When you think about the problems with GDP, it’s likely you don’t think about Lady Gaga. But, in fact, how her work is captured and valued by national economic indicators is relevant to the beyond GDP conversation. We’ve written continuously about how GDP is not a complete measure of our economic activity. For one, GDP is unable to distinguish between good and bad spending. If government spending goes up because of a huge infrastructure investment or a response to a natural disaster, both are reported in the same way, even though one is clearly better for our economy. GDP also doesn’t capture things that don’t have a monetary value but are good for our overall society. If a parent stays home to take care of a child, that doesn’t count. But, if an outside caretaker is hired, that does count. The reason it matters is that GDP is heavily relied upon for policy making. As such, there is no incentive to help or encourage parents who want to stay at home because doing so does not increase GDP.
A slight change in how the Bureau of Economic Analysis calculates GDP may help overcome some of these shortcomings. Now, research and development, a core economic asset, will be counted in the national accounts. The way this would change things is, as The Atlantic points out, instead of just counting the sales from Lady Gaga’s concert and albums in GDP, now the money spent writing the songs and recording the album will be included. Likewise, instead of just counting the sales of new drugs, the money spent inventing them will also be included.
It may seem like a small change but this could have pretty big consequences. For one, it places a value on research and development for more than just the end product. If the actual time and money spent researching and developing is important, it justifies spending on research and development.
More broadly, it could open the door for monetizing things that currently have no monetary value. On a broader level, we can argue whether monetizing everything keeps us stuck in a capital-based system where only things that have a monetary value have worth. And, it’s true that this kind of system doesn’t offer room for things to be valued that don’t have a dollar value, like enjoying nature or quality family time. But, those things are not being counted now and if we can start expanding our accounting systems to start to value the process and not just the result, we could start shifting the conversation.
Critics have claimed that this is just a way to make our GDP bigger, which may be a result, but the trends in GDP would remain the same. Also, it would be a more accurate reflection of the work that is produced. If it was coupled with the addition of some negatives that are not currently counted, like the cost of pollution, then we would be on the path to a much more accurate reflection of how our economy and our society are doing.