Gross Domestic Product: A Gross Miscalculation of a Nation’s Economic Health

Gross Domestic Product (GDP): The value of economic activity within a country. A measurement of how strong or weak a country’s economy is. The final monetary value of everything that is created in a country.

GDP: A deeply flawed yet tremendously relied-upon report that gives no reliable indication of how well the citizens of a country are doing economically.

You hear it mentioned every day on CNBC, at least a few times a week on CNN, MSNBC and Fox, and at least once a month on your local news. The GDP is shorthand for how productive the US economy is. And it’s been on a steadily inclining slope since 1950, give or take a few dips here and there. The American economy has pumping along and people are richer than ever and nobody in America ever goes to bed hungry and the GDP reflects this rosy situation.

Except it’s garbage. Here is the formula for computation of GDP: Private consumption plus government consumption plus investment plus net exports. Of course, private consumption is by far the largest component of the formula. Consumption is calculated by adding durable and non-durable goods and services expenditures. Sounds easy enough, right. But there’s a Sith-level dark side to computing economic growth in this way.

For instance, after the Exxon Valdez oil spill two billion dollars was spent cleaning it up. Or, rather, trying to clean it up. Two billion dollars that wended its way through the American economy, thereby pumping up the GDP. But there was no calculation of the ecological costs of the oil spill which could work as deficit product pulling back the advantages of that two billion dollar infusion into the economy. In fact, the GDP almost always spikes upward when there is a disaster of some sort, be it a catastrophic oil spill or one of the Gulf Wars.

Simply put: the GDP measures “goods” in more ways than one. It measures goods produced and it measures every dollars spent as something that is good, as something that has no negative effect. There’s no calculation to separate a beneficial economic transaction from a destruction transaction. And the less money that is produced by an action, the less positive its effect on the GDP. So, for instance, volunteering at your local hospital for twenty hours a week contributes less than selling a bottle of air captured during a hurricane on Ebay. Buying a hybrid care contributes less than buying a Hummer. Being a stay-at-home parent contributes less than being a greeter at Walmart.

The GDP actually contributed from 9/11 due to the increase in home security wares stemming from the false fear perpetrated upon America by an administration always quick to cash in on the power of scaring the pants off its citizens. If war is good for the economy, then fear is even better. Fear causes people to buying things they’ll probably never need; things that would probably never be bought otherwise. Crime adds billions of dollars a year to the GDP. Is crime good for America? Apparently so.

Disasters are pretty nice too. The hurricane assault on Florida last year devastated lives up and down my state. I was a victim myself. But I guess I can feel better since the resultant need for building and renovation materials, supplies and labor jumpstarted the GDP.

In October 2003 on the National Review online site economic Larry Kudlow trumpeted that “the Bush boom has begun at last.” For proof he pointed to a 7.2% rise in the GDP. It’s been a year and a half since the Bush boom began. Have you benefitted from it? If so, then you must work for Halliburton. I can’t imagine anyone else admitting to benefitting from a boom that never happened.

There are alternatives to the GDP. There is the Index of Sustainable Economic Welfare (ISEW). The ISEW factors in negatives to present a completely different view of how an economy is doing. As mentioned before, the GDP has been on a steady slope upward since 1950. Using the ISEW, economic strength peaked around 1970 and has leveled off since then, with the exception of a noticeable dip in the early 80s. Right around the time that The Greatest American Ever, Ronald Reagan, began putting voodoo economics into place.

Then there is the Genuine Progress Indicator (GPI). Like the ISEW, the GPI factors in aspects of the economy that the GDP ignores. The GPI has been on a steady decline since Reagan took office.

The next time you hear a news report about the GDP proves that the American economy is on track and we’re doing better than ever, take a moment to question exactly where the consumption figures came from that boosted this deeply flawed indicator of economic well being.

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