June 13, 2013
Americans have been frustrated with the country’s economic performance for quite a while now. But how can we improve economic policy when we don’t even know what we’re trying to improve?
Many decision makers and reporters use Gross Domestic Product as a measure for the economy. But Heritage Foundation expert Derek Scissors argues that GDP, which counts one year’s production, is a bad measure of economic health. Instead, he says, we should measure our national wealth.
The GDP accounts for all sorts transactions that are not necessarily valuable to our economy. For example, Scissors points out, “if the government spends more than it takes in, this adds to GDP, no matter what the spending is used for and no matter how it is financed. GDP says government borrowing is always good.”
Or consider this:
Using GDP also leads to some fairly silly practices. If a house is built, it adds to GDP. If it is then torn down a year later, that also adds to GDP (because people were paid to rip it down). Unbelievably, you can just keep building and tearing down forever, and it will always add to GDP.
Scissors argues that because combined household wealth accounts for debt and other decisions, “it’s a much better reflection of what our economy really is.”
Do you think we should continue using the GDP to measure our economy?