THE EDITOR: Throughout the world the gross domestic product (GDP) of a country is used as the most important indicator of the country’s economic progress.
One shortcoming of GDP is that it uses activities that are detrimental to the long-term economy, like over-fishing, deforestation, strip mining, and murders. GDP inventor Simon Kuznets was adamant that his measure had nothing to do with well being.
GDP was a measure created in the manufacturing age as a means of fighting the depression and is not capable of giving sensible signals about a complex modern economy.
Former French president Nicolas Sarkozy commissioned a panel led by Joseph Stigiltz, a Nobel economist, to look at the effectiveness of GDP. Sarkozy concluded that it created a gulf of incomprehension between experts sure of their knowledge and citizens “whose experiences of life are completely out of sync with the story told by the data.”
GDP is good at quantity and bad at assessing quality. If the food at my restaurant improves it does not affect GDP. If my car runs good that’s bad for GDP. It better for GDP when I have to pay a mechanic. It increases GDP if I crash and have to buy a new car or my family has to spend money to bury me if I die.
GDP has nothing to say about distribution. Averages are misleading. A rise in GDP can be caused by one per cent of the population’s income increasing astronomically and the vast majority of the population’s wages remaining constant. This is a global trend and TT is not exempt.
GDP measures only cash transactions. Voluntary work or house work which are invaluable to a society are not measured but prostitution and transactions that are products of drug dealing are measured.
GDP is not a measure of wealth, it a measure of income. It does not indicate whether a country can do the same next year. It lacks a balance sheet. Companies have balance sheets as well as income statements but a nation doesn’t. Does that make sense?
GDP tells us something about a country’s economy but other measures are needed. Measures of wealth, equality, leisure, and they need to be adjusted for negatives like pollution and homicides.
TT needs a more comprehensive measure of development and economic activities. Bureaucrats and politicians are guided by the public acceptance of data so a better measure is needed.
BRIAN ELLIS PLUMMER