Rethinking GDP by Diane Coyle published by IMF (3/2017).
“It may be time to devise a new measure of economic welfare with fewer flaws
Why does economic growth matter? The answer for economists is that it measures an important component of social progress—namely, economic welfare, or how much benefit members of society get from the way resources are used and allocated. A look at GDP per capita over the long haul tells the story of innovation and escape from the Malthusian trap of improvement in living standards that is inevitably limited by population growth.
GDP growth is instrumentally important as well. It is closely correlated with the availability of jobs and income, which are in themselves vital to people’s standard of living and underpin their ability to achieve the kind of life they value (Sen 1999).
However, GDP is not a natural object, although it is now everyday shorthand for economic performance. It cannot be measured in any precise way, unlike phenomena in the physical world. Economists and statisticians understand, when they stop to think about it, that it is an imperfect measure of economic welfare, with well-known drawbacks. Indeed, early pioneers of national accounting, such as Simon Kuznets and Colin Clark, would have preferred to measure economic welfare. But GDP prevailed because the demands of wartime called for a measure of total activity. So from the very start, the concept of GDP has long had its critics. But coming up with a better gauge of welfare is easier said than done…”
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