Jim Jones / Courtesy Reuters People walk past clocks at Reuters Plaza in London in this undated photo.

Beyond GDP

What the Measure of Economic Performance Misses About Economic Performance

The media and economic communities regularly use Gross Domestic Product (GDP), a tally of all goods and services produced within a country during a specific time period, as a measure of economic performance. But GDP is a relatively new way of assessing economies. In fact, the concept wasn’t invented until the early twentieth century, when the Great Depression and then World War II pushed Washington to start counting government spending on services and war (before seen as a necessary evil that reduced national income) as a net positive for the economy. 

The construction of GDP statistics was not straightforward, even in those early days when the economy was less complex than it is now. It took decades for more than a handful of countries to create national accounts and for economists and statisticians to create methods for comparing GDP over time and across nations. And the work continues to this day. One illustration is adjusting the dollar total for inflation to get “real” GDP. But constant improvements in the quality of products, and the introduction of new goods and services over time, have made it harder than ever to calculate price changes. For example, a 2013 laptop was a vastly different machine from a 2004 laptop, even if their price tags were roughly the same. A few decades ago, meanwhile, the price of computing was infinite, because computers did not exist. It is hard to capture this transformation in a single price index.

Further, despite years of progress, it is still

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