Is GDP Becoming Obsolete? The “Beyond GDP” Debate
GDP is a closely watched indicator of the current health of the economy and an important tool of economic policy. It has been called one of the great inventions of the 20th Century. It is not, however, a persuasive indicator of individual wellbeing or economic progress. There have been calls to refocus or replace GDP with a metric that better reflects the welfare dimension. In response, the U.S. agency responsible for the GDP accounts recently launched a “GDP and Beyond” program. This is by no means an easy undertaking, given the subjective and idiosyncratic nature of much of individual wellbeing. This paper joins the Beyond GDP effort by extending the standard utility maximization model of economic theory, using an expenditure function approach to include those non-GDP sources of wellbeing for which a monetary value can be established. We term our new measure expanded GDP (EGDP). A welfare-adjusted stock of wealth is also derived using the same general approach used to obtain EGDP. This stock is useful for issues involving the sustainability of wellbeing over time. One of the implications of this dichotomy is that conventional cost-based wealth may increase over a period of time while welfare-corrected wealth may show a decrease (due, for example, to strongly negative environmental externalities).
We thank Steven Landefeld and Dylan Rassier for their helpful comments on an earlier draft of this paper, as well as the participants at the October 14, 2021, seminar at the Bureau of Economic Analysis. Remaining errors and interpretations are our own. The opinions expressed are our own and not those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System, or any other organization with which we are affiliated. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Leonard I. Nakamura
Leonard Nakamura has received data for studies that were used in previous and ongoing studies that are cited in this paper. The institutions that paid for or collected the data include the U.S. Bureau of Economic Analysis, the U.S. Bureau of Labor Statistics, and the Federal Reserve System. I am an Emeritus Economist at the Federal Reserve Bank of Philadelphia and am an international expert at the UK Economic Statistics Centre of Excellence.