emerge from the crisis caused by the pandemic, we can no longer use the Gross Domestic Product as the only parameter, which measures the creation of material wealth in a country, but not the actual well-being of people – This is why we need to go “beyond GDP “

The coronavirus has shocked the world causing millions of deaths and, sadly, the toll will still go up a lot until the vaccine is available on a large scale. Almost all the victims have been and will remain anonymous. But, in my opinion, a particularly illustrious victim of Covid-19 will be GDP .

In fact, although late exegetes of national accounts are already scrambling to tell us how many years later we will return to pre-Covid GDP levels, such a calculation is absurd for a very simple reason. The epochal collapse of GDP was self-imposed . We have decided to shut down businesses to save many lives, stating, if needed, that wealth creation is only true if it does not endanger lives. Today, more than ever, we will have to try to overcome the limits of GDP , of which the founder Simon Kuznets was already aware almost a century ago. The main limitation lies in not being able to measure actual well-being but only the creation of material wealth, without taking into account how it is distributed in society or the “side effects” of the production and trade of goods and services.

Much has already been said about the distribution of income . Excessive levels of inequality generate social discontent, and the crushing of the middle class can even undermine democracy. Equitable interventions are therefore necessary , although it is always necessary to implement them without excessively distorting the functioning of the market, to avoid discouraging the pursuit of legitimate profit.

Sustainability policies are aimed at correcting the (unwanted) side effects of the production and trade of goods and services . The goal is to ensure that prices adequately incorporate incentives for responsible behavior towards the environment and society. Such policies take two forms: on the one hand rules, on the other taxes and subsidies. The rules establish prohibitions, for example in certain places you cannot drive a Euro-0 car. Rules are useful, but they are inflexible and you can often do better. In fact, more efficient and effective are taxes and subsidies that encourage virtuous behavior while leaving individuals the possibility to choose.

The European Union has launched the European Green Deal (EGD), a huge one trillion euro investment program to accelerate the sustainable transition. Furthermore, in response to the Covid emergency, two other important programs have been launched: the Sure fund (100 billion) which, by giving a minimum unemployment benefit to all Europeans, reaffirms the concept of EU citizenship, the Next Generation EU (650 billions) to accelerate the post-Covid recovery, not to mention any ESM funds. These EU programs will obviously be integrated with each other, therefore the pro-environmental and pro-social incentives introduced by EGD will be further strengthened by Sure and Next Generation EU.

The side effect of all this, neglecting the hard times that the EU acceleration is causing for the so-called sovereignists, will be the need to overcome GDP, an even more inadequate metric to measure the result of those policies, which aim at well-being sustainable and will not be able to be satisfied with looking at what happens to GDP .

That Europe was moving towards forms of capitalism that did not only look at GDP could already be perceived for some time. The comparison with the United States over the last thirty years is clear in this regard. The US has grown almost double the EU in terms of GDP. On the other hand, if macroeconomic performance is measured with the Human Development Index , once proposed by Amartya Sen (which takes into account GDP per capita but also life expectancy and the average level of education) it was the EU that grow twice as much as the US. Therefore, the disproportion in the damage of Covid, which in all probability will be much greater in the US than in the EU, does not derive only from the roughness of the Trump management, but from deeper roots.

The Covid experience therefore seems only to amplify and accelerate the processes that, in part, were already underway. It will be good to prepare for a future “beyond GDP” . Incidentally, this will not mean that we will no longer have to worry about public debt, but to establish its tolerability we will have to relate it to a more appropriate measure of welfare . No more to GDP.