This week the government released yet another revision of first-quarter economic growth showing that the U.S. economy grew a tad less than initially reported ‑- 2.4 percent rather than 2.5 percent. This revision was hardly consequential, but over the summer the Bureau of Economic Analysis will unveil a new way to calculate the overall output of the United States. And that revision will be dramatic.
Over the past few decades, gross domestic product (GDP) has become the prima inter pares of economic statistics. It is not only a measure of national economic output, it is a proxy for "the economy." The number exerts substantial influence on what we spend collectively and individually, not just in the United States but throughout the world. China has five-year plans with GDP targets, and the European Union has rigid - albeit loosely enforced - rules about how much debt a government can take on relative to its GDP. It is, in short, a big-deal number.
And it is treated as an accurate gauge of economic activity. That would have come as something of a surprise to its inventors. Simon Kuznets, the economist most responsible in the 1930s for the formation of the national accounts that provide the data for GDP, was always disturbed that domestic work, volunteer work and, of course, transactions in cash are invisible in GDP. The choice to leave those out may have made sense - after all, what is the market price of preparing a family meal? - but it underscores that GDP is not a complete measure.