Does GDP accurately reflect your nations productivity why or why not?

Answer 1

National GDP is the yearly sum total monetary value of goods and services, but an economist's definition of 'productivity' is the value of labor output per unit input (hours worked). As framed, we're not comparing apples to apples, but the question seems more about whether GDP reflects 'true productivity'. Economists argue endlessly about what 'true productivity' is.

Yet, one key sub-issue is whether services are really as valuable as goods. Is a $100 hair cut really worth as much as a $100 vacuum cleaner? Maybe not. Or on a national level, why with the world's largest GDP is the U.S.A. still dead last in trade deficit by an enormous margin? Services are harder to export than goods, but the size of that gap still seems kind of fishy, as it reflects how much the rest of the world values U.S. output, doesn't it? Goes with the feeling that Americans charge for massages and peddle financial paper everywhere, but they don't make 'things' any more.

But let's try to bound the problem. On a whim, let's suppose we start with GDP but, to get a better handle on 'true productivity', you have to subtract off yearly trade deficit and yearly increases in national public and private debt. If so, U.S. GDP is now about $14 Trillion. Its public debt grew in 2008 by ~$1.8Trillion, private debt by ~$3 Trillion. So, our trial formula suggests that U.S. 'true productivity' was only $8.8 Trillion, or ~63% of nominal GDP. Goods constituted 1/3rd of U.S. GDP or $4.7 Trillion, which suggests that the remaining $9.3 Trillion of U.S. services was really worth only $4.1 Trillion, or 44% as much as U.S. goods, in terms of 'true productivity'.

One may validly critique such a simple trial formula in many ways. Yet, it does yield an estimate of the true value of services that seems intuitively to be 'in the ballpark', i.e., not zero but, at slightly less than half, certainly not on a par with goods. Such a valuation also goes a long way to explain the U.S. trade deficit, as well as other seemingly inconsistent sets of facts gleaned from 'official' government stats.