GDP statistics are misleading

Latest revision as of 19:58, 23 November 2010

Why GDP Figures Are Fooling And Misleading Us

GDP (Gross Domestic Product - goods and services produced in the United State in one year) an accepted indicator of our economic health is distorting the true picture of our economy – it makes no distinction between mere exchange of money in a gambling casino or production in a car factory.

The gross domestic product (GDP) is a brushstroke, a thin layer of paint that is just one part of a complex economic picture. It is an abstract figure used to judge our economic progress and regarded by many as the tell-all indicator of a country's economic health and overall well-being. But the GDP isn't all it's cracked up to be, and fails as an economic indicator in several different areas:

First, it doesn't measure the quality and sustainability of economic development; it makes no distinction between unproductive money transfers as opposed to wealth creating endeavors. A dollar spent at a blackjack table where money disappears like candy in an elementary school counts the same towards a nation’s GDP as a dollar spent to maintain an oil refinery, school district or car manufacturing plant. Money invested in the educational system or industry of a nation is much more beneficial to its economy than cash spent gambling, however the GDP does not measure this; instead all money transactions, regardless of economic usefulness is added to GDP.

Consequently, GDP statistics have failed to register the US shift from a sophisticated world-leader in high-technology production to a third-world exporter of raw resources and importer of a majority many of our finished manufactured goods.

Second, the GDP can unreasonably register positive gains from harm a country endures, showing increases when overall a country or area suffered, like cleaning up from effects of a hurricane. This was also summed up by Mike Nickerson of Ontario, Canada's Sustainability Project: "If a truckload of toxic chemicals spills somewhere, the money spent cleaning it up is added to the GDP. If nearby residents can no longer use their wells for water, their expenditures on bottled water is added to GDP. If they become sick from exposure to the substance, their medical costs are also added to the official measure of well-being."

Even the creator of the GDP Simon Kuznets in a 1934 report to the US Congress acknowledged the GDP's flaws as an economic indicator, "The welfare of a nation can scarcely be inferred from a measure of national income. If the GDP is up, why is America down? Distinctions must be kept in mind between quantity and quality of growth. Goals for more growth should specify more growth of what and for what."

The next time the media hails GDP growth as the ultimate economic and wellness indicator remember the inherent flaws in the calculation of the GDP statistic. It is a statistic that does not necessarily measure wealth creation or the quality of growth. It is a statistic that disasters, gambling, and useless endeavors can inflate.

High-paying manufacturing, which leverages huge dollar sums of capital investment, and high-knowledge jobs like finance, consulting, engineering, etc. are out of the reach of most Americans.

Despite relatively constant GDP growth, it is now universally recognized that American economic opportunity for most is exclusively limited to employment in low-wage low-value add service sectors like retail, hospitality, healthcare, education, and public service.

In the end GDP is a flawed and misleading economic indicator, one that is not the true measure of a country's economic health and yet most continue to use it as a barometer of our economic growth and progress. It should be discarded as it distorts the true condition of our economy.