Why GDP Fails to Capture Economic Reality
The flaws in using GDP as a measure of success
“GDP” is one of the best-known acronyms in the world.
Even if you didn’t know what it stands for (Gross Domestic Product), you’ve probably heard it frequently in the news. That’s because it’s been the go-to number for judging the health of any country’s economy for nearly 100 years.
But using the GDP as the sole measure of a society’s output is misleading, if not outright dangerous.
A quick history of “GDP”
Measuring the gross domestic output of any economy or nation is not a practice that’s been done since the dawn of time.
What’s meant by a nation’s “gross domestic product” and how it’s measured is considered to have been invented by the (Russian-born) American economist Simon Kuznets.
Kuznets emigrated to America after 1922 and joined the National Bureau of Economic Research (NBER). He was there when the U.S. experienced the Great Depression in the late 1920s and 1930s. As policymakers sought to find ways to alleviate the Depression, it became clear that first, they needed to understand the true size and output of the economy.
