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Date: 2019-07-16 Page is: DBtxt001.php list0300-GDP-1

Definitions for TrueValueMetrics
Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is a dangerously flawed metric. The way the GDP is compiled makes very little sense ... like most indexes the GDP is a measure, but what is being measured is far from clear.

Cost is NOT a Product There needs to be clarity about the critical difference between product and cost. Much of the confusion in economic analysis and policy formulation would be avoided if there was a clear distinction about what is a product and what is a cost.

What belongs in the Gross Domestic Product? Gross domestic product should be the output of the economy ... what the economy produces ... the product. Over time, more and more of the product is expressed as the cost of the product at the transaction level and over time the measure has become more and more inflated so as to become meaningless. Rather, it is much worse ... it has resulted in the wrong signals being sent about the prosperity of the nation!

Producers, consumers and prosumers It is widely recognised that affluent consumers have been part of the success of the US economy ... good wages were part of this.

Henry Ford

Henry Ford is meant to have realized that a prosperous working class would eventually be the consumers of the automobiles that his company was manufacturing ... those that were producing were the same as those that were consuming. I associate Henry Ford's insight as being something of the origin of the idea of a prosumer.

Keynes was also very clear about the way wages fed into the success of the economy by expanding aggregate demand.

The Keynesian Dynamic

Keynes was clear about the dynamic of economic activity in a society ... but the Keysian clarity seems to be submerged in most modern economic analysts and policy dialog by ideas that are ideological more than anything else. Though there are powerful analytical tools available to process data ... most of the data are studied with a severe lack of transparency.

What is GDP used for? GDP is one of those macro-economic indicators that has leverage over the economy because of its role in moving the capital markets ... but has little to no use as a tool to understand socio-economic performance.

16% of US economy is healthcare!

The statement is made over and over again that healthcare makes up 16% of the US Gross Domestic Product (GDP). At the same time the observation is made that the proportion is the highest among the top developed countries and the health state of the US population is lowest of the group. Clearly one metric is insufficient to describe the economic characteristic of the health sector. In TrueValueMetrics (TVM) it is clear that quality of health is a valid product of the health sector, and the cost of this health care should appear in something that might be called the Gross National Cost. At the moment this does not exist as a national macro-economic indicator ... but it does feature as an element of the TVM system.



The text being discussed is available at


TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative.
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the importance of accountability and getting the management metrics right.
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