Classical Gdp Issues Summary

“Classical GDP Issues” Article Summary

“Classical GDP Issues” by Stiglitz, Sen, and Fitoussi examines the ways in which the traditional measure of economic activity fails to take into account certain factors of the economy. The article points out how the GDP statistic is improperly used and how it should be used. The authors also make their own recommendations on how to better measure economic activity. Specifically, there are five areas of emphasis that are touched upon in the essay.

First, the authors look at the how GDP is measured in terms of production rather than factors such as income and consumption. To quote the essay, “…GDP mainly measures market production, though it has often been treated as if it were a measure of economic well-being.” Living standards are better measured by adjusted income and consumption. Naturally, mistaking GDP as a measure of living standards could lead to improper decision making in public policy. The authors point out that “production can expand while income decreases or vice versa when account is taken of depreciation, income flows into and out of a country, and the differences between the prices of output and the prices of consumer products.”

Next, the authors examine how income and consumption relate to general wealth. More to the point, the essay says that income and consumption “can only be gauged in conjunction with information on wealth.” Much like a corporation has a balance sheet containing assets and liabilities, a country should have a similar record. A comprehensive account of capital (physical and otherwise) and dues to other countries should be formed for every country so that their living standards and economic sustainability can be properly assessed. It is acknowledged that it is not a new idea to have balance sheets for countries, but they are simply uncommon and often unreliable.

Thirdly, the authors want the measure of economic activity to have a greater emphasis on the household perspective....