NS3040 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 2

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 3

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 4

Economist Better Life Index 5

Legathum Prosperity Index 6