The 25% Economy

1. The Paradox: Growth Without Thriving

Since 1970, measured global economic output has more than tripled. Yet across multiple dimensions of human welfare, indicators show stagnation or decline:

• Mental health: Approximately 1 in 8 people globally live with a mental disorder, with particularly sharp increases in youth anxiety and depression since 2010 (WHO, 2022; Twenge et al., 2019).
• Ecological stability: Humanity consumes approximately 1.7 Earths' worth of regenerative capacity annually, with 2024 recording the highest atmospheric COâ‚‚ concentration (422.8 ppm) and largest single-year increase (+3.75 ppm) on record (NOAA, 2024; Global Footprint Network, 2024).
• Security expenditure: Global military spending reached $2.718T in 2024 (+9.4% year-over-year), representing 2.5% of world GDP—the highest nominal level in history (SIPRI, 2025).
• Life satisfaction: Self-reported wellbeing in high-income nations has remained largely flat since the 1970s despite substantial GDP growth (Easterlin, 2015; Helliwell et al., 2024).
• Time poverty: Time-use studies document rising "busyness" and time poverty despite productivity gains, with median workers in wealthy economies experiencing chronic stress from work-life imbalance. Annual work hours have declined little since the 1970s despite massive technological advancement (Schor, 1993; Gershuny, 2005).

This divergence between measured economic expansion and experienced wellbeing represents a fundamental accounting problem. GDP—our primary metric of aggregate welfare—counts gross spending , not net benefit . It treats damage remediation, preventable illness treatment, military buildups, and administrative churn as "production" equivalent to nutrition, education, or innovation.

At the AI+Wellbeing Institute, we are developing a multi-dimensional wellbeing framework that centers human thriving across psychological, social, physical, and ecological dimensions ( ai-well-being.com ). This analysis of system efficiency provides the empirical foundation for why such alternative frameworks are not merely preferable but necessary: GDP-centric measurement actively obscures the relationship between resource inputs and genuine human benefit.

2. The GDP Accounting Problem

Gross Domestic Product measures the market value of final goods and services produced within a geographic boundary during a specified period. By design, it is gross —it does not subtract depreciation of capital stocks, depletion of natural resources, or social costs. More problematically, GDP's expenditure-based calculation treats the following categories identically:

2.1 Examples of GDP Inflation Through Damage-Repair

2.2 What GDP Omits

Conversely, GDP systematically excludes:

• Ecosystem depletion: Deforestation, aquifer drawdown, soil degradation, ocean acidification, biodiversity loss (Costanza et al., 2014).
• Climate damages: Increased frequency of extreme weather, agricultural disruption, forced migration, infrastructure stress (Stern, 2006; UNEP, 2024).
• Health externalities: Air pollution causes an estimated 7M premature deaths annually; mental health costs from inequality and precarity exceed $1T/year in lost productivity (WHO, 2022; IMF, 2024).
• Social fabric erosion: Declining trust, associational life, and civic participation—all linked empirically to inequality and economic insecurity (Putnam, 2000; Wilkinson & Pickett, 2009).
• Unpaid care work: Childcare, eldercare, community maintenance—estimated at 50% or more of total economic activity if valued at market rates (Folbre, 2001).
• Foregone potential: Innovation, creativity, care, and community-building never realized due to time poverty, stress, or artificial scarcity.

Methodological implication: Any welfare-oriented accounting must (1) subtract active harms and remedial churn embedded within GDP, and (2) add material costs excluded from GDP. The ratio of beneficial output to total input—a True Efficiency Ratio—provides a more accurate measure of system performance.

3. Defining the True Efficiency Ratio (TER)

Where:

• Beneficial Output: The portion of GDP that generates net improvements to human capability, security, and thriving. This excludes:
  • Preventable remediation (disaster cleanup, avoidable illness treatment)
  • System-generated threat response (military expenditure beyond baseline defense, excessive policing)
  • Administrative friction and rent extraction (unnecessary bureaucracy, monopoly pricing, persuasion industries)
• Total Resource Input: Measured GDP plus uncounted externalities:
  • Ecological depletion and climate damages
  • Health and social costs not captured in market transactions
  • Opportunity costs from foregone human potential

3.1 Baseline Calculation for 2024 (Conservative Methodology)

We present our conservative baseline calculation first. This methodology subtracts from GDP only those expenditures we can clearly defend as non-beneficial based on explicit criteria and authoritative sources. For beneficial share estimation, we employ bottom-up sectoral analysis rather than top-down filtering. We use lower-bound estimates for externalities. Section 7.6 presents an alternative calculation with more aggressive assumptions.

3.2 Sustainability Adjustment

3.2 Two Distinct Metrics: Process Efficiency vs. Sustainability Constraint

The calculation in Section 3.1 yields a True Efficiency Ratio (TER) of 44.0%. Before proceeding, we must clarify what this metric measures and distinguish it from a related but conceptually different sustainability-constrained metric.

3.2.1 The Overshoot Factor

Current global resource consumption operates at approximately 1.7× planetary regenerative capacity (Global Footprint Network, 2024). This means:

• We consume resources 70% faster than ecosystems can regenerate them
• We emit waste faster than natural systems can absorb it
• We require 1.7 Earths' worth of biocapacity to sustain current consumption

This overshoot manifests in:

• Deforestation outpacing regrowth
• Groundwater depletion exceeding recharge
• COâ‚‚ emissions exceeding atmospheric absorption capacity
• Ocean fish harvest exceeding stock regeneration
• Soil degradation outpacing soil formation

3.2.2 Policy Implications of Both Metrics

The convergent message: Whether we examine process efficiency (TER: 56-68% waste) or sustainability-constrained deliverability (SCDS: 74-81% reduction required), the system fundamentally fails to align resource use with wellbeing. Both metrics point toward the same policy imperative: fundamental reorientation toward wellbeing metrics that operate within planetary boundaries.

3.2.3 Which Metric to Use?

We recommend reporting both :

• TER (44% / 32%) — The primary efficiency finding, comparable across time periods and systems
• SCDS (26% / 19%) — The sustainability-constrained implication, for policy communication
• Overshoot Factor (1.7) — The ecological reality connecting them

Different audiences will emphasize different metrics:

• Economists: Focus on TER as process efficiency
• Ecologists: Focus on overshoot factor and planetary boundaries
• Policymakers: Focus on SCDS as sustainability-constrained deliverability
• Public: All three, with emphasis on the stark message: 74-81% reduction in deliverable wellbeing unless we transform both processes AND throughput levels

3.3 Sensitivity Analysis

Robustness finding: Across all plausible parameter combinations, SCDS (sustainability-constrained deliverable share) remains below 35%, indicating that current wellbeing levels require 66-81% reduction to operate within planetary boundaries—or alternatively, equivalent efficiency improvements to maintain current wellbeing sustainably. We calculate the deliverability gap at 66-81% depending on assumptions. The core finding survives substantial variation in methodological choices.

Note on aggressive assumptions: The "aggressive" column represents the alternative calculation methodology detailed in Section 7.6. Key differences include: (1) subtracts full military spending rather than only excess, (2) uses top-down 52% beneficial share filter rather than bottom-up sectoral analysis, (3) includes higher external cost estimates. Both baseline and aggressive approaches rest on defensible criteria; we present the baseline as our best conservative estimate while acknowledging that reality may lie closer to the aggressive calculation.

Interpretation for policy: The choice between 26% efficiency (baseline) and 19% efficiency (aggressive) matters less than the shared implication: fundamental reorientation toward wellbeing metrics becomes necessary when recognizing that current systems waste approximately three-quarters of sustainable resource inputs. Whether waste stands at 74% or 81%, the policy conclusion remains identical.

3.4 TER Dynamics Over Time: A Multi-Decade Decline

The 25–35% efficiency estimate for 2024 might be dismissed as an artifact of recent shocks (COVID-19, supply chain disruptions, geopolitical tensions). However, historical reconstruction reveals that low efficiency is not a temporary condition but the culmination of a multi-decade structural decline .

3.4.1 Historical TER Reconstruction (1970-2024)

Using historical data on GDP growth, military expenditure trends, healthcare cost escalation, environmental degradation, and ecological overshoot, we can estimate TER back to 1970:

Data sources: GDP growth from World Bank and IMF historical databases; ecological overshoot from Global Footprint Network; military expenditure from SIPRI historical data; healthcare costs from OECD Health Statistics; external cost estimates synthesized from Costanza et al. (2014), Stern (2006), and WHO burden of disease data. Detailed methodology in Section 7.5.

3.4.2 Drivers of Decline

Three factors explain the multi-decade TER decline:

1. Declining beneficial share of GDP: We calculate beneficial share declining from 55% in 1970 to 53.6% in 2024 as healthcare costs, military spending, administrative burden, and persuasion industries have grown faster than beneficial output. U.S. healthcare alone rose from 7.2% of GDP (1970) to 16.6% (2024) despite worsening outcomes relative to peers.
2. Rising external costs: We estimate external costs increasing from 15% of GDP in 1970 to 21.8% in 2024 as climate damages, ecosystem degradation, mental health burdens, and pollution costs have accelerated. The 2024 record COâ‚‚ increase (+3.75 ppm) reflects this acceleration.
3. Ecological overshoot: From 1.0 Earth in 1970 to 1.7 Earths in 2024. Humanity crossed the sustainability threshold around 1970 and has since operated in chronic deficit, drawing down natural capital annually.

These are not independent . Ecological overshoot drives climate damages (external costs). Climate instability drives geopolitical tensions (military spending). Economic precarity drives mental health crises (healthcare costs and external costs). The system is in a negative feedback loop where inefficiency begets further inefficiency.

3.4.3 Future Projections (2025-2050)

Extending current trends forward reveals a deepening crisis:

Business as usual assumptions: GDP growth 2.5%/year; beneficial share declines to 40% as healthcare/military/admin costs continue rising; external costs rise to 45% as climate damages accelerate; overshoot increases to 2.0 Earths.

Modest reform assumptions: GDP growth 2.0%/year; beneficial share stabilizes at 45% through healthcare reform and admin reduction; external costs stabilize at 35%; overshoot improves to 1.6 through climate action.

3.4.4 Visualizing the Trend

Figure 1: True Efficiency Ratio dynamics 1970-2050. Top left shows historical decline in both unadjusted and sustainability-adjusted TER. Top right decomposes the drivers (declining beneficial share, rising external costs, rising overshoot). Bottom left projects two future scenarios. Bottom right shows the rate of decline has accelerated since 2000.

3.4.5 Why This Matters: Structural vs. Cyclical

The temporal analysis decisively refutes the hypothesis that 2024's low TER is an aberration. Key evidence:

• Monotonic decline: TER has fallen in every measurement period since 1970 without recovery. This is not a business cycle phenomenon.
• Accelerating rate: The average annual decline was 0.7 percentage points (1970-2000) but 1.4 percentage points (2000-2024). The problem is compounding.
• Multiple independent drivers: Healthcare costs, military spending, mental health crises, climate damages, and ecological overshoot have all grown faster than beneficial GDP. This is not a single policy failure but systemic dysfunction.
• Path dependency: Ecological overshoot is cumulative—each year of 1.7× consumption increases the eventual correction required. Climate damages are similarly path-dependent, accelerating as warming crosses nonlinear thresholds.

Conclusion: The 25% economy is not a snapshot of a bad year. It is the destination of a multi-decade trajectory that shows no sign of self-correction absent fundamental reorientation of policy objectives.

4. Evidence: Five Accelerating Crises

The critical finding is not merely that efficiency is low, but that the damage-side denominator is accelerating relative to beneficial output. 2024 represents a watershed year across multiple indicators.

4.1 Ecological Overshoot & Climate Destabilization

Overshoot context: Humanity currently consumes approximately 1.7 Earths' worth of regenerative capacity annually (Global Footprint Network, 2024). This means we are drawing down natural capital—forests, fisheries, aquifers, soil quality, atmospheric stability—at a rate 70% faster than ecosystems can regenerate. Every year of 1.7× overshoot compounds the deficit.

4.2 Military Expenditure & Security Spiral

Interpretation: Military spending is not "investment" in the conventional sense—it does not expand productive capacity or human capability. It is almost entirely preventive expenditure against system-generated geopolitical risks (resource competition, nationalist backlash against inequality, climate-induced instability). A system that requires 2.5% of global output merely to maintain security reveals profound inefficiency in conflict resolution and resource allocation.

4.3 Mental Health Crisis

Deaths of despair: Case and Deaton (2020) document rising mortality among working-class Americans from suicide, drug overdose, and alcohol-related illness—a phenomenon they attribute to economic dislocation, status anxiety, and loss of social cohesion. These are not random individual failures; they reflect systemic dysfunction.

4.4 Administrative Friction & "Bullshit Jobs"

Interpretation: These are not efficiency-enhancing coordination costs; they are rent-extraction and friction generated by institutional complexity. The distinction matters: genuine coordination (e.g., air traffic control, public health surveillance) is productive. Navigating Byzantine insurance billing or triple-checking compliance with overlapping regulations is pure waste.

4.5 Healthcare System Dysfunction

System-level interpretation: The U.S. healthcare system is a microcosm of the broader efficiency problem. It consumes 16.6% of GDP—$4.5T, larger than the entire German economy—yet delivers worse health outcomes than nations spending half as much. The gap is not explained by patient preferences, geography, or demographic differences; it reflects rent extraction (monopoly pharmaceutical pricing, hospital consolidation), administrative complexity (fragmented insurance), and perverse incentives (fee-for-service reimbursement). From a welfare perspective, at least $2T of the $4.5T represents waste or harm. GDP counts all $4.5T as production.

5. What Counts as Waste vs. Benefit?

A frequent objection to the TER framework is that it requires subjective judgments about "beneficial" vs. "wasteful" spending. This is true but manageable. We are not distinguishing "art" from "widgets" or imposing aesthetic preferences. We are identifying spending categories that:

1. Remediate preventable harm (disaster cleanup, pollution treatment, avoidable medical interventions).
2. Defend against system-generated threats (military buildups, excessive policing, security theater).
3. Reflect rent extraction (monopoly pricing, financial sector bloat, administrative churn with no coordination value).
4. Produce negative externalities (advertising that degrades mental health, fossil fuel combustion, ecosystem destruction).

These categories align with established welfare economics. No mainstream welfare function assigns positive value to repairing self-inflicted damage or to zero-sum status competition.

5.1 Inside GDP (Misclassified as Value Creation)

• Preventable healthcare: Treatment for Type 2 diabetes, cardiovascular disease, and obesity-related conditions that could be largely prevented through upstream policy (food systems, urban design, work hours). The U.S. spends ~$400B annually on diabetes alone (American Diabetes Association, 2023).
• Disaster remediation: Rebuilding after hurricanes, floods, and wildfires exacerbated by climate change. Munich Re estimates $100B+ annually in climate-related disaster costs (Munich Re, 2024).
• Arms races: $2.7T in military spending, much of which responds to coordination failures and resource competition rather than expanding human security (SIPRI, 2025).
• Advertising & persuasion: $1T spent engineering consumer desires and amplifying materialistic values empirically linked to lower wellbeing (GroupM, 2024; Kasser, 2002).
• Financial sector rent: Philippon (2015) estimates that the U.S. financial sector extracts ~2% of GDP in rents beyond legitimate intermediation services—approximately $500B annually. Globally, this scales to $2T+.
• Monopoly pricing: De Loecker & Eeckhout (2020) document a dramatic increase in markups across U.S. firms since 1980, indicating reduced competition and increased rent extraction.
• Bureaucratic compliance: As documented above, €146B in Germany, £100B+ in the UK, $360B in U.S. healthcare administration alone.

5.2 Outside GDP (Real Costs Not Captured)

• Ecosystem degradation: Costanza et al. (2014) estimate the value of global ecosystem services at $125T annually, with losses accelerating. Deforestation alone eliminates ~10M hectares/year (FAO, 2020).
• Climate damages: The Stern Review (2006) estimated business-as-usual climate change would cost 5–20% of global GDP annually by 2100. More recent IPCC estimates suggest $2–4T/year in damages already locked in by 2050 (IPCC, 2023).
• Air pollution: Causes ~7M premature deaths annually and costs an estimated $5T in welfare losses (Landrigan et al., 2018).
• Mental health crisis: Beyond the $1T in direct productivity losses, the WHO estimates 12B lost working days annually from depression and anxiety (WHO, 2022).
• Social fabric erosion: Wilkinson & Pickett (2009, 2018) document strong correlations between inequality and adverse social outcomes (crime, teen pregnancy, incarceration, low trust). While difficult to monetize precisely, these represent real welfare losses.
• Unpaid care work: Folbre (2001) and Ironmonger (1996) estimate that unpaid household and care work, if valued at market wages, would represent 30–50% of measured GDP in OECD nations.
• Foregone potential: Time poverty, chronic stress, and artificial scarcity prevent unknown quantities of human creativity, scientific discovery, care provision, and community-building. By definition, these losses are difficult to quantify but are conceptually real.

6. The Acceleration Problem

Consider the trajectory of key indicators:

• COâ‚‚ growth rate: Accelerating from ~1.0 ppm/year (1960s) to ~2.5 ppm/year (2010s) to ~3.75 ppm/year (2024). The rate of atmospheric destabilization is increasing (NOAA, 2024).
• Military expenditure: Growing at 9.4% year-over-year in 2024, far faster than global GDP growth of ~3% (SIPRI, 2025; IMF, 2024).
• Mental health prevalence: Rising sharply among youth since 2010, with no indication of plateauing (Twenge et al., 2019; WHO, 2022).
• Climate damages: Exponentially increasing as warming crosses nonlinear thresholds (IPCC, 2023; UNEP, 2024).
• Biodiversity loss: The Living Planet Index shows a 69% average decline in monitored wildlife populations since 1970 (WWF, 2022).

Meanwhile, measured GDP grew ~3% in 2024. If GDP is rising at 3% but ecological costs are rising at 5%, social costs at 4%, and security costs at 9%, the true efficiency of the system is declining even as nominal "growth" continues.

Implication: At some threshold—possibly within decades—the denominators overwhelm the numerators entirely. Measured GDP continues rising while lived wellbeing collapses. We are optimizing for the wrong metric, and the error compounds annually.

7. Methodological Appendix

7.6 Alternative Calculation: Aggressive Assumptions

The baseline calculation presented in Section 3.1 uses conservative assumptions throughout. This section presents an alternative calculation using more aggressive but still defensible methodological choices. The purpose: establish BOUNDS on TER—showing that under any reasonable assumption set, efficiency remains low and waste remains high.

7.6.1 Key Methodological Differences

7.6.2 Alternative Calculation Results

7.6.3 Interpretation and Comparison

The aggressive calculation yields TER of 31.6% (18.6% sustainability-adjusted), compared to the baseline's 44% (26% adjusted). This 12.4-percentage-point difference reflects genuine methodological uncertainty about:

• How much military spending provides "defensive minimum" vs. "system-generated threat response"
• Whether to use bottom-up sectoral analysis or top-down filtering for beneficial share
• How aggressively to estimate monopoly markups and external costs
• Whether to include some "implicit" subsidies or only explicit cash flows

However, both calculations confirm the core finding: We calculate that the economic system wastes the majority of sustainable resource inputs—74% under baseline assumptions, 81% under aggressive assumptions. The policy implication remains identical across methodologies: fundamental reorientation toward wellbeing metrics becomes necessary.

Which calculation do we find more accurate? We present the conservative baseline (26% adjusted TER) as our best defensible estimate—the calculation most likely to survive technical scrutiny from skeptical economists. However, we acknowledge that reality may lie closer to the aggressive estimate (19% adjusted TER). The range reflects honest uncertainty about specific line items, not fundamental disagreement about the problem's magnitude.

Why present both? Transparency. Rather than hide methodological choices, we make them explicit. Readers can evaluate our reasoning for each assumption and draw their own conclusions. The fact that both approaches—despite significant methodological differences—converge on "massive waste" strengthens confidence in the core finding.

7.6.4 Reconciliation with Existing Literature

Both our calculations align with existing attempts to measure genuine wellbeing:

• Genuine Progress Indicator (GPI): Kubiszewski et al. (2013) find GPI peaked in 1978 and declined since, despite rising GDP. This accords with our finding of declining TER.
• Index of Sustainable Economic Welfare (ISEW): Similar pattern of divergence from GDP since 1970s (Daly & Cobb, 1989; updated multiple times).
• Better Life Index (OECD): Shows many wellbeing dimensions stagnating or declining despite GDP growth.
• Human Development Index (HDI): Growth rate slowing in developed nations despite continued GDP growth.

Our contribution: Rather than create another alternative index, we calculate efficiency —the ratio of beneficial output to total resource input. This makes the waste quantitatively explicit and actionable for policy.

7.7 Derivation Appendix: Global Scaling Methods

This appendix provides explicit formulas and scaling logic for key line items, addressing the peer-review requirement for reproducible global estimates.

7.7.1 Healthcare Waste: Global Scaling Method

US Healthcare Waste (Well-Documented):

• US health spending 2024: $4.5T (16.6% of GDP)
• Peer nation average (OECD): ~9% of GDP
• US excess spending: $4.5T - ($27T × 0.09) = $4.5T - $2.4T = $2.1T
• Waste share of excess: ~70% (admin, pricing, preventable, overtreatment)
• US healthcare waste: $1.5T

Global Extrapolation:

• High-income non-US (Western Europe, Japan, Canada, Australia, etc.):
  • Health spending: ~$3.5T (estimated from OECD data)
  • Waste rate: 15% (lower than US due to better systems, but still substantial)
  • Waste: $3.5T × 0.15 = $0.525T
• Middle/low-income countries:
  • Health spending: ~$2T (WHO global health database)
  • Waste rate: 10% (conservative; different waste patterns but still inefficiency)
  • Waste: $2T × 0.10 = $0.2T
• Total global healthcare waste: $1.5T + $0.525T + $0.2T = $2.225T ≈ $2.0T (baseline) / $2.5T (alternative)

Sources: Commonwealth Fund (2024), Himmelstein et al. (2020), OECD Health Statistics (2023), WHO Global Health Expenditure Database

7.7.2 Administrative Friction: Global Scaling Method

Benchmark Data:

• Germany: €146B = 3.7% of GDP (ifo Institut 2024)
• UK: £100B ≈ 2.8% of GDP (British Chambers of Commerce 2019)
• US tax compliance alone: $200B ≈ 0.8% of GDP (Tax Foundation)

Conservative Extrapolation (Baseline $2.2T):

• OECD countries (60% of world GDP = $66T):
  • Apply conservative 2.5% average (below Germany, above less-regulated systems)
  • $66T × 0.025 = $1.65T
• Non-OECD countries (40% of world GDP = $44T):
  • Apply 1.5% (less complex regulatory systems, but still bureaucratic friction)
  • $44T × 0.015 = $0.66T
• Total: $1.65T + $0.66T = $2.31T ≈ $2.2T (excludes healthcare admin already counted)

Aggressive Extrapolation (Alternative $3.0T):

• Apply Germany's 3.7% more broadly to OECD: $66T × 0.037 = $2.44T
• Plus non-OECD: $0.66T
• Total: $3.1T ≈ $3.0T

Critical boundary: This explicitly EXCLUDES the $0.5T healthcare administrative waste counted separately to prevent double-counting.

Sources: ifo Institut (2024), British Chambers of Commerce (2019), Tax Foundation, European Commission regulatory cost assessments

7.7.3 Financial Sector Rent Extraction ($2.0T)

Philippon (2015) Methodology:

• Unit cost of financial intermediation rose from ~2% of GDP (1900-1970) to ~9% of GDP (2010) despite no productivity gain
• Technological advances should have reduced costs, but they haven't
• "Excess" = difference between observed cost and efficient frontier

Our Calculation:

• Global financial sector revenue: ~7% of world GDP = $7.7T (BIS, national banking statistics)
• Efficient frontier baseline (pre-financialization era): ~5% of GDP = $5.5T
• Excess (rent extraction): $7.7T - $5.5T = $2.2T ≈ $2.0T

Cross-check (BIS 2023):

• Banking sector return on equity (ROE) consistently above competitive baseline
• Concentration ratios in banking increased substantially post-2008
• Confirms substantial economic rent extraction

Sources: Philippon, Thomas (2015). "Has the US Finance Industry Become Less Efficient?" American Economic Review . Bank for International Settlements (2023).

7.7.4 Monopoly Pricing Excess

De Loecker & Eeckhout (2020) Finding:

• Average markups in US firms rose from 1.21× (1980) to 1.61× (2016)
• Excess markup: 0.40 above historical baseline
• Reflects rising market concentration and declining competition

Baseline Calculation ($1.0T — Conservative):

Apply to specific concentrated sectors only:

Critical boundaries:

• Pharmaceutical/hospital markups ($0.5T) counted in healthcare waste category
• Financial sector extraction ($2.0T) counted separately
• This prevents triple-counting the same excess across categories

Alternative Calculation ($3.5T — Aggressive):

• Apply 25% excess markup more broadly across manufacturing, retail, and services
• Additional $2.5T from broader application
• Total: $3.5T

Source: De Loecker, Jan, and Jan Eeckhout (2020). "Global Market Power." Quarterly Journal of Economics 135.2: 561-644.

7.7.5 Overlap Matrix and De-duplication Logic

This matrix addresses the peer-review requirement to explicitly document potential overlaps and prevention strategies:

Overlap Adjustment: To prevent double-counting, we apply the following conservative adjustments to externality estimates:

• Reduce mental health externality from $3.5T to $3.15T (−$0.35T treatment overlap with healthcare)
• Climate/ecosystem overlap already conservative in both base estimates
• Net adjustment: −$0.35T
• Adjusted externalities: $24.0T - $0.35T = $23.65T ≈ $24T (rounded conservatively)

Total potential overlap across ALL categories: Less than $2T. Our strict boundary definitions between market domain (GDP subtractions) and non-market domain (externalities) minimize overlap risk.

7.7.6 Price Year Normalization

Price Year: All figures expressed in 2024 USD .

Deflation Method: Legacy studies scaled forward using IMF GDP deflator chain to maintain purchasing power parity:

• Costanza et al. (2014): Ecosystem values scaled by 10-year cumulative inflation (~20%)
• Landrigan et al. (2018): Air pollution costs scaled by 6-year cumulative inflation (~15%)
• Stern (2006): Climate damage estimates updated via IPCC (2023) recent assessments

Primary Data Sources (Already in 2024 Terms):

• IMF World Economic Outlook (2024): GDP $110T
• SIPRI Yearbook (2025) reporting 2024 expenditure: Military $2.72T
• OECD Health Statistics (2024): Current health expenditure
• Global Footprint Network (2024): Current overshoot factor 1.7

Sensitivity: A ±5% deflation error would affect absolute dollar amounts but not the percentage-based TER, which remains robust to nominal value changes.

8. Conclusion: The Case for Measurement Reform

This paper establishes three claims:

1. GDP functions as a grossly misleading welfare metric. It counts spending without distinguishing benefit from harm-remediation, treats externalities as free, and ignores distributional and ecological constraints.
2. A True Efficiency Ratio (TER) can be calculated. Using two independent methodologies—one conservative, one aggressive—we calculate that contemporary capitalism operates at 31.6-44.0% process efficiency (TER). The sustainability-constrained deliverable share (SCDS) stands at 18.6-25.9%, indicating that 74-81% of current wellbeing requires either throughput reduction or dramatic efficiency improvement to operate within planetary boundaries.
3. The efficiency has been declining. We document damage-side costs (climate, military, mental health, administrative friction) accelerating faster than beneficial output, creating a compounding crisis masked by rising nominal GDP.

The policy implication remains stark across both methodologies: optimizing for GDP growth optimizes for the wrong objective . Whether examining TER (31.6-44.0% process efficiency) or SCDS (18.6-25.9% sustainability-constrained deliverability), the conclusion stays identical: the system fundamentally fails to convert resources into sustainable wellbeing. A system exhibiting this pattern—and where the gap accelerates—cannot be reformed through marginal adjustments. It requires fundamental reorientation toward multi-dimensional wellbeing metrics that measure net human thriving: time sovereignty, ecological stability, health equity, and social cohesion.

On methodological choices: This paper presents a conservative baseline calculation alongside an alternative aggressive calculation (Section 7.6) to establish bounds on TER. Reasonable analysts may disagree about specific line items—whether to subtract full military spending or only excess, whether beneficial share stands at 60% or 52%, whether external costs total $24T or $30T. These choices affect precision but not direction. Under any defensible assumption set, we find process efficiency below 50% and sustainability-constrained deliverability below 35%. Section 7.7 provides full derivation appendix addressing peer-review requirements for transparent, reproducible global scaling methods.

This paper intentionally focuses on problem diagnosis rather than policy prescription. The solution space—ranging from inequality reduction and administrative simplification to climate stabilization and healthcare reorientation—constitutes the subject of companion work. The burden here: establish that the problem exists, can be measured, and demands urgent attention.

On that question, the evidence across both methodologies converges clearly.

References

Working Paper for Faculty Review
AI+Wellbeing Institute
October 27, 2025