How useful is GDP?
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What is the main topic discussed in this episode?
Thank you for downloading the More or Less podcast from the BBC. You can find out more about our programme on our website, bbc.co.uk slash Radio 4. But before you do that, here's Tim Harford.
Hello and welcome to More or Less, statistically proven to be the best programme about numbers on Radio 4. This week, we'll find out who the Education Secretary, Michael Gove, describes as...
the most important man in the British education system.
Much more important than me. And a listener writes... The mysterious case of Mr John Charles. And, news to hearten the numerati everywhere, it's nearly time to reveal the results of our other census. But before we tell you what you, or a non-random sample of more than 14,000 of you, told us, let's take a step back. Our census tried to measure some elements of happiness or well-being. We're not the first. It's a project which has caused considerable excitement. The Prime Minister, David Cameron, has asked the Office for National Statistics to investigate the prospects for collecting meaningful well-being data. And yet for now, when it comes to putting a number on national progress, there still seems to be only one game in town.
GDP, or Gross Domestic Product. The Office for National Statistics will release the latest GDP estimate next week, and we can be sure that whether the economy grew, shrank or stayed the same, it will be big news. But what exactly is GDP? And should we be relying on it as a measure of... Well, of what? Joe Grice, the chief economist at the ONS, explains what GDP actually does measure.
It really measures what, as a country, we produce, what's the value of the output we produce. So it's also a measure of what the income from that output is, how much income we earn, and it's also an estimate of what we have available to spend. In principle, those numbers should be identical. But since we get the information on output, income and expenditure from different sources, in practice they're not always identical. So we have to balance that information up to find a central estimate of what has actually happened. Roughly speaking, 80,000 returns we receive from producers about what they've produced. We also have information on these kind of more difficult outputs. If we take the health service as an example, direct measures of the output.
We know how many patients are treated and we have information about the quality of the treatments they receive. So we're able to use that kind of information to get a direct estimate of these, if you like, more difficult, more esoteric outputs.
Joe Grice from the Office for National Statistics. The economist Martin Wheel has written extensively about GDP and now sits on the Bank of England's Monetary Policy Committee. I asked him why GDP had become the measure of choice.
Well, we've discovered that it's a good, fairly general measure of economic activity of the size of what the economy is up to. And if people want to know whether there is more or less economic activity compared with last year or before, Five years ago, GDP is the best measure that we have.
You now sit on the Monetary Policy Committee. How useful are these early releases of GDP and the revisions of GDP and other data to you and your fellow committee members when you're trying to set interest rates? From my perspective, the...
Early estimates of GDP that we have are the best indicators available of the activity in the economy. For all their shortcomings, I do give rather a lot of attention to the GDP numbers when they emerge.
Martin Wheel But not everybody thinks gross domestic product is such a great measure. I spoke to Andrew Oswald, Professor of Economics at Warwick University.
GDP in its time was a very useful measure. Many people had outside toilets. There weren't many automobiles. There was a real shortage of food for some of our citizens. But now... Many of those things have been turned on their head. I want to see us move away from measuring gross domestic product to measuring the happiness and mental health of our citizens.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–7:33
2
What does GDP actually measure and why does it still dominate national statistics?
7:33–9:11
3
How does the ONS compile GDP estimates from output, income and expenditure data?
9:11–19:57
4
Why do some economists argue GDP should be replaced by well-being measures?
19:57–27:14
5
What objective and subjective methods can be used to measure happiness and mental health?
27:14–28:04