The concept of the GDP, initially termed the “gross national product,” was invented by the economist Simon Kuznets during the Great Depression. It was designed to provide information on whether or not the American economy, then characterized by widespread bankruptcies and mass unemployment, was improving. Kuznets, who later won a Nobel Prize in economics, eventually modified the figure so that it didn’t include returns from foreign investments, and promptly renamed it the GDP. In time, quarterly and annual reports about the GDP gained prime importance as broad indicators of how well the economy was faring.
Ninety years after the GDP’s conception, its fluctuations are increasingly deficient indications of the performance of the American economy. What was useful in depicting titanic economic shifts in the 1930s is far from a sufficiently revealing measure of today’s much more complex American economy. It fails to measure many experiences and consequences of change that affect the well-being of Americans.
America’s economy today is not the same as America’s economy yesterday, and over the years, the nation has come to recognize that some goals—protecting the environment, or working toward racial and gender inequality—are a lot more important than it once thought, and are tied up with questions of economic growth. A lone percentage indicating how much the GDP has moved up or down quarterly or annually is an inadequate reflection of the performance of the present-day economy, and as early as 1934, Kuznets was aware of the statistic’s limits. That year, he told the U.S. Senate: “The welfare of a nation can scarcely be inferred from a measure of national income.”