Wednesday, April 16, 2014

Does GDP Measure What It Is Supposed To Measure?

John Kay, writing in the Financial Times,  agrees with the critics who make the obvious points about the poor relationship between the output that is measured and our well-being.  He argues, however, that this is beside the point.  He gives several examples which show that GDP is not even a good measure of what it intends to measure.  For example, the way that financial output is measured is both poorly understood and misleading.  Financial output grew during the financial crisis and it also grew after the crisis because of the way in which it is measured.  Kay concludes that the way in which we measure GDP made Ireland look much better than it was prior to the collapse of its economy.  If we had better measure, its collapse might have been prevented.

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