GDP (Gross Domestic Product) – Don’t Believe it!

Feb 22, 2016
IanRunge
0
Business Cycles, GDP, Growth, Production

GDP is gross domestic product, not net domestic product. It measures production, not destruction.

In 1958, Mao Zedong launched China’s “Great Leap Forward” and amongst other initiatives, provided lots of incentives to increase steel production. Steel output rose dramatically. BUT much of the increase came about because the peasants had made their steel by melting the agricultural implements needed for farming. No one was measuring the destruction of wealth. Of course it very quickly translated into lower production in following years.

How is the world tracking these days? GDP growth itself isn’t very strong in most western countries. What would a Net-Domestic-Product indicator look like? GDP growth numbers themselves are quite unreliable, and the GDP make-up includes some things that probably shouldn’t be there, and excludes some things that probably should be there. Net Domestic Product numbers – even if you tried to invent such a thing – would be even less reliable. Understanding business cycles and understanding what is happening in the world economy requires an understanding of some of these things. It is one reason why so many pundits get it wrong.