Is GDP outdated in the 21st century?

Without a doubt, Gross Domestic Product (GDP) is the most popular indicator of economic growth globally. It measures the total value of all goods and services which a country produces. Despite being used since the late 1940s, it has been widely criticised as an outdated measure, and it would be short-sighted to view GDP as the sole measure of an economy’s health. 

GDP can provide a clear picture of an economy’s health and whether it is growing or declining. It is also vital for not just policymakers, but also economists and businesses, to analyse how economic shocks, monetary and fiscal policy, as well as tax and spending plans, impact the economy.  

“[GDP] measures everything … except that which makes life worthwhile.”

-Robert Kennedy

Nevertheless, we overvalue GDP, with policymakers treating it as the primary economic indicator to allocate government spending and taxation. Therefore, whether GDP can be considered outdated depends on its intended use. It was never intended to determine anything other than a country’s wealth, or anything as complex as a country’s happiness. 

GDP is certainly not without its limitations. Its inability to account for wealth disparity and living standards is a key flaw. As Robert Kennedy pointed out as early as 1968, “[GDP] measures everything … except that which makes life worthwhile.” This statement can be justified with a quick look at modern-day America, a nation which possesses the world’s highest GDP figure, standing at over $27 trillion as of 2023. However, it goes without saying that America is far from perfect. Similarly, the UK’s GDP exceeds $3 trillion, one of the largest in the world, yet its economy is hardly considered thriving. 

Kennedy was right: GDP as a measure lacks consideration of a variety of factors which are key to a successful and happy country. Living conditions, wealth disparities, art, and literature are just a few examples. It also disregards sustainable and environmental initiatives, as well as ignoring the black market, which is of substantial importance to the economies of some countries. 

In some instances, Gross National Product (GNP) is a more accurate measure than GDP, since GNP accounts for the open global economy. This takes into consideration profits earned through overseas companies, which are sent to foreign investors. 

Indicators such as the Human Development Index (HDI) also consider factors like life expectancy and education. Similarly, the Happy Planet Index (HPI) includes life expectancy, life satisfaction, and ecological footprint. 

Every indicator has its flaws, which is why we must use them together. Even this approach has limitations, such as the questions it generates about whether the measures should be weighted equally or not. However, it is the most likely to provide a more accurate picture. 

Therefore, we should not discard GDP entirely, as it can be useful to gauge a general impression of a country and its economy. GDP is not outdated, but its application in public policy is. Thus, we must recognise its limitations and use it in conjunction with other indicators, as it cannot tell the whole story alone.