Why US GDP Figures Mean Nothing

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Reporting from Buenos Aires, Argentina…

Here’s a meaningless abstraction for you, Fellow Reckoner. You ready?

US GDP grew at an annualised rate of 1.7% for 2011.

Now, what does that sentence actually tell us? What does it reveal about life or the quality of it; about the long arc of history and where we are along it; about the Heavens above us, the Hells below and our place in the present somewhere in between? What useful piece of information does this arrangement of letters and numbers divulge that has news wires so abuzz with excitement?

What, if anything, does it really say?

Nothing. Well, nothing important anyway. It simply tells us that a measurement with no meaningful connection to reality has, in an attempt to quantify the size of something that does not exist, moved in a direction that does not matter.

Frank Shostak, an adjunct scholar at the Mises Institute, sums the GDP fraud up nicely:

“The GDP framework gives the impression that it is not the activities of individuals that produce goods and services, but something else outside these activities called the ‘economy.’ However, at no stage does the so-called ‘economy’ have a life of its own independent of individuals. The so-called economy is a metaphor – it doesn’t exist.”

But let us imagine for a moment that there was such thing as an economy independent of the individuals who comprise it. The GDP metric still provides, at best, a shoddy way to measure “it.” There is no accounting, for example, for the immense time, effort and natural resources that go into building a good/providing a service that nobody actually wants. Consider the infamous Cash for Clunkers disaster that goosed 2009’s GDP reading…or the payroll numbers of Census employees that pumped up 2010’s read.

According to the first example, the more goods that get destroyed prematurely…the higher GDP goes up! Likewise, in the second example, the more people are employed to perform meaningless tasks…the higher GDP does soar! Following this twisted logic, why not simply bulldoze every house in America and put the population to work rebuilding them from scratch?

Sure, nobody would have a roof…but everybody would have a job fixing one! Plus, GDP would be sky-high. Welcome to your workers’ paradise, comrade!

Regards,

Joel Bowman
for The Daily Reckoning Australia

This article originally appeared in The Daily Reckoning USA.

Joel Bowman
Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
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2 Comments on "Why US GDP Figures Mean Nothing"

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Pete
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“Nothing. Well, nothing important anyway. It simply tells us that a measurement with no meaningful connection to reality has, in an attempt to quantify the size of something that does not exist, moved in a direction that does not matter.”

So true, I love it.

I’m sick of hearing everything compared to GDP.

David
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Very good article and reading. It’s great to pull the building down (especially when it’s untenable)but is there something to replace it with? Like something the Government cannot fiddle with?

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