GDP is incredibly flawed.
Towards Partnership — an economics for our times
Rachael Lowe

I think what is flawed is the perception of what GDP, the gross-domestic-product, is.

It stems from a time when output was equal to the growing wealth of a nation. But even then it was a measurement of output, never of wealth. If one sees GDP as a wealth indicator then one assumes there is a linear correlation between output and wealth.

GDP is, as all economic figures are, without any morales or ethics. As a macroeconomic measure it assumes that only things are being produced that raise wealth, for there is no demand for any product that reduces wealth within a nation.

If there would be, economics under liberal assumptions expects a market for a countermeasure to spring up to eradicate this loss of wealth. Under ordo-political circumstances economics believes a market for wealth-reducing goods to be regulated in ways that it does either disappear or its negative effects being contained leaving only the fruitful part of that market intact.

Beyond that the correlation between GDP and wealth will be as large as will be the correlation between buyer behavior and the sought for wealth. If only individual wealth is considered then only that will be accounted for. If it’s morally and ethically o.k., to buy a cheap shirt from a billionaire’s fashion chain which got manufactured by underage people in underdeveloped nations in 12 hour shifts who got to share the mattress besides their knitting machine for sleeping, then its sale will raise both the GDP in the country of origin, in that of the sale and in those the corporation gets taxed in.

GDP was and will always make the best output measure for a national economy, the one that gets officially taxed (it is ridiculous that after Italy all the EU added a few percentages to its GDP to account for crime from drug dealing to forced prostitution as economic output). But it is just a measure of output with no regard to the goods traded nor their effects on society.

Westerners may laugh about China banning women eating bananas on webcams or playing ego-shooter games in webcams while dressed in latest Victoria Secrets fashion, or Singapore banning the sale of chewing gum and adult entertainment media. But both countries only make use of the right of nations (through individual behavior or legislative decree) to decide what tradeable good or service is of overall wealth-generating nature and which isn’t.

In Western societies we like to leave that to the consumer. So peasants buy pesticides which kill bees and teenagers buy fashionable clothes made by their largely illiterate counterparts half around the globe (much less do those know about Renaissance or Enlightenment).

With “the West” having gone through those we could and should stress individual responsibility. While our free society allows for people to only look at their own wealth, it is also possible to look at the overall wealth-contribution of our behavior. In that, one then may still see wealth generation in a teen making one Euro a day knitting in a country with an average monthly income of 120 Euro. Or one may not.

While we can create wealth indicators on individual or national levels for each way individuals look at the world, this is little fruitful. Abusing GDP as a one-fits-all wealth indicator is also wrong. Making this false assumption the basis of improvements is probably not helpful.

Accepting all the shortcomings of GDP and its nature as a macroeconomic measure of output might be a beginning. It would allow for consensus building within nations or clusters of society within nations of what should be produced and consumed. For as long as no cluster tries to dominate the other by telling them to behave like them, for they are the morally better humans, it should be ok.

But given that humans either lack ambivalence or tend to show over-ambivalence where they used to have achieved ambivalence already, given this strange need within all of us to rule the world, chances are we would fail to accept any wealth measure. Nobody will be completely happy with any. And maybe also because of that the output measure of GDP is wrongfully being kept in place as a measurement of wealth. In the meantime the degree to which it indicates the presence of wealth depends on buyers in markets.

Like what you read? Give Stephan Jaeckel a round of applause.

From a quick cheer to a standing ovation, clap to show how much you enjoyed this story.