NCPA - National Center for Policy Analysis

DOES GDP REALLY CAPTURE ECONOMY'S HEALTH?

March 20, 2008

America's so-called gross domestic product (GDP) is an enormous number and an important number, but is it the right number to measure economic activity, asks the Christian Science Monitor?

Few numbers have the cachet of GDP:

  • The announcement of its growth rate each quarter provides a speedometer of economic growth or -- perhaps in the next few months -- recession.
  • And few numbers have the scale of the GDP; by latest tally, the annual production of goods and services in the United States has grown to about $14 trillion.

Yet economists readily concede that GDP is not a one-number-fits-all view of what's going on.  Some suggest changes to make it more useful and more accurate.  Even at its best, they say, it should be used more as a gauge of activity than of overall progress.

The GDP numbers, Washington economist Rob Atkinson points out, are rooted in the economy of the marketplace -- totaling up the dollar value of big activities such as business investment and consumer spending, as well as government activity.  It's useful in as far as it goes, but economists point to several shortcomings:

  • It focuses on aggregate numbers, not individual experience.
  • Much useful activity that's not a money-based transaction is left out.
  • The report is a summation of quantity, not quality.

Economists see room to improve lots of numbers tracked by the government, not just GDP.  But this overview number has long faced criticism.  For instance, some economists say the critique is not wholly fair.  If a $5,000 computer offers a 10-fold improvement on a $500 computer, then quality shows up when those purchases are counted as consumer spending.  And much learning goes into making those computers.

Source:  Mark Trumbull, "Does GDP Really Capture the Economy's Health?" Christian Science Monitor, March 12, 2008.

 

 

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