The Genuine Progress Indicator (GPI) is a fantastic model to measure the overall well being of the economy in great detail. Opposed to the Gross Domestic Product (GDP), which only takes into account total dollar value, the GPI does just that, but also includes figures that represent the cost of the negative effects related to economic activity. It gives the important details of the economy and the state of the citizens within in it that the GDP simply cannot.
Look at Detroit, Michigan; the “Motor City”, was at one time one of the most prosperous cities in the world, and a global industrial giant. Today, it’s a ghost town, not to mention a hellhole. The collapse of the automotive industry from the early 2000’s to the present has completely destroyed the former global giant in every way. The precipitous decline of the Detroit economy can be substantiated by using both the GPI and GDP method. Using academic and popular media references, these two approaches will be compared using the issue of the collapse of the automotive industry in the “Motor City”.
The GPI approach represents this situation most accurately, and is most relevant because it not only takes the financial state of Detroit into consideration; it takes the environmental and well-being factor of the citizens into consideration as well. The GDP does not. Through the disappearing population, the rising rates of unemployment and poverty, and the exploding crime rate, it is clear that the costs of the overall well being of this city are much more important than just the economic costs.
The city of Detroit, Michigan was once the most prosperous, ‘booming’ cities in the world, especially in the second half of the twentieth century. This was thanks to their automotive industry, ‘the Big 3’. ‘The Big 3’ included Ford, General Motors, and Chrysler, who all have their world headquarters located in Detroit and its vicinity. During this time period, ‘Big 3’ sales had soared from 6 million units in 1950, to 17 million in 2000. To break this time period down in depth, from 1950 to 1991, the sales of the units increased by double-digit percentages annually.
In contrast to that, from 1992 to 2007, figures of annual sales rarely fluctuated by more than 3 percent per year (Klier, and Rubenstein 36). Consumers had an insatiable appetite for American vehicles manufactured by the ‘Big 3’; they were on top of the world so to speak. This surge in sales was not only bringing in great amounts of money into Detroit and its vicinity, it was bringing in great job opportunity, whether it was factory jobs or office jobs. This was truly the golden era for Detroit, and its populous prosperity was to be found everywhere.
The statistics don’t lie, stating that Detroit’s population peaked at around 2 million in the 1950’s (Linebaugh). During that time, it was the fifth largest city in the USA only behind New York, Chicago, Philadelphia, and Los Angeles, and was in the top 10 as recently as 1990 (Linebaugh). With all going so well, it was just a matter of time before things turned for the worse. As the saying goes, “all good things come to an end”, and this describe Detroit’s ugly, disastrous transformation in a nutshell. According to CNBC, Detroit is the 3rd worst city to live in the USA, and is the most dangerous (Crowe).
What was the catalyst for this metamorphosis from prosperity to urban decay? It’s quite simple; their automotive giants were getting out performed by foreign competitors such as Toyota, Honda, and Hyundai. One of the factors that lead to this was that the ‘Big 3’ became complacent and arrogant due to the fact that they had little to no foreign competition prior to this decade. Thus they had an extremely large portion of the North American market share. Because of this arrogance and complacency, both quality and reliability began to suffer.
The foreign automakers rated consistently higher in both quality and reliability. Another was the fact that the ‘Big 3’ depended critically on selling large volumes of light trucks (minivans, SUV’s, and pickups); these vehicles were their backbone (Klier, and Rubenstein 36). As gas prices began to rise, and eventually soared, consumers were looking for more affordable alternatives, with regards to fuel-efficiency. This was one characteristic all of the ‘Big 3’’s light trucks lacked. What was the alternative? Foreign-headquartered automakers (such as Toyota, Honda, Hyundai, etc.
) fuel-efficient vehicles. These vehicles would cut down the time and money consumers would spend at gas pumps, which was extremely attractive. The statistics of the ‘Big 3’’s production of light trucks from 2007 to 2009 do not lie. In 2007, 10. 4 million light trucks were produced. In 2009, this number decreased by a staggering 46% to 5. 4 million (Klier, and Rubenstein 36). The foreign automakers fuel-efficient vehicles took the market by storm in that period, and completely dominated the US automakers in the market share.
This was the nail in the coffin for the city of Detroit. The one main thing that drove their economy through its history was becoming more and more irrelevant as the time passed. No one was buying American made vehicles. It got to the point where General Motors and Chrysler had to be bailed out by the government. To Detroit’s fairness, the economy is on its way back up today, and the automotive industry is starting to regain some ground, but the city of Detroit will never be the same, not even close to what it used to be.
How has this historical collapse affected the “Motor City” today? It begins with the population. As previously mentioned, Detroit’s population peaked at about 2 million people in the 1950’s. This is the highest their population was, and ever will be. Kate Linebaugh of The Wall Street Journal states that as of 2010, Detroit’s population had fallen back 100 years. The population as of that date was 713,777, the lowest it has been since 1910, 60 percent less than it’s peak in the 50’s, and 25 percent less than it had been in 2000 (Linebaugh), which is absolutely unbelievable.
Also, Detroit is now the nineteenth largest city in the USA behind Indianapolis, and Columbus (as it used to be in the top 5, and top 10 as previously stated) (Linebaugh). The population is literally disappearing as time moves on. Along with this issue, is the skyrocketing poverty and unemployment rate. The current unemployment rate is 19. 6 percent, which is almost double the national rate, and the highest the city has even seen (Daily Mail Reporter). This number has been on a steady rise within the past decade, and as a result has put
more and more people on the streets, being homeless. 34. 5 percent of Detroit’s population is below the poverty line (US Census Bureau). Also, the rate of violent crimes is at 2,137 per 100,000 residents, which is the highest in the USA above St. Louis and Oakland. This statistic makes the “Motor City” America’s most dangerous city for the fourth year in a row (Fisher). The city is in complete ruin; it seems like absolutely everything is going downhill. With all going so wrong, especially in the last decade, how on earth could the GDP of Detroit increase at all?
Take a look at the numbers from the recent decade. From 2001, there is a steady increase in the GDP until 2007, until a short but steady decrease until 2009, where it goes up again from there (BEA: US Department of Commerce). This is a completely inaccurate representation of the state of Detroit overall. With the collapse of the automotive industry, which lead to all the problems previously mentioned (population diminishing, poverty and unemployment rate rising, and crime rate sky rocketing) the GDP is not an appropriate measure or representation of the Detroit economy overall.
This is due to the fact that the GDP just takes into account total dollar value, and not the well being of the citizens or any environmental factors. According to the GDP, Detroit has been brining in increasing amounts of money from one year to the next in some periods of this collapse, but the overall state and well being of the city and its population has been on a constant downward spiral. To truly understand and represent the real state of the Detroit, and what is really going on within the economy and the well being of its citizens, the GPI must be used.
If the GPI were taken in contrast to the GDP of Detroit since 2001, it would steadily be going downhill and opposed to the fluctuating GDP, which was mostly increasing (with exception to 2007-2009). All the situations Detroit is encountering as a result of the auto industry collapse bring the GPI downward. For example, take the cities record high unemployment rate. In Clive Hamilton’s article about the GPI, he talks about the issue of unemployment and underemployment. He says that social costs of unemployment lead to declining levels of health, increased amounts of suicide, and increasing levels of crime. Also there are the psychological
costs of unemployment, which include trauma, stress, and family breakdowns (Hamilton, 20). Therefore, unemployment is a major negative factor on the GPI. Also, Hamilton talks about defensive expenditures, saying that GDP counts them as additions to output, however GPI deducts them, because they are undertaken to offset some decline in social welfare (Hamilton, 16). For example, this means that the record-high crime levels in Detroit create additions to the GDP because there would be a need for more police, more medical staff, and things would need to be repaired. On the other hand, the crime would deduct the GPI.
This is because the cost of more police, medical staff, and repairs are undertaken to offset the decline in social welfare that crime causes. Lastly, the diminishing population of Detroit is a ‘no brainer’ as a deductive quality of the GPI. Clearly people want to leave, or avoid living in the city of Detroit in this era. The social welfare of the citizens is at an extreme low. It is clear that the GDP cannot represent the economic state of an area in nearly as much detail as the GPI can. This is why in my opinion the GDP is not relevant in terms of an indicator of an economy’s overall well-being.
I strongly believe that the GPI gives a more accurate representation of the overall state of the economy thus should be used as the primary economic measure rather than the GDP. Detroit’s GDP was on the rise for most of this decade, even through the historical collapse of its worldwide automotive industry. However, it is clear that the welfare of its citizens and the state of the city are and will continue to be at a devastating low. This is made clear through Detroit’s disappearing population, the rise of unemployment and poverty rates, and the skyrocketing crime rate.
With all of these factors considered in the GPI, as well as dollar value, the GPI ultimately triumphs over GDP and gives people a true assessment of an economy overall, that the GDP simply fails to do. Works Cited Klier, Thomas H. , and James Rubenstein. “Economic Perspectives. ” Economic Perspectives. Q II (2012): 35-54. Web. 11 Nov. 2012. Linebaugh, Kate. “Detroit’s Population Crashes. ” Wall Street Journal 23 3 2011, n. pag. Web. 13 Nov. 2012. <http://online. wsj. com/article/SB10001424052748704461304576216850733151470. html Crowe, Aaron. “10 Worst Places to Live in America.
” CNBC. com. , August 6 2010. Web. 13 Nov 2012. <http://www. cnbc. com/id/38584814/10_Worst_Places_to_Live_in_America>. BEA:US Department of Commerce, . “GDP of the Detroit metro area from 2001 to 2010 (in billion U. S. dollars). ” Statista. September 2011. Web. 13 Nov 2012. <http://www. statista. com/statistics/183873/gdp-of-the-detroit-metro-area/>. Daily Mail Reporter, . “Detroit ranked most dangerous city in the country fourth year in a row as economic devastation continues to take its toll . ” Mail Online. October 20 2012. Web. <http://www. dailymail. co.
uk/news/article-2220603/Detroit-ranked-dangerous-city-country-fourth-year-row. html>. Fisher, Daniel. “Detroit Tops The 2012 List Of America’s Most Dangerous Cities. ” Forbes. October 18 2012. Web. <http://www. forbes. com/sites/danielfisher/2012/10/18/detroit-tops-the-2012-list-of-americas-most-dangerous-cities/>. US Census Bureau, . “Detroit (city), Michigan . ” . US Department of Commerce. Web. <http://quickfacts. census. gov/qfd/states/26/2622000. html>. Hamilton, Clive, 1999, “The genuine progress indicator methodological developments and results from Australia”, Ecological Economics, Vol. 30, pp. 13-28. ?