GDP: A Brief but Affectionate History - Lecture by Dr Diane Coyle, OBE
How should we measure economic progress? Normally the growth of Gross Domestic Product (GDP) is the focus for policy makers and economists, but its use has increasingly been questioned. Environmental concerns and the growing interest in wellbeing suggest there are shortcomings in GDP, as does the growth of free activities online, which are not included in this standard measure of economic activity at market prices because their price is zero.
The shortcomings have led to other suggestions for measuring progress, but these all have their own shortcomings. Looking at the history of GDP and of earlier ways of thinking about the economy help to clarify what it is that we should be trying to measure to assess the state of the economy. While GDP is an adequate measure of market activity, it is not - and was never meant to be - a measure of social welfare or well-being. Nor does it measure sustainability, or whether current consumption is only being sustained by drawing down the economy's assets, including natural assets. We need different indicators to measure these three different things, economic activity, welfare and sustainability.
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