6. Criticisms

Austrian School economist Frank Shostak has argued that GDP is an empty abstraction devoid of any link to the real world, and, therefore, has little or no value in economic analysis. In his own words:

• The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption.

• For instance, if a government embarks on the building of a pyramid, which adds absolutely nothing to the well-being of individuals, the GDP framework will regard this as economic growth. In reality, however, the building of the pyramid will divert real funding from wealth-generating activities, thereby stifling the production of wealth.

• So what are we to make out of the periodical pronouncements that the economy, as depicted by real GDP, grew by a particular percentage? All we can say is that this percentage has nothing to do with real economic growth and that it most likely mirrors the pace of monetary pumping.

• We can thus conclude that the GDP framework is an empty abstraction devoid of any link to the real world. Notwithstanding this, the GDP framework is in big demand by governments and central bank officials since it provides justification for their interference with businesses. It also provides an illusory frame of reference to assess the performance of government officials.

Many environmentalists argue that GDP is a poor measure of social progress because it does not take into account harm to the environment.

7. Bibliography

1. Australian Bureau for Statistics, Australian National Accounts: Concepts, Sources and Mathods, 2000. Retrieved November 2009. In depth explanations of how GDP and other national accounts items are determined.

(http://www.abs.gov.au/Ausstats/abs@.nsf/Latestproducts/3F880EE1D366198CCA2569A400061616?opendocument)

2. United States Department of Commerce, Bureau of Economic Analysis, Concepts and Methods of the United States National Income and Product Accounts. Retrieved November 2009. In depth explanations of how GDP and other national accounts items are determined.

(http://www.bea.gov/national/pdf/NIPAhandbookch1-4.pdf)

3. Stiglitz JE, Sen A, Fitoussi J-P. Mismeasuring our Lives: Why GDP Doesn't Add Up, New Press, New York, 2010.

4. Chapter 22 of Dr. Roger A. McCain's Essential Principles of Economics: A Hypermedia Text

5. Fengbo Zhang – the founder of China GDP