Gross Domestic Product

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April 2010

GDP and Beyond
Measuring Economic Progress and Sustainability
By J. Steven Landefeld, Brent R. Moulton, Joel D. Platt, and Shaunda M. Villones

T

HE United States provides some of the most highly developed sets of gross domestic product (GDP) accounts in the world. These accounts—which are collectively known as the national income and product accounts (NIPAs) or national accounts—have been regularly updated over the years and have well served researchers, the business community, and poli­ cymakers alike. However, since their inception in the 1930s, the economy has continuously evolved, and is­ sues have been raised about the scope and structure of the national accounts (Bureau of Foreign and Domes­ tic Commerce and National Bureau of Economic Re­ search 1934). Simon Kuznets (1941), one of the early architects of the accounts, recognized the limitations of focusing on market activities and excluding household production and a broad range of other nonmarket ac­ tivities and assets that have productive value or yield satisfaction. Further, the need to better understand the sources of economic growth in the postwar era led to the development (much of it by academic researchers) of various supplemental series, such as the contribu­ tions of investments in human capital and natural re­ sources to economic growth. More recently, concerns have been raised about the adequacy of the national accounts in capturing the dif­ ferential impact of the current recession across house­ holds, industries, and regions of the country. Concerns have also been raised about the failure of the national accounts to highlight and provide adequate warning about the imbalances that developed in housing and fi­ nancial markets. This article explores each of these issues and relates them to the need for expanded or supplementary mea­ sures for the national accounts, highlighting what such estimates might reveal relative to the conventional sta­ tistics presented by GDP and other aggregate statistics from the accounts. In particular, it explores how the accounts might be extended to provide new measures of (1) the distribution of growth in income across households, other sectors, and regions and (2) the sus­ tainability of trends in saving, investment, asset prices, and other key variables important to understanding business cycles and the sources of economic growth.

Broad Social Accounts
Kuznet’s concerns about the exclusion of a broader set of activities from the national accounts has been ech­ oed over the ages, notably by Robert F. Kennedy in his eloquent critique of GDP as a measure of society’s progress. Too much and too long, we seem to have sur­ rendered community excellence and community values in the mere accumulation of material things. Our gross national product,1 if we should judge America by that, counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors…. Yet the gross national product does not allow for the health of our children, the qual­ ity of their education, or the joy of their play … it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans. Robert F. Kennedy Address, University of Kansas, Lawrence, Kansas, March 18, 1968 This concern has remained an issue, and at his inau­ gural address, President Barack Obama said The success of our economy has always de­ pended not just on the size of our gross domestic product, but on the reach of our prosperity; on the ability to extend opportunity to every willing heart—not out of charity, but because it is the surest route to our common good. President Barack Obama, Inaugural Ad­ dress, Washington, DC, January 20, 2009 The recent Report on the Measurement of Economic Performance and Social Progress addressed these issues. The big question concerns whether GDP pro­ vides a good measure...
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