The U.S. economy grew slightly better than expected in the second quarter, up 1.5 percent versus estimates of 1.4 percent, according to the Commerce Department. An increase in personal consumption helped drive the better than expected figure.
The last quarter was the weakest period of economic growth since the first quarter of 2011. The Commerce Department also reported that growth in the first three months of this year was revised up to 2 percent from 1.9 percent.
U.S. markets rose after the GDP report on hopes that the Federal Reserve will announce another round of quantitative easing at its two-day meeting next week.
While GDP has been used for decades as a barometer for economic growth and progress, "when you look closer at what is happening in our society, it is clear that GDP growth has failed to deliver," wrote Lew Daly of the liberal think tank Demos earlier this year. "For example, while GDP roughly doubled between 1980 and 2007, the distribution of all that money has left us more unequal today than at any time since the 1920s. GDP, in other words, tells us nothing about how national income is distributed, and it ignores the negative economic consequences of inequality."
A recent study shows that poverty in America will soon reach levels not experienced since the 1960s. Americans have also lost 40 percent of their net worth from 2007 to 2010.
In the accompanying video, Daly joins The Daily Ticker's Aaron Task to discuss the problems with GDP, which he says is an incomplete data point and describes it as "sort of like moving from tragedy to farce." He documents the main problems with GDP in a report entitled Beyond GDP: New Measures for a New Economy.
Here's a summary from Demos as to why the country needs to move beyond the indicator as a measure of all economic and social progress:
- GDP does not distinguish between spending on bad things and spending on good things. By this measurement, the BP oil spill in the Gulf of Mexico "positively" contributed to the economy just like the many good and services that people actually want or need.
- GDP doesn't account for the distribution of growth. Our total national income has doubled over thirty years, and so has the share of national income going to the wealthiest households, but average households have seen little or no income gains. GDP doesn't care if growth is captured by a few or widely shared.
- GDP doesn't account for depletion of natural capital and ecosystem services. If all the fish in the sea are caught and sold next year, global GDP would see a big boost while the fishing industry itself would completely collapse.
- GDP doesn't reflect things that have no market price but are good for our society, like volunteer work, parenting in the home, and public investments in education and research.
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