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Matt Singer on February 20, 2006 - 1:18pm
The right-of-center British newsmagazine The Economist had made it clear what many of the Gross Domestic Product's critics have known for some time: GDP, while a useful metric, can also offer a "Grossly distorted picture" of the economy. How is that? Well, as The Economist notes, GDP fails for a number of reasons. For one, it considers the amount of growth occuring within a nation's borders, not the amount of growth happening to a nation's citizens. It also doesn't take into account things like capital stock depcreciation. But beyond these bland economic criticisms, there are larger problems as well. GDP doesn't measure the distribution of growth. 100 billionaires could see growth of a combined 100 billion dollars, while the rest of the country could witness a combined decline in income of 50 billion dollars and GDP would simply tell us that the economy grew by 50 billion dollars. GDP doesn't take into account income distribution, leisure time, or how the the increased growth is used. If all of the growth is being used to fight environmental problems stemming from growth (as much of China's growth is being used), the portrait that GDP is painting is, well, grossly distorted. This isn't to say that GDP isn't a useful measure in its own ways. It's simply worth acknowledging that America needs to break out of its focus on Gross Domestic Product if we're to have a real understanding of how our economy is growing and how that growth is affecting Americans.