(Photo: Bloomberg)
(Photo: Bloomberg)

Why GDP measures could be flawed

GDP is a ‘numerical rhetoric’ and a political instrument for richer countries and industries, a new study says

As India grapples with both slowing Gross Domestic Product’s (GDP) growth and issues in GDP calculations, a new study has questioned the value of GDP as a statistical measure itself. Jacob Assa of the New School for Social Research argues that GDP is ‘numerical rhetoric’ and a political instrument for richer countries and industries. He questions the common perception of GDP as a public good and the assumptions made in economic activity measurements.

However, the political use of national accounting is not a recent phenomenon. Assa traces it back to the 17th century when nation-states were being formed and individuals used national wealth estimates to lobby for policies and to uphold national power. He argues that GDP is now being used similarly by international organizations, like the World Bank and IMF, to implement favourable policies for rich countries.

In the 20th century, GDP measurement shifted from income/expenditure-based estimates to output/production-based estimates. Assa argues that this made it possible for governments to decide what would come under production. The inclusion of imaginary incomes (rents) from owner-occupied housing and bank’s net interest income in GDP is not just technical adjustments but policies that support real estate and financial booms. Similarly, the inclusion of military expenditure and intellectual property in GDP inflates the growth of richer countries and widens their gaps from poorer countries which are still undergoing industrialization.

Assa suggests even alternative measures of prosperity, such as the United Nations’ Human Development Index, are problematic because they reinforce the harmful perception that what is left outside GDP measurement, such as environmental progress, is not in the economic sphere. He concludes that GDP measurement needs to be democratized through a transparent process open for public scrutiny.

Also Read: Gross Domestic Power: A History of GDP as Numerical Rhetoric

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