GDP – a measure of quantity, not quality

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Pontiac Perspective  Peter J. Gauthier


Pontiac Perspective  Peter J. Gauthier

Statistics Canada reported that Canada’s Gross Domestic Product (GDP) rose by an annualized rate of 2.4% in the first quarter of this year. Earlier expectations were for a rate of approximately 2.8%. As a result, the Canadian dollar lost 0.34 cents compared to the US dollar. Obviously, GDP is an important economic number, but what is it exactly?
The GDP is the monetary value of all the finished goods and services produced in a country in a specific time period. Usually the calculation is based on annual economic activity. The formula for calculating GDP is GDP = C + G + I + NX. C is equal to all private consumption, or consumer spending, in a nation’s economy, where G is the sum of government spending, I is the sum of all the country’s investment, including businesses capital expenditures, and NX is the nation’s total net exports, calculated as total exports minus total imports (NX = Exports – Imports).
The basic concept of GDP was introduced in England in 1652 as a means of defending landowners against unfair taxation. Following the Bretton Woods conference of 1944, GDP became the main tool for measuring a country’s economy. All of this is fine and well but GDP as an economic measure fails in several important areas.
GDP does not measure the “underground” economy. In the past, this was considered insignificant, but the universal availability of the internet makes services such as ride-sharing and temporary vacation accommodation easy and largely underground. Unpaid household work, such as raising
children, is also ignored in any GDP measurement. These are only a few examples of increased economic activity that are not recorded in economic statistics.
Of more serious concern is that GDP measures quantity, not quality. For example, building and repairs needed in Fort McMurray will add to GDP, but not to the overall economic benefit of the people affected by the fire. And GDP gives no indication of the increasing income gap between rich and poor, nor does it account for long-term environmental damage done by industries producing consumer goods. Of course, there is no quantification or qualification for efficiencies.
Any critical examination of GDP will show its shortcomings and suggest better means to indicate the wellbeing of the citizens of a country. Improvement in the social welfare of the less fortunate in a country is surely more important than an increase in GDP. Health, happiness, security of the person, genuine liberty, and community spirit are all significant measures of social and individual
success. To truly reflect the status and worth of the citizens of a country,
measurements must go beyond GDP. Only then will the people have the information needed to make meaningful political and social decisions.