GDP Is Worthless: The Critique Dividing Economists

GDP Convinces No One Anymore: The Critique Coming From the US

Gross domestic product does not measure a country's well-being. The claim, recently put back on the table by a pogre American publication, has more to it than meets the eye: it is not an accusation of statistical manipulation, but an attack on the indicator itself, by design.

The core objection is that GDP, a macroeconomic aggregate of Keynesian lineage, focuses on consumption and leaves out the stages of capital production, on the grounds of avoiding double counting. Those who work with the Hayekian triangle argue that this turns the figure into a misleading unit.

The most vivid example is that of hamburgers. An economy where a hamburger costs 50 euros and chewing gum 2 posts a GDP of 52. Another, with prices of 4 and 0.10, adds up to 4.10. The first appears more productive, but at real prices generates little; the second, with adjusted prices, produces more value. Purchasing power parity exists to correct that distortion, and its best-known reference is the Big Mac index.

Some go further and argue that the indicator is fine, but that governments have manipulated it for twenty years, just as they have the CPI or unemployment figures. The most skeptical predict that GDP will eventually be replaced by a "fairer, greener and more diverse" indicator, without specifying how it will be measured. The irony is that this critique of GDP comes from the American cultural left, so classical liberals watch the scene unsure whether to applaud or stay silent.

What no one resolves is what a healthy economy should actually measure. GDP will keep being used out of inertia until a credible alternative exists. And none is in sight.