September 8, 2018

OH, YOU MEAN OTHER THAN THOSE EXCEPTIONS?:

GDP as a measure of economic well-being (Karen Dynan and Louise Sheiner, August 24, 2018, Brookings)

In a new working paper, Karen Dynan of Harvard University and the Peterson Institute for International Economics and the Hutchins Center's Louise Sheiner conclude that changes in real Gross Domestic Product (GDP) do a reasonable job in capturing changes in a nation's economic well-being with one important exception. They argue that the exclusion of non-market activities that increase economic well-being merits more attention, particularly given the growing importance of such activities.

They cite several areas where measurement falls short of the conceptual ideal. First, the national accounts may mismeasure nominal GDP arising from the digital economy and the operation of multinational corporations. Second, deflators used to separate GDP into nominal GDP and real GDP may produce a biased measure of inflation. For goods and services that do not change in quality over time, current deflator methods work reasonably well. For new goods and services, or goods and services that are changing in quality, current methods may not capture consumer surplus well.



Posted by at September 8, 2018 8:08 AM

  

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