G.D.P. R.I.P. (NYT)

Nice op-ed in yesterday's New York Times; hat-tip to J.B.:

IF there's a silver lining to our current economic downturn, it's this: With it comes what the economist Joseph Schumpeter called "creative destruction," the failure of outmoded economic structures and their replacement by new, more suitable structures. Downturns have often given a last, fatality-inducing nudge to dying industries and technologies. Very few buggy manufacturers made it through the Great Depression.

Creative destruction can apply to economic concepts as well. And this downturn offers an excellent opportunity to get rid of one that has long outlived its usefulness: gross domestic product. G.D.P. is one measure of national income, of how much wealth Americans make, and it's a deeply foolish indicator of how the economy is doing. It ought to join buggy whips and VCRs on the dust-heap of history.

The first official attempt to determine our national income was made in 1934; the goal was to measure all economic production involving Americans whether they were at home or abroad. In 1991, the Bureau of Economic Analysis switched from gross national product to gross domestic product to reflect a changed economic reality—as trade increased, and as foreign companies built factories here, it became apparent that we ought to measure what gets made in the United States, no matter who makes it or where it goes after it's made.

Since then it has become probably our most commonly cited economic indicator, the basic number that we take as a measure of how well we're doing economically from year to year and quarter to quarter. But it is a miserable failure at representing our economic reality.

To begin with, gross domestic product excludes a great deal of production that has economic value. Neither volunteer work nor unpaid domestic services (housework, child rearing, do-it-yourself home improvement) make it into the accounts, and our standard of living, our general level of economic well-being, benefits mightily from both. Nor does it include the huge economic benefit that we get directly, outside of any market, from nature. A mundane example: If you let the sun dry your clothes, the service is free and doesn't show up in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable—and give G.D.P. a bit of a bump.

Read the rest of the article.