NS4053 Winter Term 2015

GDP Issues

GDP Issues I

• Diane Coyle, Beyond GDP, Foreign Affairs, February 16, 2014• Gross Domestic Product is a tally of all goods and services

produced within a country during a specific time period.• Was not invented until the 1930s when Great Depression and

WWII pushed Washington to start counting government spending as a net positive for economy

• Number of conceptual problems in interpreting figures

• Quality of products change over time

• Need to net out inflationary effects

• How to handle new products as they come into use

• Many products not registered in market place thus not counted

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GDP Issues II

• Hard to make international comparisons given significant differences in economic structure around world

• Other problems with GDP

• Difficult to factor in environmental damage

• Depreciation in oil countries

• Sustainability

• Products or services that improve living standards but are free – Google claims their free services are with $150 billion

• Some have argued since GDP does not measure well-being we need a broader measure -- happiness

• By failing to capture fully increasing range of products in the economy GDP under-reports innovation

• Driverless Car – Goes down as a car, but for many more valuable. Higher contribution to safety which is not captured

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GDP Issues III

• The trade part of GDP statistics also misleading

• Just records final export import destination

• US may trade more with Singapore than china in Singapore adds most of the value but final product exported from China

• Does not capture shadow economy – may be 40% of output in some countries

• Many attempts to augment GDP into a broader measure of welfare

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Economist Better Life Index

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Legathum Prosperity Index

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