GDP Increase Does Not Represent Economic Growth

GDP is calculated as the sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M). The problem using GDP in the past year to measure economic growth is that some of this is double counted, such as consumption and government spending. If the government pays salaries or welfare checks and the recipients put the money back into the economy, then the GDP is incremented twice of what one would assume. Also, government spending on military hardware in particular explosives cannot be said to much further the health of the economy as would something like building a new road or school etc. GDP does not account for disasters or situations in which tangible assets are destroyed.

In my opinion, a better gauge for the health of the economy would be roughly: gross wages – gross taxes * PPP

There is another system which determines the quality of life of a society called the ‘Human Development Index’ and is calculated as a combination of life expectancy, education, and standard of living (which is the natural log of GDP at PPP.

See below for Ron Paul’s comments on the problems with using GDP numbers. (notice they got his title wrong, it should be Dr. Paul)