Stop picking on the GDP: Let's not alter our standard measure of economic growth to cater to political goalsRobert J Samuelson
Jewish World Review
http://www.jewishworldreview.com/0516/samuelson051616.php3#JuCpvFukL9exUTd4.99WASHINGTON -- It's time to cut the GDP some slack. Overhauling the GDP -- as some critics would -- threatens to politicize one of our most useful economic indicators. It could be twisted to advance or retard political agendas. This is a bad idea.
First, some background.
GDP stands for "gross domestic product," and it's our standard measure of economic growth. When we hear that the economy grew 2.4 percent in 2015, it really means that GDP grew 2.4 percent. GDP has become a punching bag for pundits, economists, environmentalists and others who claim that it is incomplete and misleading. The respected Economist magazine recently joined the slugfest. It editorialized:
"This one number [GDP] has become shorthand for material well-being, even though it is a deeply flawed gauge of prosperity, and getting worse all the time."
The trouble with this indictment is that GDP was never intended to be -- and shouldn't be -- a measure of general prosperity, which depends on many conditions (a few: job stability, income distribution, health). Prosperity can't be compressed into a single number. The GDP's mission is more modest, though still difficult: to measure the economy's production.
By this standard, GDP is a wonder of the age. Just think: one number that describes something as byzantine as the $18 trillion U.S. economy. The GDP subdivides into useful segments: consumer spending, business investment, housing construction, government spending and foreign trade.
We take all this for granted, but it wasn't always so.
In the 1920s, the GDP didn't exist. To divine the economy, businessmen, investors and government officials relied on many indicators, including railroad boxcar loadings, pig iron output, bank deposits and crop yields. Some entrepreneurs -- Roger Babson was the most famous -- combined individual indicators into a single index that supposedly predicted the economy. The index "was a hodge-podge of numbers," says historian Walter Friedman, author of "Fortune Tellers: The Story of America's First Economic Forecasters."…
Read more at
http://www.jewishworldreview.com/0516/samuelson051616.php3#JuCpvFukL9exUTd4.99
Some interesting history on where the all important GDP number comes from.
