Questioning the Usefulness of GDP Measures

Most of us have come to accept the validity of GDP as a given. This article questions the usefulness of national output measures.

Arguments against GDP are not new. As the author notes, Mises was on the case years ago. GDP is hardly a measure of 'economic health' as many believe. One need only look at the components of GDP to understand why:

GDP = C + I + G + (X - M)

C = private consumption
I = gross private investment
G = government spending
X = exports
M = imports

As measured, GDP is largely a measure of consumption. In the spirit of 'what gets measured gets managed,' policymakers will likely intervene in markets in order to goose the numbers in their favor.

Interestingly enough, as noted by the author, GDP measurement didn't come about until the 1930s, when New Deal bureaucrats sought a measurement on which they could focus the public's attention on the need for planning to maintain national economic health.

A better argument can be made that long term economic health depends on savings and capital accumulation. Focus on a consumption oriented measure of national output like the one above is more likely to result in capital consumption in order to 'make the number.'

The decline in savings and rise of debt suggest that this is precisely what is going on.