One of the things that I constantly harp on is that we need to change the stories that we tell ourselves. GDP is one of those stories.
We tell ourselves a simple tale, and it goes like this: A rising GDP is a good thing.
But with a slight bit of inquiry, we could discover the many ways that this story is more myth than fact. First, we might discover that we routinely pad the tale with so many statistical distortions (“Fuzzy Numbers”) that the narrative not only loses its way, but becomes hopelessly misleading.
Having accurate stories to inform one’s decisions is exceptionally important.
One of the more interesting tales to emerge from the massive tsunami that struck Indonesia was this: When the water rushed out, natives who had never before been exposed to a tsunami knew exactly what to do. Many people, tourists among them, gaped at the suddenly dry shore-line, and some even wandered out to pick up flopping fish. But the indigenous people knew that they should head for high land, because they were equipped with an instructive story that had been passed down through previous generations.
But they wouldn’t have known to do this if their story had become fuzzy over time, perhaps distorted beyond usefulness. Can you imagine what might have happened if government statisticians had massaged the natives’ tsunami tale over the years? I imagine that, instead of heading for the hills, the people might instead have stood around waiting for a government stimulus check, or something.
Likewise, our GDP story is inaccurate – to the point of being harmful – because of the many, many distortions that have been layered on over the years. It may no longer provide us with useful and actionable information, because it not only measures the wrong things, it does so in a systematically biased way.
Because of the consistent upwards bias, we think our economy is stronger than it really is. I liken this to flying in a plane with an altimeter that says you are a thousand feet higher than you really are.
But even if our GDP story was distortion free, it would still be harmful, because it is measuring the wrong things and therefore guiding us towards the wrong destination.
by casey