Problems With GDP?

In a New York Times opinion piece, Eric Zencey has written a thought-provoking criticism of gross domestic product as a key measurement of economic activity. If you read this, you’ll see that many of the criticisms are familiar. GDP is inexact, it excludes certain things and activities, it doesn’t take into account certain costs and benefits, it may not accurately reflect economic gains to society, etc., etc., etc. But here’s the deal – we know and almost all economists agree that GDP is a flawed measurement of economic activity. However, the weaknesses and limitations are known, consistent, and predictable. As long as GDP is measured consistently, it is a useful tool for comparisons within a country of economic activity from one time period to another or to a lesser extent comparisons of one country to another.I say to a lesser extent because once we expand beyond a single country, we can’t be as certain that the GDP's were calculated in a similar manner.

Mr. Zencey’s main point seems to be that GDP is not a perfect measurement of a country’s economic well-being. Well duh. That’s why, especially when we talk about economic development, we focus on other measurements such as the Human Development Index, the Poverty Index, measurements of education, health, gender equality, political liberty, and more. Economists know GDP isn’t a perfect indicator of an economy. Again, remember that in basic macroeconomics, we use real GDP, inflation rates, and unemployment rates to get more of a composite view.

I think the big tip-off is that the author isn’t an economist – he’s a professor of historical and political studies.