Defending GDP

Of all the statistics produced by the ABS, GDP stirs the strangest reactions. In Fairfax papers over the weekend, Don Edgar tells us that:

Gross domestic product has failed as an indicator of either national progress or individual happiness.

That’s quite probably because it is not a measure of national progress or individual happiness. It measures the value of goods and services produced over a particular time period. Pointing out, as Edgar does, that ‘GDP goes up with increased spending on crime, natural disasters’ is true but a silly criticism. We would be better off if crime and natural disasters did not occur, but spending on them usually leaves us better off than we would be if we did nothing (the ‘gross’ is intended to explain that no account is taken of capital depreciation, or destruction in the case of crime and natural disasters).

GDP clearly cannot be taken as equivalent to national progress or individual happiness. But one reason that it is a very useful statistic is, as Will Wilkinson points out, that it correlates with other statistics that get closer to progress, such as levels of health and education. Continue reading “Defending GDP”