What GDP Actually Measures
Output, not wellbeing, and why the difference matters
Sample Written to show what this site can do.
Gross domestic product is the most quoted number in economics and one of the least understood. It measures the market value of everything an economy produces in a period. It does not measure whether people are better off, though the two often move together.
Output, adjusted for prices
The headline figure is real GDP growth: how much more the economy produced than a year earlier, after stripping out price changes.1 The Bureau of Economic Analysis1 publishes it, and revises it as better data arrives.
The pattern is easy to read: steady growth through the 2010s, a sharp fall in 2020, and a rebound the following year.
What it leaves out
Unpaid work, leisure, pollution and how income is shared all sit outside the number. A hurricane that destroys homes can even raise GDP for a while, because rebuilding counts as output.
Why it is still worth watching
For all its gaps, GDP is the broadest single gauge of how much an economy is producing. The next part, Inflation, One Grocery Bill at a Time, looks at the other number everyone feels.
Footnotes
Real GDP is calculated in chained dollars, which lets the mix of goods change over time without distorting comparisons between years. ↩
Sources
- Bureau of Economic Analysis bea.gov
- U.S. Bureau of Economic Analysis, via FRED (A191RL1A225NBEA) fred.stlouisfed.org