Is GDP an Accurate Indicator of a Country’s Prospects?

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For years, countries have been measuring their economic success by counting products in a market basket- a process otherwise known as the GDP, or gross domestic product. GDP, in economic terms, is a measure of all final goods and services produced in a country in a certain time period. This definition, however, creates some limitations that must be observed in a world that is changing so rapidly. For example, GDP does not account for many newer products, such as most electronics, because they are not part of the market basket of goods that have been counted for decades. Technology is becoming a huge part of our economy, so it is important that countries account for the progress made through technology-related jobs and sales. Currently, the peak of GDP is in 1978, so it can be easily argued that society has improved greatly since then especially due to technology and welfare programs. 

In addition to not accounting for newer products, there is an easy way to manipulate GDP that has been used in the recent political climate: deficit spending. Deficit spending is when the government spends money that they don’t have, proverbially “borrowing from future generations.” Deficit spending boosts the economy in the short run but is harmful to future administrations, because it leaves less money for long run investment in capital. Another important factor that goes unaccounted for in GDP is the environment. China’s exponentially growing GDP is slightly less impressive considering the extreme damage some of its newer factories have caused on the environment, limiting the future potential of the land used. As these environmental issues become more prominent, economists are looking for a better measure of economic health than GDP.

One newer measure of economic progress is GPI, or the Genuine Progress Indicator. GPI has been around for a while, but it is only now becoming accepted as a popular process. For example, both Vermont and Maryland have adopted GPI as an official state measure of the economy. The main difference between GDP and GPI is that the latter accounts for negative depreciation of capital. 

Although GDP is still an important marker of an economy’s success, the world is evolving and so is economics. Today, more problems are surfacing, most of which require modern and creative solutions. It is up to the next generation of consumers and economists to decide how best to incorporate these solutions into the market.