On its face, identifying GDP growth with prosperity seems sensible: After all, as a society, you want a simple measure of whether or not things are going good in the economy.
The problem with this need—and with the worldview that identifies GDP growth with prosperity—is that it uses GDP as the measure of an economy’s health, but without ever examining what the GDP is really measuring.
As per its definition, GDP is merely a measure of spending—nothing more. Spending on what is left undetermined—
—and right away, you can see the problem with measuring the health of an economy by the growth of GDP. Presumably, increased spending on hookers and blow would be a good thing, by the metric of GDP; so long as the hookers didn’t send remittances back to their home countries, and the cocaine was domestic-made, they’d be golden for the GDP.
I’m being facetious, of course—but not by much: The GDP has been turned into a fetish number by economists and—much more troublingly—by the politicians and the electorate, who view it as the be-all-end all.-Fiscal Spending—The Steroids of GDP
Don't forget that Government spending is a part of the GDP calculation, which means that the Government can manipulate it. That's what China has been doing and what we've been doing for the past three years. If you take away Government spending, which is all just one big form of wealth redistribution, you get a much clearer picture of how healthy our economy is.
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