Sunday, November 19, 2006

Is GDP a good measure?

Eric Weiner in the LATimes.

GDP is the sum of all goods and services a nation produces over a given time. GDP measures the size of the pie, not the quality of the ingredients — fresh apples or rotten ones are counted the same. Or, to put it another way, the sale of an assault rifle and the sale of an antibiotic both contribute equally to the national tally (assuming the sales price is the same).

GDP doesn't register, as Robert Kennedy put it, "the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate." GDP measures everything, Kennedy concluded, "except that which makes life worthwhile."

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John Quiggin in his blog:

...[T]he Gross Domestic Product is a bad measure of a nation’s economic welfare because it’s Gross (doesn’t net out depreciation of physical or natural capital), Domestic (doesn’t net out income paid overseas) and a Product (takes no account of labour input)).

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In both, you will find Gross Domestic Happiness mentioned as an alternative; however, this is yet to be defined in a rigorous way. But the larger point is still the same: if people's welfare (happiness) is what politics is all about, GDP may not be right proxy for it.


  1. Anonymous said...

    "and a Product (takes no account of labour input))."

    May I know what that is supposed to mean?

  2. Abi said...

    I believe Prof. Quiggin means labour inputs that don't translate into products which then enter the 'markets' and 'official' GDP accounts. I'm going to rely on my trusted Econ 101 texts for more precise wording here:

    Samuelson and Nordhaus (Economics, 17th edition, 2001, p. 449): "... many household activities produce valuable 'non-market' goods and services such as meals, laundering, and child-care services. Recent estimates of the value of unpaid household work indicate that it might be almost 50 percent as large as total market consumption".

    An even better version is from Campbell McConnell (Economics, 10th edition, 1987, p. 161): "Standard examples include the productive services of a homemaker, the efforts of the carpenter who repairs his or her own home, or the work of the erudite professor who writes a scholarly but nonremunerative article". [bold emphasis added]

  3. Anonymous said...

    Actually, I was getting at something different, which is that the effort cost of production isn't taken into account. So if someone works 100 extra hours and produces $1 worth of extra output, GDP goes up, but welfare doesn't (assuming effort cost is more than 0.01 per hour).


  4. Anonymous said...

    Is slavery still a problem in the US?

  5. Anonymous said...

    How could you comment the words of Robert Kennedy, in 1968, in his speech about the Gross Domestic Product(GDP)?