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Beyond GDP: Alternative Measures Shows Economy is Doing Better Than Reported

J. Mijin Cha

News came out yesterday that the economy may be healthier than previously thought. While GDP growth in the fourth quarter of last year was 3 percent, the Gross Domestic Income (GDI) growth rate was 4.4 percent during the same time period. On its most basic level, GDI measures all the wages and profits in the economy and GDP measures all of the spending. So, in the last quarter of 2011, there was a higher growth of wages and profits than there was growth in spending, which would seem to be a good thing. Unfortunately, the number that gets touted the most is GDP, which is not accurately reflecting how well the economy is doing.

In fact, this inability to reflect positive growth is just one of the many flaws of GDP. As we highlighted in our report last year, Beyond GDP, while GDP does serve a limited purpose, it is unable to accurately reflect overall progress and priorities. GDP does not measure things that are important to us, like well-being, and reflects a narrow definition of success: economic growth through spending, regardless of whether it is spending due to clean up from a natural disaster or spending due to increased output even though the latter is much better for the economy and society.