GDP – or gross domestic product – is not a universally-liked measure. Its critics say it overestimates growth by not taking into account, for example, environmental factors. Kevin Carson complains that it does not deduct “broken window” spending. Trashing a window and then replacing isn’t his idea of real economic growth. Yet I think GDP is a good measure precisely because it keeps things simple. Government statistics are difficult enough to objectively collect as it is: if statisticians have to make value judgments about how much a natural habitat or a certain type of bird flying in the sky is worth, the statistic will soon lose any meaning.
GDP isn’t a perfect measure, but I think it’s a mistake to say it overestimates “real growth”. If anything, it underestimates it. In Off the Books, W. Michael Cox and Richard Alm point out that the statistic misses many of the improvements in living standards. Check it out.
Crossposted from Alex Singleton’s blog.