There has been some recent discussion again regarding the usefulness, limits, and problems of the well-known Gross Domestic Product (GDP) measure, which is often presented as a measurement of economic health and growth. For example, Dr. Patrick Newman presented a paper at the 2025 Austrian Economics Research Conference that partially dealt with the origins and problems of GDP. Following this, Dr. Newman discussed this further on a recent episode of the Human Action Podcast. This article seeks to review and discuss some key issues with the GDP metric, namely, GDP’s limited uses, the role of consumer spending, government spending and investment, and the other fallacies GDP helps perpetuate.
Gross Domestic Product (GDP) measures the total market “value” (prices paid) of all final goods and services produced within a country during a specific period. The Bureau of Economic Analysis (BEA) primarily estimates GDP using the expenditure approach, which tracks how much consumers, businesses, government, and foreign buyers spend on domestically produced final goods and services, subtracting the value of imports to isolate domestic production. While it aims to measure production, spending is used as a proxy…….
Following GDP, and assuming it equates to the health of an economy, we see that GDP was high during WWII, but when we disaggregate government spending (G)—which artificially boosts GDP at the expense of the private economy—we see that economic health and growth did not improve during WWII, let alone because of WWII. Therefore, GDP as a metric often misleads people to falsely equate GDP with economic health and government spending with economic growth.
This is a relatively technical article on how the GDP calculations don’t exactly reflect reality but are used because they reflect what the state would like you to think about the economy and economic health. GDP has been pushed as the premier indicator of economic health since before Keynes wrote his book. Even the creator of the GDP measure was not sure of how to include or exclude government spending in the formula but it was a settled formula after Keynes wrote his book. The other way to look at the G in the GDP is to subtract it because it is first taken from the productive private sector before the government spends it. Which way do you think is more accurate, if you think that at all?
G, but I was pointing out that even some of the private sector spending is not real economic output either.