By Sophie Mitra – GDP has many limitations. It captures only a very narrow slice of economic activity: goods and services. It pays no attention to what is produced, how it is produced, or how it might improve lives.
Still, many policymakers, analysts, and reporters remain fixated on the GDP growth rate, as if it encapsulates all of a nation’s economic goals, performance, and progress.
The obsession about GDP comes, in part, from the misconception that economics only has to do with market transactions, money, and wealth. But the economy is also about people.
Despite the media’s obsession with GDP, many economists would agree that economics considers wealth or the production of goods and services as means to improve the human condition.
One approach is to have a dashboard of indicators that are assessed on a regular basis. For instance, workers’ earnings, the share of the population with health insurance, and life expectancy could be monitored closely, in addition to GDP.
However, this dashboard approach is less convenient and simple than having one indicator to measure progress against. A wide set of indicators are, in fact, available already in the U.S.—but attention remains stuck on GDP. more>