THE INDEX OF SUSTAINABLE ECONOMIC WELFARE (ISEW) AS AN ALTERNATIVE TOGDP IN MEASURING ECONOMIC WELFARE - THE RESULTS OF THE AUSTRIAN (REVISED) ISEW CALCULATION 1955-1992

Although the inadequacy of GDP to measure economic welfare is widely a ccepted theoretically, it is still used as the key indicator for econo mic policy. This article's aim, therefore, is to give some empirical e vidence to the theoretical critique. Economic welfare, or at least its change over time, is estimated by the index of sustainable economic w elfare (ISEW), which takes account of GDP, unpaid household labor, soc ial costs, environmental damage and income distribution. The concept o f the ISEW, which was originally developed by Herman Daly and John Cob b, is entirely reformulated with special regard to questions of inner consistency and clarity in structure, As an illustration the methods o f the calculation in the Austria case study and its results are presen ted. The main result is that GDP and economic welfare as measured by t he ISEW differ significantly. Up until the 1970s GDP only slightly ove restimated the growth of economic welfare, but since then it has been completely misleading. While GDP continues to rise, sustainable econom ic welfare has been stagnating since the middle of the 1980s. The main causes have been growing future welfare reductions, increasing income inequality and a stagnation in the value of unpaid household labor. A s GDP neglects those aspects, it systematically misinterprets economic welfare. However, the ISEW does not intend to simply replace GDP as a unique welfare measure but should form part of a more holistic social reporting system.