Thought this would be an interesting read even though its not entirely new. Seeing even the west starting to question GDP as a metric might mean something for the future.
GDP – a scam or just worshipping the golden calf?
Once a holy grail, now an empty symbol Gross Domestic Product (GDP) was once seen as the holy grail of economic progress. Today, it’s increasingly obvious that it is an outdated and barely relevant indicator that says nothing about people’s actual well-being, quality of life, or whether society is truly advancing. GDP simply measures how much money circulates in a country — the total value of goods and services produced over a given period. It might sound useful, but the real problem is what GDP includes — and what it leaves out.
The most common categories of GDP
Nominal GDP – a misleading baseline
This is the total value of goods and services produced in a year, expressed at current market prices. It’s easy to calculate and perfect for propaganda, but it ignores differences in price levels and living standards. It also counts inflation and dubious activities, so growth can easily be an illusion. For instance, the USA shows a high nominal GDP because it has a large economy with high prices, while India appears much smaller, even though it has over 1.4 billion people.
GDP often rises without creating any new net wealth — for example, when repairing damage from disasters or wars. The famous example from economist Frédéric Bastiat, the “broken window paradox,” illustrates how if someone breaks a shop window and the glazier fixes it, GDP goes up, but society isn’t richer — it simply replaced a loss. Similarly, after WWII, Germany’s GDP rose rapidly (the Wirtschaftswunder economic miracle), even though its actual wealth had been destroyed.
Nominal GDP per capita – an even bigger distortion
This is calculated by dividing nominal GDP by the population. It’s even more useful for propaganda because it creates the illusion of “richer” citizens. However, it doesn’t reflect purchasing power or whether growth is only benefiting the wealthiest while most people stagnate.
Real GDP – tracking growth within a country
This adjusts nominal GDP for inflation, comparing production in constant prices. It shows whether the economy is truly growing in volume, not just in prices. It’s useful for tracking trends within a single country. If real GDP grows by 2% annually, it means more goods and services were produced, not just more expensive ones. But it still doesn’t account for differences in price levels across countries.
GDP by purchasing power parity (PPP) – closest to reality
This compares GDP across countries in a way that reflects local prices and living costs. It uses a standardized basket of goods and services that, after applying PPP conversion rates, should cost the same everywhere. This better shows how much people can actually afford. For example, by PPP, China has already surpassed the USA because their prices are lower, meaning the real volume of China’s economy is larger than what dollar conversions suggest.
Who benefits from worshipping GDP?
Big countries with strong currencies
Nominal GDP is measured in dollars or euros, so countries with “hard” currencies look wealthier simply because their prices are higher. The USA always seems to be the undisputed “Number 1,” even though in PPP terms, China has already pulled ahead.
Politicians
GDP is easily inflated by rising prices. Costs go up, GDP goes up. Voters often fail to see that higher GDP doesn’t necessarily mean genuine prosperity — as long as it sounds impressive: “Our economy reached a record XY billion!”
Investors and financial markets
Investors care about the amount of money circulating in an economy in dollars. The higher the GDP, the bigger the market, exports, imports, and potential corporate profits. They have little use for PPP because they trade in real currencies and actual prices.
The media
For the media, nominal GDP is simpler and more eye-catching. A headline like "The USA has a GDP of 25 trillion USD!" looks far more spectacular than writing "The USA’s PPP GDP is 25% lower than China’s."
How does GDP mislead us?
GDP also rises when money is spent on cleaning up after disasters, war, or crime. Whether more is invested in weapons or in treating lifestyle diseases, GDP records both as positive contributions. It doesn’t distinguish whether an economy is focused on industrial production or services, whether it imports more than it exports, or whether it exports goods or financial services. Nor does it account for social and environmental costs.
Comparing GDP without PPP is like competing over who has the higher salary without realizing that one person lives in London and the other in Bangkok. Local prices and living costs change the whole picture. That’s why PPP gives a more accurate view of real living standards.
What does all this mean?
GDP has degenerated into a metric that primarily serves political elites, corporations, and the media machine. GDP growth often goes hand in hand with rising inequality, climate crises, and the depletion of natural resources. Just because GDP goes up does not mean the population’s standard of living improves. Often, it simply means greater concentration of wealth, more environmental destruction, and more waste.
What should we be tracking instead of GDP?
If we care about how ordinary people live, we should look at GDP per capita by PPP. If we want to see how a country’s economy is evolving, we should look at real GDP. But if we want to measure a society’s true progress, we need to look elsewhere:
· The Human Development Index (HDI), which combines income, education, and life expectancy.
· The Happiness Index, which measures how satisfied people are with their lives.
· The Ecological Footprint, which shows whether we’re living within the planet’s limits.
Conclusion
Ignore political speeches and newspaper headlines. It’s time to rethink what we consider success and start measuring what truly matters.
