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GDP – a worthless measure

Earlier this week, the Guardian carried on its front page a diagram with a thick red line pointing down. This showed what was happening to Britain’s Gross Domestic Product, and was intended to portray the dire state of the economy. But what does it really mean?

The meal prepared from home-grown food and eaten at home does not register on the GDP statistics, whereas a ready-made meal make its due contribution to to the GDP figure: the food, the cooking, the packaging, the transport, and the cost of disposing of the packaging are all fed in to the number-crunching machine. So what has GDP to do with well-being? It is, at best, tangential. That would not matter particularly if GDP was just taken as a measure of the size of the economy and nothing more. But that is not what happens. Growing the GDP becomes a policy aim, and governments then apply policies which they hope will make this happen. The trouble is that the GDP figure puts no value on things that cannot be measured easily and so these are deemed to be worthless. GDP can take no account of what is usually referred to as the “domestic economy” – that pattern of production and distribution which takes place within the informal framework of friends and family, and it depicts waste and pollution as something positive. As a policy objective in itself, growing the GDP makes little sense.

What measure might be more desirable as a policy target? This is just a thought, but how about aiming to maximise the national aggregate land rental value? Land value reflects the benefits of infrastructure, good schools and public services, and the appreciation people have for a good environment. If the destruction of a beautiful view has an adverse effect on land values, governments might think twice before going ahead.