Is GDP a Consistent Measure? No, GDP is actually a Deceptive Measure…

In economics, expert and layman alike keep looking at the GDP quarter over quarter for some direction as to the true health of the economy. Talk about the blind leading the lame! If bubbles are reflective of an inflation of values of goods and assets, be it stocks, real estate or currencies, then an inconsistent metric is one that lacks robustness not to be influenced by bubbles. Look at the GDP- it is easily swayed by pretty much any bubble there is out there. The GDP may have been a good measure when the world was simpler, and production and consumption were driven by real growth in wealth, not by credit cards and home equity loans. According to Federal reserve statistics, Revolving Home Equity $100 Billion to $200 Billion from 1997 to 2002, but from 2002 to 2006 reached $500 Billion. It is difficult to believe that people’s equity in their homes more than doubled in 4 years, so basically they were riding the wave of the real estate bubble and an artificial inflation in the value of their homes (old news now since even your neighborhood grocer by now knows about the sub-prime crisis). What’s bad for the GDP (even Real GDP) as a metric is how much it is influenced by consumption (more than 2/3rd). With such a spike in Home Equity withdrawal, consumption is bound to spike as well, but this growth in consumtpion can hardly be said to be driven by a real increase in wealth and well-being- it is all driven by money advanced through Home Equity withdrawal, on the assumption of sustained growth in Home prices and not as much due to a genuine increase in actual Home Equity. When that market corrected it was payback time for all the uncontrolled spending driven by Home Equity- and GDP as a metric, was not able to see through that scam.

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