GDP still wins
My latest piece at Vox
I published an essay today in Vox called “The only number that really matters.” It’s about GDP, what it actually measures, why critics keep proposing alternatives, and why none of those alternatives have displaced it.
The tl;dr is that no one has come close to coming up with an alternative to capture what is happening in an economy. Yes, it’s one number and any one number is incomplete. But this can be a damn good one, when done right, as it is in the U.S.
GDP carries weight as a metric for good reason; despite its narrowness, it relates closely with nearly every outcome people care about. Higher GDP per capita correlates with lower infant mortality, higher educational attainment, reduced extreme poverty, and higher self-reported happiness. This last point deserves emphasis: life satisfaction, the primary measure used in the World Happiness Report and similar well-being indices that critics often propose as alternatives to GDP—itself highly correlates with GDP.
And these correlations make sense. Economic production is the foundation of tons of other things we care about. You can’t have broad or universal health care without the economic capacity to pay for it. You can’t fund education, build infrastructure, or protect the environment without resources. And GDP tells you how much resource-generating capacity you have by looking at how much you are doing right now.
For those of you teaching economics, I hope it is a helpful tool. For those who have heard about GDP but never studied it, I hope this introduction is helpful, as well, including as an antidote to proposals to “replace” GDP with some half-baked alternative.
Read the whole thing at Vox.
Agree in part, disagree in part. GDP is a good measure for what it is. It's not a comprehensive measure. But I think this in part claims that it's doing more work than it actually does. Generally, yes, countries with higher GDP are better places to live than those with lower GDP. That's pretty ironclad. But within that general correlation, there are wide divergences. For instance, life expectancy. The US lags its peers in meaningful ways, despite spending more on healthcare. Healthcare expenditures are, depending on the comparison, 50-100% greater as a share of GDP in the US than in those countries, while we lag on many measures, including life expectancy. So there's good evidence that a lot of the healthcare that we do is just waste. So is a US cardiologist, even at PPP, twice as productive as a French cardiologist? Or are they just charging more?
Similarly, GDP doesn't reflect social choices. Your median American prime-age worker is, to use the same example, roughly as productive on a per-hour basis as the median French prime-age worker. But the median American worker works a lot more hours. IIRC, it's about 20% more. But is the American worker better off than the French worker? By some measures, yes. They have a bigger house. A more expensive car. A better phone. A bigger TV (and more of them). But they have more leisure time and live longer. So pointing to GDP is a data point and the beginning of the conversation, not the end of it.
Thank you for this, which is a really helpful overview that I will definitely use in my teaching. I've always thought the more sensible critiques of GDP focus on measurement issues (like Diane Coyle's work) - have you got any thoughts on whether measurement issues are growing, and if this makes GDP more problematic?