The Bureau of Economic Analysis on July 27th released the gross domestic product (GDP) growth rate for the second quarter of 2018: 4.1 percent. Everyone has been very excited about this. It is, after all, a greatly impressive figure, indicative of tremendous growth as compared to the past few years. However, according to a recent article by Sophie Mitra, not only does it not tell the whole story, the part of the story that it does tell could be problematic for the average family. We have to first realize that:
“GDP has many limitations. It captures only a very narrow slice of economic activity: goods and services. It pays no attention to what is produced, how it is produced, or how it might improve lives.”
She pointed out that at the end of the day, what the average American is bringing home in their pay packet each month has remained stagnant “for decades,” irrespective of the fluctuation of GDP and/or unemployment.
Many economists actually believe that “economics considers wealth or the production of goods and services as means to improve the human condition,” and rather it is simply the media that is obsessed with GDP figures.
However, President Trump’s top economic advisor, Larry Kullow insists that the GDP noise “is a boom that will be sustainable,” with Trump himself boasting that “his administration has achieved an ‘economic turnaround of historic proportions’.”
Even if we do consider GDP the be-all and end-all measuring stick of economic success and prosperity, was this all Trump’s doing? According to a Bloomberg article by Sho Chandra, probably not, since:
“The stars were aligned following 2 percent growth in the first quarter: The biggest tax overhaul since the Reagan era delivered another boost to consumer spending and business investment, and the volatile categories of inventories and trade probably juiced the number — helped by a likely temporary jump in soybean exports ahead of retaliatory tariffs.”
At the end of the day the current GDP number is a nice one but as Mitra pointed out it is much more accurate to engage “complementary measures” involving people as well as products, as an analytic tool.