There had never been anything quite like the thick “pea-souper” fog that blanketed London 65 years ago. The wind dropped and the air grew damp. For five days, smoke from coal fires and power stations was trapped, making it hard to breathe. For the frail and elderly what became known as the Great Smog was deadly. Initial estimates put the death toll at 4,000.

The coal burned in the capital in 1952 turned the city into a deathtrap, but it was good for growth. It was cold and damp as well as foggy, and the more fuel that was bought, the better it was for the economy.

The same applies today. A thinktank, the New Weather Institute, estimates there will already have been 8,700 premature deaths this year caused by air pollution in London by the time of next week’s 65th anniversary. Some of them would have been avoided had more people worked from home or shared cars to the office. That would have meant fewer cars on the roads and less money spent at petrol stations. It would be good for the nation’s health but would reduce gross domestic product. As currently calculated, it would be bad for growth.

This is perverse. It is clear from the great smogs that engulfed Beijing in 2015 and New Delhi earlier this month that not all growth is good. Globally, one person dies ahead of their time every five seconds due to poor air quality. Yet the idea that success can only be measured by gross domestic product has become a fetish. When growth accelerates, it is a time for national celebration. When growth remains unchanged it is a cause for concern. When growth falls it is a time for the newsreaders to put on a long face.

Hence the response to last week’s budget, in which the Office for Budget Responsibility shaved around half a percentage point off its growth forecasts in each of the next five years. This was seen, unambiguously, as a very bad thing indeed. Commentators (me included, I hasten to add) vied with each other to find new ways of describing just how terrible it was.

Now, make no mistake, when it comes to the UK economy there is plenty to be concerned about. It is a worry that for the past decade Britain has had to work so hard just to stand still. It matters that people are taking on more debt to finance their spending habits. It is not a great idea to be investing so little and importing so much.

Simon Kuznets, who first came up with the idea of GDP, had a point when he said it should exclude harmful things

But it is absurd to believe that GDP provides the best – or even an accurate – picture of how well the country is really doing. Since the financial crisis, GDP has been going up, largely due to the increase in the size of the population. GDP per head is a better measure, but even then takes no account of how the growth is being divvied up. In recent decades the fruits of growth have largely been snaffled by those at the top.

GDP acts as a yardstick for things that can be measured in monetary terms, so it goes up if the defence sector exports more arms, if the City embarks on an orgy of speculation, or if betting shops double the number of fixed odds terminals. Simon Kuznets, the economist who first came up with the idea of GDP, had a point when he said it should exclude harmful things, such as military spending and advertising.

Bobby Kennedy agreed. On the campaign stump in 1968, he famously said GDP measured everything except that which made life worthwhile. “It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armoured cars for the police to fight the riots in our cities.”

The latest GDP figure shows Britain’s economy grew by 0.4% in the third quarter of 2017. The figure includes all the things Kuznets and Kennedy abhorred, but excludes quite a lot of good things that are not counted because they are done for free.

The government could increase the size of the economy by 50% at a stroke if it included all the cleaning, cooking, childcare and other tasks around the house that are done for free. If your neighbour pays you to mow his lawn, that counts as GDP. If you mow your own lawn, it doesn’t.

At one level, the strange way in which success or failure is measured doesn’t matter all that much. As the chief economist at the Bank of England, Andy Haldane, noted in a speech earlier this week, only 10% of the public can actually define GDP. What’s more, it doesn’t seem to care too much about whether it is going up or down.

In the year or so since the EU referendum, the debate about Brexit has been framed by what the vote has meant for GDP. In the first six months, the Brexiteers thought they had the upper hand because growth averaged 0.5% a quarter. In the first half of 2017, remainers thought the pendulum had swung their way because growth slowed to 0.3%.

Both sides were assuming that people can differentiate between an economy growing by 2% a year and one growing by 1%, which they almost certainly can’t. A more relevant guide to attitudes was the recent official survey showing that the public (in England at least) got a bit happier in the year after the referendum. This probably has something to do with the continued fall in unemployment, which research has shown is more closely linked to personal wellbeing than inflation. It is, of course, possible that happiness would have been still higher had the referendum gone the other way.

But the constant use of GDP does matter because it creates a “growth at all costs” mindset. A report by the Institute for New Economic Thinking at the Oxford Martin School suggests that the upshot is the depletion of the natural world, which is not being measured or valued properly. “There is clear evidence of widespread ecosystem degradation and declining resilience in food and water systems,” it says.

In recent years there has been some recognition of the need to find a better way of measuring how things are going. There are now alternative measures of wellbeing, including national accounts that consider environmental damage. But they have not gone nearly far enough to challenge the tyranny of GDP, which is why the clincher in any argument about the economy is still that something is “bad for growth”.

As American writer Edward Abbey put it in his 1977 book The Journey Home: “Growth for the sake of growth is the ideology of the cancer cell.” He could not have been more right.

• Larry Elliott is the Guardian’s economics editor