GDP Isn't Flawed, It's Just Not That Important

A blog about business and economics.
Feb. 19 2014 7:30 AM

GDP Isn't Flawed, It's Just Not That Important

The woods are lovely, dark, and deep. But cutting them down would increase GDP.

Photo by Marcel Mochet/AFP/Getty Images

I sometimes read assertions that the statistical methods used by the Commerce Department to calculate GDP no longer properly capture economic output because they don't, for example, properly account for all the free stuff people enjoy on the Internet.

This is a huge mistake. There really are problems with the statistical methods used by the Commerce Department to calculate GDP (for example, the number it gets using the income method isn't equal to the number it gets using the expenditures method even though the two methods are efforts to measure the same thing), but they're small and have nothing to do with technology. The issue isn't that there's something wrong with GDP. The issue is that GDP is something rather specific—the total monetary value of market production—and not an overall summary measure of human well-being.


Consider the two richest metropolitan areas in the United States by per capita GDP—the greater Washington area on the East Coast and greater San Francisco on the West Coast. These two cities have very similar output per capita. But the weather is much more temperate in the Bay Area than here in the mid-Atlantic. Consequently, a much larger fraction of DC-area output goes to heating buildings in the winter and cooling them in the summer than you see in the San Francisco area. Yet despite our much greater investment in climate control, since we still have to go outside, we experience on average worse temperature conditions and have less money left over for everything that isn't heat and air conditioning.

Sucks to be us!

And so it goes. Keeping a house tolerably warm in a cold winter constitutes economic activity. Enjoying a pleasant breeze on a nice day does not. Cutting down a forest and selling the wood is economic activity. Kids having fun climbing trees is not economic activity. Installing an iron gate outside your front door because you think burglars will try to break into your house is economic activity. Having a nice conversation with your neighbor outside the front door because it's a friendly block full of nice people is not. Prostitution is economic activity. Recreational sex is not. Buying an apple at the store that you forget to eat before it rots is economic activity. Picking an apple from a tree in your yard and eating it is not.

There are Internet-specific versions of these stories, but their existence has nothing in particular to do with the Internet. It's just that in life a lot of economic activity is trivial or tawdry or even harmful, while lots of great stuff that makes people happy isn't economic activity. As it happens, international comparisons show that happiness is correlated with GDP per capita in a major way. But that's an interesting empirical discovery precisely because it doesn't have to be true. When you look at specific cases lots of things that are pleasant don't add to market output and lots of things that do add to market output aren't especially important or meritorious. This isn't a "flaw" in GDP, it's a sign that total market economic output isn't all there is to life.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



The Ebola Story

How our minds build narratives out of disaster.

The Budget Disaster That Completely Sabotaged the WHO’s Response to Ebola

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

The Shooting Tragedies That Forged Canada’s Gun Politics

A Highly Unscientific Ranking of Crazy-Old German Beers


Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.


The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Would You Trust Walmart to Provide Your Health Care? (You Should.)

  News & Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
Continuously Operating
Oct. 22 2014 2:38 PM Crack Open an Old One A highly unscientific evaluation of Germany’s oldest breweries.
Dear Prudence
Oct. 23 2014 6:00 AM Monster Kids from poorer neighborhoods keep coming to trick-or-treat in mine. Do I have to give them candy?
  Double X
The XX Factor
Oct. 22 2014 4:27 PM Three Ways Your Text Messages Change After You Get Married
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
Oct. 22 2014 11:54 PM The Actual World “Mount Thoreau” and the naming of things in the wilderness.
Future Tense
Oct. 22 2014 5:33 PM One More Reason Not to Use PowerPoint: It’s The Gateway for a Serious Windows Vulnerability
  Health & Science
Bad Astronomy
Oct. 23 2014 7:30 AM Our Solar System and Galaxy … Seen by an Astronaut
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.