By Alexander Apostolides on August 10, 2009

NY TIMES OP-ed misses the point about GDP.

Every two years there is somebody who claims the death of GDP as a tool in understanding wellbeing and measuring performance. Now even the New York Times has joined the band wagon.

As a person who has spent the last 4 year reconstructing the GDP I can tell you that a lot of what this article is saying is bull. One of the biggest criticisms is that DIY and household work is not included in the GDP. Yet that is a political decision and a decision of national accountants: household chores can be included if politicians agree that it is a worthwhile activity and Sweden has already included it in its GDP (and i agree with Sweden).

The author goes on and moans that drying your clothes does not increase GDP, while taking it to the dry cleaners increases output - failing to see that the difference is that in the first case there no increase in income, while in the other someone gets paid for the services thus creating a multiplier effect that makes the income of the country just a tiny bit better off.

The author then goes on to argue that an increase in GDP does nessesarily make people better off and argues the aftermath of Katerina shows that. That is simply a misunderstanding of GDP- since the income of individual in based how the income is divided among the people. Thus in the US case GDP has been rising but only the income of the top 1% has been rising due to increasing income inequality and the lack of redistribution of income by the government.

Basically the author is annoyed that despite prediction of a recovery, the GDP data showed a continuing downturn. People forget that long recessions (or day i say it depressions) are not an up / down process - there a is lot weak recovery and sudden reversals. The author also does not tell us that there are alternatives to GDP, such as the Human development index, that take a persons welfare into account - the author does not mention them since they show the problems of the USA, which falls from first to the 20th country in the world when education and life expectancy is added to the income per capita indicator.

New instruments such using advanced econometrical analysis that are capable in identifying weaknesses in the economy much more quickly are needed, but that is not what the author is demanding. Sadly I expected more from the NY times in terms of leading the global discussion about the need to change economic thought.

1 comment:

  1. Very unfortunate attempt, indeed. GDP remains as the best mean for comparing countries economic activity (and prosperity) since (despite its imperfections) remains the one figure that is widely available and consistently measured for all the countries and for a period long enough. An income distribution, health and education indicator can complete the picture, regarding economic development.

    ReplyDelete