Two cheers for GDP! Three cheers for GDP, state capacity, and responsive polity: Pritchett, L. (2022). National development delivers: And how! And how? Economic Modelling, 107, 105717. https://doi.org/10.1016/j.econmod.2021.105717
Years ago, I wrote an article, published on Substack, making the typical case that GDP is a poor indicator of well-being and progress. Indeed, this is true in many ways.
Yet, the more one dives into this, the more one concludes as you do here: there is no better metric. Needless to say, I deleted and reworked my piece.
This doesn't mean, however, that such a metric does not exist. We may still find it. At Risk & Progress, I do hope to explore a metric that describes growth and progress in terms of total energy capture and knowledge accumulation, which would probably be more accurate over long timescales than GDP.
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.
GDP is a terrible measure of economic health. It focuses on spending, not real production. Government spending is counted as “growth” even though it’s funded by force and often destroys value. Inflationary monetary policies boost GDP without creating real wealth, making inflation look like prosperity. Artificial credit inflates GDP during booms, then crashes it in busts—only to justify more money printing. GDP is a Keynesian metric that hides economic damage and rewards bad policy. GDP is a rough snapshot of economic activity—it shows how much people are spending and can be useful for spotting trends or comparing countries. But GDP is limited. In short, GDP only tells you how much money is moving around, not whether the economy is healthy.
Quite a poorly written article that doesn’t make any attempt to account for tradeoffs. It basically calls them imaginary at the end, but with enough hedging language, that I’m sure the author is going to reply saying that’s not what he meant.
GDP has many defects, but as a series can be useful when a defective statistic can be accurate when comparing the same defective data from one quarter to the next, or from one year to the year.
I also recommend you look at gross output (GO), which measures total spending at all stages of production, which the BEA has been measuring since April 2014. It also comes out every quarter; I've been a strong advocate of GO since writing "The Structure of Production" (NYU Press, 1990), and it is endorsed by quite a few Nobel prize economists. Here is my summary paper on GO: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5002052
I call GO the "top line" in national income accounting; GDP the "bottom line."
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?
Two cheers for GDP! Three cheers for GDP, state capacity, and responsive polity: Pritchett, L. (2022). National development delivers: And how! And how? Economic Modelling, 107, 105717. https://doi.org/10.1016/j.econmod.2021.105717
Great work, Brian,
Years ago, I wrote an article, published on Substack, making the typical case that GDP is a poor indicator of well-being and progress. Indeed, this is true in many ways.
Yet, the more one dives into this, the more one concludes as you do here: there is no better metric. Needless to say, I deleted and reworked my piece.
This doesn't mean, however, that such a metric does not exist. We may still find it. At Risk & Progress, I do hope to explore a metric that describes growth and progress in terms of total energy capture and knowledge accumulation, which would probably be more accurate over long timescales than GDP.
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.
GDP is a terrible measure of economic health. It focuses on spending, not real production. Government spending is counted as “growth” even though it’s funded by force and often destroys value. Inflationary monetary policies boost GDP without creating real wealth, making inflation look like prosperity. Artificial credit inflates GDP during booms, then crashes it in busts—only to justify more money printing. GDP is a Keynesian metric that hides economic damage and rewards bad policy. GDP is a rough snapshot of economic activity—it shows how much people are spending and can be useful for spotting trends or comparing countries. But GDP is limited. In short, GDP only tells you how much money is moving around, not whether the economy is healthy.
Quite a poorly written article that doesn’t make any attempt to account for tradeoffs. It basically calls them imaginary at the end, but with enough hedging language, that I’m sure the author is going to reply saying that’s not what he meant.
You seem to be conflating GDP and GDP per capita. They are not the same thing.
Where?
Dear Brian,
GDP has many defects, but as a series can be useful when a defective statistic can be accurate when comparing the same defective data from one quarter to the next, or from one year to the year.
I also recommend you look at gross output (GO), which measures total spending at all stages of production, which the BEA has been measuring since April 2014. It also comes out every quarter; I've been a strong advocate of GO since writing "The Structure of Production" (NYU Press, 1990), and it is endorsed by quite a few Nobel prize economists. Here is my summary paper on GO: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5002052
I call GO the "top line" in national income accounting; GDP the "bottom line."
Best wishes, AEIOU,
Mark Skousen
Doti-Spogli Chair of Free Enterprise
Chapman University
www.grossoutput.com
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?