Sun, 21 Mar 2004

Gross Domestic Product

The Gross Domestic Product (and its friend the Gross National Product), is often criticized because it does not measure the wealth produced by non-market transactions. For example, if we do favors for each other, that does not contribute to the GDP, but if we pay each other, it does. Or take stay-at-home mothers who keep house and home together, or who do volunteer work outside the home. What they do is much like paid work, but because it involves no pay, it's not part of the GDP.

People use these examples to criticize economists for using a poor representation of the wealth of a society.

Problem!

Economists aren't using the GDP to represent the wealth of a society!

Only non-economists think the GDP represents the wealth of a society. They're constantly misled by news reporters who report changes in the GDP as if that number means anything to a working stiff. It doesn't. It measures trade, not value. Its only use is in comparing the size of one country's trading against the size of another country's trading.

I'd really, really like to see non-economists completely forget about the GDP. Or, if they simply cannot forget it, at least stop paying any attention to it. It's only meaningful to economists. Everyone else should ignore it.

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