The Bureau of Economic Analysis on July 27 released the GDP growth rate for the second quarter of 2018: 4.1 percent.
GDP – or gross domestic product – is the rate at which the total value of goods and services produced in the US grew. Together with unemployment and inflation, it usually receives a lot of attention as an indicator of economic performance in the US.
There was much celebration over the 4.1 percent rate, as this is higher than that experienced in recent years, but some in the media questioned its sustainability.
That raises another critical question: Does it mean the economy is doing well and there is economic progress? While it is convenient to focus on one number, it turns out GDP alone is inadequate to measure the economic performance of a country. I have spent much of my working life studying economic well-being at the level of individuals or families, which offers a lens on the economy that is complementary to GDP.
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.
For example, for most US workers, real earnings – after inflation is taken into account – have been flat for decades, whether GDP or the unemployment rate grew or not. Yet the attention has remained stuck on GDP.
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.
Over the past couple of decades, a…