GDP is outdated, here are the alternatives

Economists increasingly believe it is important to do more to measure the economic well-being of the families who make up the economy and to deemphasize Gross Domestic Product growth, the one-number-fits-all measure of economic progress that currently dominates popular discourse. That’s the takeaway from a panel of high-profile economists, including Nobel Laureate Angus Deaton, titled “Beyond GDP,” held at this year’s annual conference of the American Economic Association.

The panelists are right—new metrics of well-being are long overdue. But the panel also highlighted the difficulty of communicating the deficiencies of GDP and the value of new measures to noneconomists. While virtually all of the panelists agreed that GDP is not a very useful gauge of economic success, most also said they would leave the U.S. GDP report untouched and focus instead on creating new “satellite accounts” at the U.S. Bureau of Economic Analysis. Satellite accounts are separate publications, distinct from the monthly GDP release. Current satellite accounts are primarily about transportation and tourism.

But satellite accounts do not command the attention of the press and the public. If economists really believe GDP growth is a deficient statistic, and that extensions will make it better, then they should be willing to elevate those extensions and include them in quarterly reports. The quarterly reports are well-known and are covered extensively by journalists already, guaranteeing visibility for statistics that appear in them.

Economists on the panel proposed a number of excellent ideas for extending the current national accounts, among them putting a value on housework, making better estimates of quality improvements in healthcare, and measuring subjective well-being. Each of these could make the national accounts more useful for understanding the economy and improve economic policy discussions in the United States. But the way these statistics are delivered matters. To make an impact, they should be released on a regular schedule, in a significant agency release, with similar billing to our more established metrics, such as GDP itself.

Despite widespread hesitancy to include changes to GDP in the existing accounts, the panel underscored that there is broad consensus that significant improvements can be made to GDP. The most frequently mentioned area for improvement was adding a distributional component to our national metrics. Though opinions about the exact method may vary, these calls mirror Equitable Growth’s own campaign for a GDP 2.0, which proposes that the Bureau of Economic Analysis break out economic growth by income so we can observe who prospers when the economy grows. The BEA, which produces the National Income and Product Accounts, recently announced that it expects to publish statistics distributing the growth in personal income in 2020.

Angus Deaton suggested that U.S. statistical agencies should also take up measurement of subjective well-being. This means conducting a survey to ask people how happy they are. Deaton noted that collecting this information on a regular basis could be a useful way to evaluate whether gains that are perceived as important to a family’s welfare do, in fact, result in increased well-being. Dale Jorgenson of Harvard University and Dan Sichel of Wellesley College argued in favor of better measures of consumption by households, which they believe better approximates individual welfare.

Panels such as this one reflect the broad consensus among many different types of economists that policymakers can and should do a better job of measuring the well-being of Americans in our economic statistics. The BEA is committed to pursuing at least some of these options (see slide 3 here), although the agency is frequently underresourced. In fact, economists, politicians, and other observers have been writing about and talking about the deficiencies in GDP for decades. It is promising that action appears to be close at hand.

But the unfortunately common impulse to silo improvements into satellite accounts risks leaving GDP growth unchallenged as the statistic reporters and politicians turn to when they assess economic prosperity. Simon Kuznets, the economist most responsible for the creation of GDP as a metric, knew the folly of this tactic well: “The welfare of a nation,” he noted in a report to Congress, “can scarcely be inferred from a measure of national income.”