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How the U.S. may be overemphasizing the decline in GDP

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Yahoo Finance Editor-in-Chief Andy Serwer joins the Live show to outline how other countries may perceive and prioritize changes in national GDP as compared to the United States.

Video Transcript

- US GDP shrank by 0.9% between April and June. When factoring in inflation, 0.2, showing the economy shrank two quarters in a row, and some say that means a recession. Yahoo Finance's Editor in Chief Andy Serwer joining us now with a deeper dive. [INAUDIBLE] Andy, you say there is a bigger question here. What's that?

ANDY SERWER: Yeah, Dave. I mean, a bigger question is about GDP itself. Is the metric itself flawed, and let's just start off and say that this is a heretical question to ask, because we base so much on measuring GDP in our country. And there's all manner of economists, bankers, government official, prognosticators-- [INAUDIBLE] --on measuring GDP, and then of course fixing it. That would be the bankers and the economists. And it all sort of benefits them. But there's a lot to be said in arguing that GDP is not all that, that it doesn't quite measure the right things, which is to say, quality of life, sustainability, et cetera, et cetera, et cetera.

- And Andy, different countries do put different things into their GDP, but do any countries actually not use GDP?

ANDY SERWER: You know, it's interesting because there are a few countries that have moved away and/or maybe are moving away and accentuate it less to your original point. But you can look at Bhutan, this Asian landlocked nation, in 1971, they moved away from GDP completely and moved to a happiness index. It's called the Gross National Happiness Index, and they've made some progress with that. Of course, it looks at spiritual, physical, social, environmental health. And it's a small country and all that. Number two, New Zealand a couple of years ago, Prime Minister Jacinda Ardern started something which was a well-being budget, and that is also looking at sustainability and pointing government spending towards things that GDP doesn't measure.

For instance, living standards, who's left out, who's not left out. And then I would argue, finally, that some traditional European economies like say, France, Spain, and Italy perhaps inadvertently have not been focusing on GDP for centuries by funding the arts and education more than the United States does. And the same economists who say, oh, New Zealand and Bhutan, those are tiny little countries, or oh-- they're saying that France and Spain and Italy aren't very good economies. Well I would say all these places are pretty nice places to live. So there is that point.

- And all this in consideration, we point to GDP so often. It's a very trusted metric by economists. So are we looking at it through the right lens, or is there a little bit more here?

ANDY SERWER: Yes, Seana. You know, it's interesting. I mean, we just take it for granted like, oh, GDP. This is this hallowed, infallible metric. But in fact, it's neither. I mean, first of all, we didn't use GDP in the United States until 1991. I'm old enough to remember GNP. I mean, it's still around, their Gross National Product, and we shifted to GDP back in 1991 to match the rest of the world. So we have changed, number one. Number two, I don't know if you guys are familiar with leprechaun economics. This is something that happened to Ireland only about five or six years ago, and you know, Ireland is a huge tax shelter.

And the entire country was so gamed by multinationals using this country and economy as a massive tax shelter-- in particular, Apple, it seems, according to investigations, that for instance in 2015, their economy grew-- the Irish economy grew-- according to GDP-- by 26.3%. And it was actually revised to over 30%. So in 2017, Ireland scrapped GDP and replaced it with modified GNI or Gross National Income. So it shows that GDP can be gamed or at least warped and distorted. Again, pointing to the fact that it's not infallible. And so that there are other indexes, there's other ways of thinking, and it might be to our advantage ultimately to consider those.

- It sounds like it might be. Maybe this is the time to do so. Andy Serwer, Yahoo Finance Editor in Chief. Thanks so much. And of course you can read Andy's column on YahooFinance.com this weekend.