Why GDP doesn’t mean anything
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Tags: america, ideas
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Zachary Karabell, The Zombie Numbers That Rule the U.S. Economy:
    Take gross domestic product. Derived from formulas set down by the economist Simon Kuznets and others in the 1930s, its limitations have long been recognized, none more eloquently than by Robert F. Kennedy in a famous speech in 1968 when he declared that it measured everything except that which is worth measuring.
    GDP treats all output as a positive. When you buy LED lights that obviate the need to spend on incandescent bulbs and reduce energy consumption, GDP goes down and what should be an unmitigated good becomes a statistical negative. If a coal company pollutes a river, the cleanup costs are positive for GDP, as are any health care costs for those harmed.
    What’s more, we have also come to assume that with output comes more spending and employment, but factories today are powered by robotics and software, and robots don’t buy more lattes and shoes.
    The new Fed chairwoman, Janet L. Yellen, recently acknowledged that the headline unemployment rate was less and less useful for policy-makers at the central bank because the figure doesn’t capture any of the nuances of underemployment, discouraged workers who have stopped looking, dropped out, freelancers and interns, and the long-term unemployed.
    Similarly, policies meant to juice consumption and boost GDP might help game the numbers, but they do little to enhance the long-term viability of a dynamic economic system. The stimulus bill passed almost exactly five years ago promised that with $800 billion in spending would come 3.5 million jobs. That never quite happened, because the correlation between spending and private sector hiring, while stronger in 1950s and 1970s, is no longer as potent in an information economy where cheap capital, labor and technology make it easy for companies to generate massive profits and extract more productivity from their workers without having to hire more of them.