Unmasking GDP: A Closer Look at the Illusion of National Prosperity

November 20, 2024

For Immediate Release

_In the 1930s, economist Simon Kuznets developed a national accounting system to address the need for comprehensive macroeconomic data and inform government policy during and following the Great Depression. Initially designed to measure overall economic output, the granular data within the national accounts, which have evolved into the National Income and Production Accounts (NIPA), also provided insights into specific industries, production types, and income sources.

The concept of national income was not a new idea at the time, but the transformation of national income into an established system of national accounts, in which GDP was a central metric, was novel. While GDP was initially intended as a tool for policymakers to gauge economic recovery and growth in the post-war period, its perceived simplicity made it widely adopted by economists, businesses, and the public at large as a measure of a nation’s overall economic welfare.

GDP has been a primary tool used by many to track economic activity, but its shortcomings as a measure of well-being have become increasingly apparent. Critics argue it fails to capture the nuances of economic growth and its distribution or crucial dimensions of human progress and decline, such as income inequality, geographic disparities, and the true value of economic output.

LISEP’s in-depth research on GDP’s construction, calculation, and limitations reveals the urgent need for a more comprehensive approach to economic measurement. To delve deeper into these limitations, read the white paper or explore our methodology.

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Historically, systemic barriers have disproportionately hampered Black farmers’ ability to retain land ownership.

Despite this tragic history, there is still time and economic incentive to set some of the inequities right.

In 2021, working mothers with children under 18 earned just 61.7 cents for every dollar a father made. Much wider than the overall gender wage gap, this difference highlights both the motherhood penalty and the fatherhood premium.

Female-dominated, low-paying, part-time occupations are overrepresented among informal workers who also have a formal job.

We need to create an economic environment where companies can hire these workers as employees and pay them a living wage. There are steps policymakers can take to change the gig economy dynamic.

Dependency on tips over base pay is growing because of actions taken by gig companies to institute tipping.

Even for those lucky enough to be making what amounts in many states to the poverty wage of $15 per hour, many will get nothing but a week’s notice before being out on the street.

One study shows that consistent involvement in extracurricular activities increased a child’s likelihood of attending college by a whopping 400% compared to not being involved at all.

Studies have found that both men and women are paid less if they work in “nurturant” occupations.

Since 2015, the correlation between LISEP’s functional employment to population ratio and the inflation rate was more than four times as strong as the BLS’s employment to population ratio, which is depicted in the graph below.

The employment to population ratio settles the discrepancy between what we see around us and what the data says.

The NBER paper defines employment using the traditional BLS U-3 rate. However, the often-used U-3 number fails to capture the quality of jobs.

Among states with stricter COVID-19 policies, reducing unemployment benefits had little to no effect. The average effect of increased employment seems to have occurred only in those states with looser COVID protocols.

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About LISEP

The Ludwig Institute for Shared Economic Prosperity (LISEP) was created in 2019 by Gene Ludwig and his wife, Dr. Carol Ludwig. The mission of LISEP is to improve the economic well-being of middle- and lower-income Americans through research and education. LISEP’s original economic research includes new indicators for unemployment, earnings, and cost of living. These metrics aim to provide policymakers and the public with a more transparent view of the economic situation of all Americans, particularly low- and middle-income households, compared with misleading headline statistics. On X: @LISEP_org.