What are some criticisms of GDP as a measure of economic activity?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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There are many criticisms of gross domestic product (GDP) as a measure of economic activity.  Let us look at some of the most important of these.

  • GDP does not account for harm done by economic growth.  The classic example of this is pollution.  GDP looks only at the value of goods and services that are produced.  It does not look at the impact of the production of those goods.  Therefore, if an industry produces a great deal of pollution, the costs of that pollution are not taken into account.  The pollution can decrease quality of life and can even decrease economic activity in other sectors (such as fishing or tourism), but GDP does not account for those losses.
  • GDP does not account for the value of work done outside the marketplace.  The classic example of this is work that is done at home.  If I send my children to a babysitter and I buy my family dinner at a restaurant, those are counted as economic activity.  If I care for my children at home and I cook dinner myself, those are not counted as economic activity.
  • GDP does not account for the distribution of wealth, economic security, or any other factor like this.  GDP does not measure the actual well-being of people in a country.  Instead, all it measures is production.  

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