What are the best measurement of economic growth?


Economists and statisticians use somewhat different methods for tracking economic growth. The best known and most frequently monitored indicator of gross domestic product (GDP). Over time, however, some economists emphasize the shortcomings and errors in the calculation of GDP. Organizations such as the Bureau of labor statistics (BLS) and the Organization for economic cooperation and development (OECD) also have relative indicators to assess economic potential. Some suggest measuring economic growth through improved living standards, although it may be difficult to quantify.

Gross Domestic Product

Gross domestic product is a logical continuation of measuring economic growth from the point of view of monetary costs. If the analyst wants to understand the performance of the steel industry, for example, it is needed only for tracking the dollar amounts of all steel, which entered the market during a specific period.

To combine the outputs of all industries, measured in terms of dollars spent or invested, and you get total production. At least that was the theory. Unfortunately, the tautology that the costs are equal for sale-production does not actually measure relative performance. Productive capacity of the economy is not growing because more dollars to move the economy becomes more productive, because resources are used more efficiently. In other words, economic growth must somehow measure the relationship between aggregate resources and aggregate economic outcomes.

The OECD itself to describe GDP as suffered from a number of statistical problems. Her solution was to use GDP to measure total costs, which theoretically brings the contributions of labor and production, and use of multi-factor productivity (MFP) to show the contributions of technical and organizational innovation.

Gross National Product

From a certain age can remember hearing about the gross national product (GNP) as the economic indicator. Economists use GNP, mainly to learn about total income of the residents of the country for a certain period and how citizens use their revenues. GNP measures the total income of the population for a certain amount of time. Unlike gross domestic product, it takes no account of income derived by non-residents within the territory of that country; GDP is only a measure of performance, and it is not intended to be used as a measure of welfare or happiness of the country.

Bureau of economic analysis (BEA) used the GNP as the main indicator of the economic health of the United States, until 1991. In 1991, the BEA began to use GDP, which is already used in most other countries; BEA brought easier to compare USA with other countries as the main reasons for changing. Although BEA no longer relies on the GNP to monitor the performance of the US economy, it still provides a GNP, which he considers useful for the analysis of the income of U.S. residents.

There is a slight difference between GDP and GNP for the US, but these two measures may differ substantially for some countries. For example, Economics, which contained a high proportion of foreign factories will have higher GDP than GNP. Business income will be included in GDP, as it is within national borders, but not in the GNP, as it accounts for non-residents. Comparison of GDP and GNP is a convenient way to compare the income produced in the country, and income for its residents.

The performance and cost

The relationship between production and costs is the quintessential chicken-and-egg debate on the economy. Most economists agree that the total amount of spending, adjusted for inflation, is a by-product of the production output. However, if the increase in costs is itself an indicator of growth.

Consider the following scenario: in 2017, the average American works 44 hours a week in order to be productive. Suppose there is no change in the number of employees or average performance for 2018. However, Congress passed a law requiring all employees to work 50 hours a week instead of a year. GDP in 2018 will almost certainly be more than the GDP in 2017. Is this real economic growth?

Some, of course, will say Yes. Because the total volume of production, which is important for those who focus on costs. For those who care about the production efficiency and living standards, this question has no clear answer. To bring her to the OECD, GDP would be higher, but MFP will be unchanged.

The Decline In Unemployment Does Not Always Equal Positive Economic Growth

Suppose that the world will be embroiled in a third world war in 2018. Most of the resources of the country intended for military purposes such as the production of tanks, ships, ammunition and transport, and all the unemployed are conscripted into military service. With unlimited demand for military supplies and government funding, the standard indicators of economic health would show progress. GDP will grow and unemployment will fall.

But who would be better? All the goods are produced would soon be destroyed, and the high level of unemployment is not worse than high mortality. There would be strong benefits from such economic growth.

(For associated reading, see: infinite economic growth on a finite planet is possible?)

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