Why GDP Is Like GPA

Have your doubts about the significance or validity of the GDP calculations?  Well if so you are not alone as this NPR piece discusses.  Calculating all of the production in this let along any country is a daunting task even when things do have a price tag on them.  What makes trying to calculate gross domestic product even more difficult is all of the unseen production that goes untallied.


Just like your GPA wasn't the end all be all to measure your academic performance neither is the GDP calculation when it comes to measuring the productivity of an economy.  I'd say it is even more difficult today after the great recession and you have more people working and performing jobs off of the books.


If you ever wondered who actually put out the GDP figure it is Steve Landefeld at the government's Bureau of Economic Analysis.


Why GDP is Like GPA

• "It was designed to do exactly what it does today, which is to pull together all the diverse pieces of economic data," he says. "Some of which are going up, some of which are going down, some of which double count one another — into one comprehensive and consistent picture of what is happening to the economy."
• "The share going to the top 1 percent as we talk about it today has grown," Landefeld says. "That has made the simple average of GDP per capita less meaningful to the average person. It's a real number, but it perhaps doesn't refelct what people are seeing in their personal economic situation."
• If you buy a tomato, that increases GDP. But if you grow a tomato — if you spend hours watering and weeding — that doesn't get included.  If you pay a nanny to take care of your kids, that's GDP. If you stay home to take care of your kids, that's not GDP.
• Environmentalists like to point out that industries can boost GDP by doing damage to the environment. Herman Daly, an economist at the University of Maryland, points to the Gulf oil spill. BP spent billions on clean-up.  "All of the expenditures on cleaning up the oil spill were then added to GDP," Daly says. "Now that's asymmetric accounting. You're not counting the negative, and you're adding in the positive."