GDP is a Measurement of Apples to Bricks

Last week FT.com commented on Joseph Stiglitz’s denouncement of GDP as an indicator of economic progress and prosperity. Of the economic sectors, this is most evident in global health, in which the U.S. expends 16% of GNP while France only spends 11% on health.

As long as GDP remains the sum total of all goods and services in any one sector, what is counted in the U.S. is quite different than in France. For instance, the U.S. counts the costs of mal-practice insurance and awards to plaintiffs; depreciation on plant and equipment on accelerated 5-year schedules; R&D in its pharmaceutical and vaccine industries; and the clinical expenditures of incoming French citizens to American specialty centers, as well as hundreds of thousands of other foreign citizens.

France subsidizes the R&D components of its pharmaceutical sector. Moreover, France regulates drug prices at launch and subsequent rates of increase. U.S. pharmaceutical companies must accept the mandated prices or risk losing market share. To compensate, they sell the same products at higher prices to U.S. citizens, thus subsidizing French patients.

Professor Stiglitz is correct: what we measure affects what we do. GDP is a determinant of foreign aid resource flows to poor countries. The "cult of figures" rewards those with low GDPs. However, these figures only include economic output in their formal sectors, leaving out the greater levels in their informal sectors.

As Einstein once famously said: all that counts isn't counted and all that is counted doesn't count.

-Jeremiah Norris
Senior Fellow
Center for Science in Public Policy