G.D.P. - Inclusions and Exclusions

August 1, 2013
Posted by Jay Livingston

What counts as “product” in the Gross Domestic Product?

Jared Bernstein and Dean Baker comment (here) on the new rules for calculating GDP, particularly the change that the money spent to produce “long-lived” entertainments will now be counted as investment.  These include TV shows that get syndicated (“Seinfeld” or “Law and Order”) and franchise films (“Star Wars”).  Those changes add up.  Or as Bernstein and Baker put it

the ultimate show about nothing will now add billions to G.D.P.

They also note that many entertainments that are widely produced and consumed do not get counted at all in G.D.P.  – the time people spend creating and watching YouTube videos, for example (or writing and reading blogs).

What’s really being valued here is entertainment that’s protected by copyright, which in the era of viral videos is actually a declining share of what we watch.

Later in their essay, Bernstein and Baker point out the limitations of G.D.P.

perhaps the most arbitrary part of this or any other G.D.P. revision is not the value of what’s put in, but the cost of what’s left out.

Costs like degradation to the environment.  The value of gas extracted by fracking will be added to the G.D.P. figure.  But 

there is no subtraction for the polluted groundwater or the greenhouse gas emitted when the gas is burned.

Liberals of a certain age reading this will hear echoes of Bobby Kennedy’s 1968 speech,* just three months before he was assassinated.

Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. . . . It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

The entire passage is  worth reading  or listening to.

Kennedy was speaking about GNP not GDP.  In 1968,  GNP** was the most widely used indicator.  But Kennedy’s point applies to GDP as well. They are both purely economic, with no evaluative or moral dimension.

The antidote for this non-moral measure came from conservatives – the “values” crowd.  In the early 1990s, William Bennett and the Heritage foundation created the “Index of Leading Cultural Indicators,” which did include the strength of our marriages (rates of divorce and out-of-wedlock births) as well as things like violent crime and  SAT scores.  In the next several years, with the national government dominated by Democrats, those indicators generally showed great improvement.  So did GDP. 
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* I cannot find any information on who wrote this speech.  I suspect it was Dick Goodwin.

**For more on the differences see Wikipedia.