Why can GDP data be inaccurate

Discussion about GDP : Growth, prosperity, search for truth

In Germany, the gross domestic product (GDP) alone should not be the benchmark for economic growth and prosperity in the future. The "Growth, Prosperity, Quality of Life" commission began looking for alternatives on Monday. Over the next two and a half years, the panel of 17 MPs and 17 scientists wants to research whether other criteria can be used to measure the well-being of the population in addition to economic growth.

This is long overdue: It has long been doubted that GDP is the sole indicator of a country's economic performance. Gross domestic product measures the value of domestically produced goods and services. But it does not take into account the price at which the economy is growing and whether the growth will give people a better quality of life.

That is why it seems increasingly grotesque when politicians make economic growth measured as GDP their measure of success and even speak of an economic miracle or “XXL growth” on the basis of this indicator. GDP not only ignores pollution and resource consumption, it also sends the wrong signals. Rising crime, pollution, traffic jams, and all the associated repair and avoidance costs increase GDP. The removal of the oil spill in the Gulf of Mexico, for example, boosted US GDP. The example shows: a rising GDP can even go hand in hand with a poorer quality of life.

There is no doubt that we must also talk about the limits to growth. The Club of Rome formulated the realization that there can be no unlimited growth on a planet with finite resources as early as 1972. In view of climate change, it can hardly be ignored even by growth-minded economists and politicians.

But the monolithic mainstream in politics and science is difficult to crack. Because behind the establishment of the gross domestic product as a measure of economic and political success there are established power structures. The consumption-fixated measure of GDP fits perfectly with the model of Homo Oeconomicus, with which the neoclassical economic theory tries to depict human behavior to this day. The Homo Oeconomicus is a strictly selfish and self-centered person who acts exclusively rationally. This basic economic assumption has long been refuted in numerous field studies and laboratory experiments. Fairness, solidarity and cooperation are very much part of human nature. But “irrational” voluntary work, for example, is not included in GDP.

Distribution issues are also systematically ignored by both the gross domestic product and the ruling economy. An increasing or decreasing concentration of wealth and income is not visible in GDP. The index does not differentiate between one euro that goes to a poor person and one euro that a super-rich receives in addition. In theory, GDP can rise massively while the country is in famine. Growth can also come exclusively from the corporate profits and property income of a small upper class. On the other hand, policies that strengthen social cohesion in the country may lower GDP. The rich and high earners, on the other hand, benefit from policies that aim to increase their incomes to increase GDP.

However, the issue of growing inequality is not one for many conventional economists and policymakers. This is also clear when you look at the USA, where the gross domestic product was invented. Income inequality is greater there than in any other industrialized country. At the same time, the USA is still the richest nation according to GDP statistics: In 2010, nominal GDP in the USA will be around 14.6 trillion US dollars, according to estimates by the International Monetary Fund (IMF). In terms of gross domestic product per inhabitant or employee (productivity), the USA is regularly the front runner among the large countries. These seemingly good data help the country, among other things, to take out loans on favorable terms.

On the other hand, life expectancy in the US is lower than in other developed countries. A study by Columbia University’s Mailman School of Public Health attributes this to the American healthcare system - the most expensive in the world. But health care spending has a positive impact on GDP, as is prison spending, which is comparatively high in the United States. Both cost factors can hardly be regarded as an expression of a high quality of life.

A political orientation towards the growth chimera and its measure always means an orientation towards the USA. Until recently, many politicians argued that the apparently successful US-style capitalism had to be a role model. They were blinded by the results of the GDP race and ignored the growing debt of American households.

A rethink in the measurement of economic progress would be desirable. After all, the measured variable influences action. If services relating to the improvement of quality of life, the environment, health, education and justice were included in a key figure, they would possibly be more the subject of political action.

For this, however, internalized thought patterns have to be adopted, which some political actors can hardly be expected to do. Thus, the original proposal, drawn up by the SPD and the Greens and reintroduced by the left, to set up the study commission of the Union and FDP was defused: references to the social division in the country and hunger in the world were deleted. The connection between money or credit creation by banks and the development of real economic growth no longer plays a role after the revised application.

Members of the CDU and FDP, on the other hand, have made it clear that “the Commission should not criticize the social market economy in a critical way” and that economic growth is still needed. A new progress indicator should also continue to be based on GDP as a measure. But the growth fetishists can no longer ignore the discussion about the prosperity indicator, which has long been going on in other countries. This is a small step, albeit a difficult one to measure.

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