The IPPR has a point here

However, it is
increasingly the case that the economy is dominated by non-marketed services, such as
public health and education provision. These are included in GDP, but the fact that output
in these areas is difficult to measure means GDP is now a less-r eliable representation of
the economy.

Furthermore, some activities that increase production are deemed to contribute fully
to GDP even though they have negative impacts on society’s wellbeing.

This is absolutely true. Government spending is counted as a contribution to GDP by counting how much is spent, not the value of the production that comes frm that spending.

If we\’re to improve our measurement of GDP then we really ought to solve that problem, eh?


5 thoughts on “The IPPR has a point here”

  1. Agreed, GDP is a snare and a delusion. But good luck with replacing it with something (private sector only GDP?) which can’t be gamed. Unless you’re happy for even the Ministry of Defence to become a quango, of course.

  2. GDP is bollox. The announcement of GDP is not important to financial markets – in the US, it’s employment, inflation and FRB policy.

    There are all sorts of problems with measuring services – and especially public sector services – look at the muddle with regard to NHS productivity.

  3. No Tim,
    One of the two critical limitations of economics is that it requires a unit of account, ie money. Anything that departs from that becomes subjective. The various attempts to measure productivity of uncharged public services, such as the Atkinson Report, ultimately demonstrate that it cannot be done, as does the entire branch of academic economics devoted to pinning down the value of education. Education is of immense value but that value cannot be specified exactly.
    So the only honest way of accounting for uncharged public services is as government consumption. That method may be flattering or it may underplay the value of “investment” in health and education but any other method just fiddles the figures in the direction favoured by whoever is making the estimate.

  4. PS: The same applies to the reported calculation that Bank Holidays reduce UK GDP by £19 billion a year. It is based on subjective assumptions and meaningless.

  5. The basic problem is that GDP, if done “ungamed”, just measures the money supply; arguably the expansion and contraction of that is some kind of proxy for production, but it’s crude at best, a bit like trying to measure your population by bread consumption statistics.

    The money value of production just equals the liquid money supply. If production of everything doubled, the average price of everything would halve, and you’d end up with the same GDP figure.

    It’s a complete waste of time.

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