What’s more, we have also come to assume that with output comes more spending and employment, but factories today are powered by robotics and software, and robots don’t buy more lattes and shoes.
GDP is a good number for a nation that produces lots of stuff made by lots of workers, but for an information economy grounded in services and intellectual property and awash in apps that cost nothing yet enable commerce, it is not up to the task. Nor are many of our indicators. Our trade figures treat an iPhone made—more accurately, assembled—in China with no reference to the intellectual property created by Apple in California.
Our inflation numbers can barely keep up with the quality improvements embedded in our cars and appliances and homes, despite heroic efforts by statisticians to account for those efficiencies in their formulas.
Our employment numbers are mute about 20-somethings who leave their paying jobs to create new ones.
And our national figures treat each “economy” as a sovereign island—even though flows of labor, goods and services are as indifferent to national boundaries as weather. Our lives may be ever more global, but our indicators remain stubbornly national.
We would be better served by confronting the vagaries of the world around us, unclouded by a statistical construct of an earlier time. Economic policymakers have need of some macro indicators, but few others do. The invention of the economy helped tame some of the worst of business cycles in the 20th century, but increasingly our indicators constrain our ability to understand the world and then act creatively to shape it.
There have been multiple efforts to create newer, better indicators. Most notable in recent years, Bhutan announced a gross happiness index. Less self-servingly, the United Nations developed a Human Development Index. Others have proposed new ways of assessing just about everything. All of these, however, still reduce complicated systems to simple, round numbers, and all of them therefore will fail to describe our world, even if they fail for different reasons.
What we need to do instead is access the information revolution to craft our own bespoke indicators. We are now deluged with data, and we no longer need simple one-size-fits-all national indicators. Instead, we need to use big data to fashion solutions. The result will be a plethora of bespoke indicators, each tailored to particular needs.
For individuals, national economic numbers have little direct relevance. Buying a home, getting a degree, seeking a job, deciding on how much debt to take on — none of those decisions are meaningfully shaped by GDP growth or aggregate inflation and housing numbers. Deciding whether to start a small business is also marginally influenced by such statistics: local trends in a particular industry or geography matter more.