The Poverty of GDP

by Carmen Elena Dorobăț

The Economist recently ran a piece criticizing the suitability of GDP as a measure of economic development and material progress. In the past, the publication has touched on various other weaknesses of this aggregate measure—including the fact that it is not a timely and reliable indicator that can guide economic policy—as well as suggesting new measures for prosperity.

As expected, none of these articles discuss one main drawback of the GDP aggregate—the inclusion of government spending. In America’s Great Depression, Rothbard removed the G component to suggest the Gross Private Product (or the netted version, the Private Product Remaining) as a better gauge of the material progress of a nation. Professor Herberner has also pointed out various important economic aspects that GDP, as a rough aggregate measure, leaves out. Moreover, professor Salerno has also shown that a reduction in the GDP—as it is calculated today—via a reduction in government budgets and taxation would in fact be underlined by an increase in the capital stock, a rise in the economic welfare of producers, and a higher real standard of living for the entire population.

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