The Gross Domestic Product
measures
economic activity by summing up all the
monetary transactions that occur in a
nation. It is often used as an
indicator of economic
progress and the
prosperity of an
economy. Unfortunately, the GDP as an indicator is given more
credence than its approximations warrant. An increase in GDP can actually reflect one (or a combination) of three things:
1. True increase in productivity and the amount of goods and services available to (and used by) the population.
2. Additional economic activity required because of natural or man-made disasters - for example, the replacement of windows required after an earthquake or protest.
3. The transformation of the relationships within a society from informal activity to business dealings. One example is the growing use of hired child-care providers to replace the caring of children by relatives.
Ironically, hiring a prostitute in Nevada increases GDP (and the illusion of prosperity) while sleeping with your wife does not (unless you pay her and report that fact). Unfortunately, the GDP is still being used to measure economic progress by the both the uninformed and those who should know better.