To:

  • The reader

On:

August 29

Re:

  • Less yet greater

The GDP measures what we produce. But how does it account for what's left?

I was recently asked by a reader (thanks mum) if the absurdities in my previous letter were based on real principles from the handbook used to calculate GDP.

Do we really judge the value of a person’s contribution to their nation by the amount of interest they pay the bank, the amount of rent they pay the landlord, or in the case of somebody who inherited an enormous house, by the amount of rent paid by the sucker next door who didn’t? It’s a great question. And yes, we do!

But while this craziness may somewhat inflate the apparent wealth of today’s developed nations, the real problem with the GDP is that it’s not a measure of wealth in the first place. It’s (meant to be) a measure of production.

Gross Domestic Product is the total market value of all final goods and services that are produced in the economy in one year

But wait a minute — how could increased production not result in increased wealth?

Consider the boots paradox, where all else being equal, a nation of people producing $50 boots that need replacing every few months, has a higher GDP than a nation of people producing $100 boots that last for years. The shitty boots nation produces more, as measured in dollar value, but its people still have to wear shitty boots.

Of course, in reality, all else will not be equal. Perhaps the shitty boots nation takes only a day to produce a pair of boots, while the sturdy boots nation spends a week? Perhaps the shitty boots nation places greater value on time and leisure than dry feet? Perhaps the shitty boots nation invests their surplus time into production of spaceships and unicorns – which the sturdy boots nation may have neglected for their love of shoes?

Or perhaps the shitty boots nation just sucks at making boots.

The problem is, if all we have is a GDP, then we don’t know; it’s nothing but a number. It doesn’t tell us anything about how long we worked, how much joy it brought, or how it affected our health.

It doesn’t account for the natural resources we started with, or the damage we may have caused.

And at the end of the day, while the GDP may tell us something about what we produced, it says nothing about what’s left.