The Problem With GDP
Updated: Mar 1, 2020
Critical thoughts on Gross Domestic Product: its conceptual evolution.
By: Megan Sanchez
“[GDP] merely provides a measure of the final goods and services produced in an economy over a given period, without any attention to what is produced, how it’s produced or who is producing it.”
- Blanke, quoted by Ross Chainey, World Economic Forum
A Short History of GDP:
In "A Short History of GDP: Moving Towards Better Measures of Human Well-being," Robert Costanza et alia authors argue that GDP as a proper concept arose in the 1930s and 1940s.
This era was marked by the aftermath of two world wars and Great Depression which had triggered a worldwide instability, uncertainty and turmoil at all levels.
The authors argue that the decision to implement a measure such as GDP (as an indicator of economic progress and well-being) was thus born out of a historical necessity to trigger fast change in the most systematic, mathematic and pragmatic way possible.
Despite the blatant need for a quick solution to global havoc, one of its main architects, Simon Kuznets, had warned already by 1934 "against equating GDP growth with economic or social well-being," as the two were not directly related. (Costanza, et alia., 2014:91-97).
However, as WWII was approaching its formal ending, and as the Bretton Woods (1944) conference aimed at healing the international monetary system, GDP became 'an efficient shortcut' to tackle economic problems.
Although imperfect in nature, it is still used today, and its concept has not been revisited nor radically changed by political leaders.
In light of recent economic tragedies, such as the 2008 financial crisis, economists, political scientists and intellectuals are voicing their thoughts on the matter of GDP.
Interview with the Economist, Joseph Stiglitz:
Joseph Stiglitz: Time to Rethink Fixation on GDP? (quick 4 min video below). If the video doesn't show, just click the hyper-link in parenthesis.
It seems clear that the economy does and should reflect the collective ideology of a given time. According to Stiglitz, it is our duty to revisit concepts and amend them in such a way as to be in sync with our changing reality.
What do you think?
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Megan Sanchez is the Founder and CEO at EVMO News. She graduated from her studies in International Relations and Global Politics with maximum honors. She is now a self-published author and academic.
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