GDP as the champion of measurements: Story of an obsession

Mark Esposito & Terence Tse

Published: March 2015

This paper considers the importance of measurement in complex societies and notes that the concept of measuring macroeconomic variables such as GDP was grounded in the impact of the 1929 Wall Street Crash on America. Simon Kuznets, a Harvard economist, produced a report for the National Bureau of Economic Research (NBER) which was published in 1934. Despite warnings of the limitations of GDP, its use has expanded to include government expenditures while to Kuznets government activities were an intermediate service and not part of final output. This paper considers particular inadequacies in using GDP as a measure of welfare when it includes, prison funding, natural disaster relief or expenditure on big sports events. The paper also argues that we should move beyond GDP while still recognizing its benefits as an organized methodology. Climate change, environmental disasters and international terrorism, transcend the assumption that economic growth is all we need. It concludes that an index capable of measuring social progress, independent from economic activity is needed.