There’s More to Life than GDP
Even the architect of GDP back in the 1930s recognized that an aggregate measure of market-based activities would be insufficient for assessing economic welfare. Now that digitalization and other forces are compounding the long-standing flaws of this canonical metric, there is no alternative to finding alternatives.
LONDON – “Not everything that counts can be counted, and not everything that can be counted counts.” This old adage is particularly pertinent as we look ahead to 2020 and beyond. Part of the popular backlash against political and business elites may simply be that people feel the elites are not really focused on what matters to them. But while the single-minded obsession with maximizing market output and profits is being challenged, a more meaningful replacement is not yet in clear view.
Gross domestic product has long been the preeminent metric for measuring the size and success of national economies. It is the key target of economic policy, closely watched by politicians, economists, businesses, and investors. But GDP is also deeply – and increasingly – flawed.
Widely regarded as a reliable and objective benchmark, GDP is actually a complex statistic shaped by a history strewn with errors, unresolved controversies, and changing methods and definitions. The core problem is that GDP is not a measure of economic welfare, but rather of output. Its architect in the 1930s, the economist Simon Kuznets, would have preferred to place greater emphasis on welfare. But the US government had tasked him with devising a metric that could guide fiscal policy and shape taxation and spending decisions, so that is what he did.
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