Here's why the go-to metric for assessing economic strength is far from perfect - and might need an update
- Gross domestic product has long served as the standard measurement for national economies, with its historical precedent and simplicity making it appealing to everyone from economists to investors.
- However, the formula for GDP leaves out factors that are growing increasingly crucial in today's economy.
- Some experts argue the measurement is slow to account for the rapidly developing service industry, doesn't account for sustainability, and leaves social movements in the dark.
- Here are GDP's strengths and weaknesses, as well as a few other indicators that cover some of the areas GDP ignores.
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Gross domestic product continues to serve as the go-to metric for measuring national economies. It's cited in times of expansion and recession, and followed closely by economists around the world.Yet a focus on maximizing GDP leaves plenty of other key factors out of the equation.Advertisement
The US posted a better-than-expected GDP reading Wednesday, with 1.9% growth beating analysts' 1.6% estimate. The figure was primarily driven by strong consumer spending as the manufacturing sector cooled.
As CEOs shift their priorities away from simple profitability and companies place greater value in sustainability, the formula for GDP ignores several critical indicators like quality-of-life shifts, environmental degradation, and purchasing power, among many others. GDP is calculated by adding a nation's consumption, government spending, investment, and net exports.Here are GDP's crucial strengths and drawbacks, as well as a few other measurements that could eclipse the historical benchmark as a new measure of national progress.
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