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GDP is a Bad Statistic. Alternatives Coming

GDP is a Bad Statistic. Alternatives Coming

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Published by Ron Robins
Hell could have just as big a GDP as heaven! Some could argue that hell’s ‘inhabitants’ under duress might produce even more than those in heaven. GDP makes no distinction between good and ‘bad’ production.
Hell could have just as big a GDP as heaven! Some could argue that hell’s ‘inhabitants’ under duress might produce even more than those in heaven. GDP makes no distinction between good and ‘bad’ production.

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Published by: Ron Robins on Dec 24, 2010
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05/12/2014

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GDP is a Bad Statistic. Alternatives Coming
By Ron Robins, Founder & Analyst,Investing for the SoulBlogEnlightened Economics;twitter First published July 28, 2010, in his weekly economics and finance column atalrroya.comHell could have just as big a GDP as heaven! Some could argue that hell’s ‘inhabitants’ under duress might produce even more than those in heaven. GDPmakes no distinction between good and ‘bad’ production. Disasters like that of BP’sDeepwater Horizon oil spill increase GDP. The rising costs of crime and building moreprisons raise the GDP. Haitian type earthquakes and Pacific tsunamis may massivelyboost GDP.The GDP statistic is really bad in helping us understand our economic well-being. It ismisunderstood, misused and overhyped. Fortunately, modifications and alternativesto it are gaining ground.Everywhere politicians, the general public—and even many economists—crave toincrease the GDP. Falsely, I believe, they feel that the GDP measure offers the abilityto make real cross country comparisons in living standards and economic growth,much like one compares football scores. But for many reasons, comparisons areerroneous without knowing much more about other factors. Even the U.S Bureau of Economic Analysis does not endorse the idea of GDP reflecting Americans’ well-being.The GDP was never intended for measuring our well-being. It was created in the1930s and came into use during World War ll to measure war output. It is simply thevalue of all final goods and services within a country.Elaborating on why the GDP cannot be used to describe our well-being is thefollowing by Clifford Cobb and colleagues. They state, “much of what we now call thegrowth of GDP is really just one of three things in disguise: (1) fixing blunders andsocial decay from the past [paying for pollution, costs of crime, etc.]; (2) borrowingresources from the future [GDP excludes the costs related to farmland depletion,water, other resources]; or (3) shifting functions from the traditional realm of household and community to the realm of the monetized economy [i.e. eating outrather than at home].” My personal big issue with the GDP is its non-accounting of debt and thus the illusoryhalo of purported economic strength it showed in past years. According to ComstockPartners, Inc., the debt required to produce a one dollar increase in GDP jumpedfrom $1.53 in the 1960s to $6 in the first decade of this century. This burgeoningdebt productivity problem, unrecognized in the GDP, led to an intolerable level of debt that has begun to meltdown. Only after the credit crises began to knock downtwo of GDPs principle components, private consumption and gross investment, didwe see it decline. Thus, GDP is blind to debt and therefore a deceptive statistic ininforming us about our true financial and economic condition or well-being.There are two ways forward to formulate a better measure of our well-being. Oneway is to add new parameters to the GDP, and the other is having numerous

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