Why Investors Should Ignore GDP

By John Tamny

The great Canadian economist Reuven Brenner has likened macroeconomic calculations to dangerous mythmaking that sustains “the illusion that prosperity is necessarily linked with territory, national units, and government spending in general.” Truer words have rarely been written, particularly when we consider how very much our economic health is related to productivity outside our borders.
 
Simplified, with the only closed economy being the world economy, our productivity accrues to individuals outside the United States, and foreign productivity similarly accrues to our own economic well-being. National economic statistics presume a war among the economically productive based on country borders, when in fact the world is an increasingly integrated economic whole.

Despite the illogic of government economic statistics, Gross domestic product (GDP) is still generally accepted as a useful measure of U.S. economic performance. The problem here is that many of the inputs used to calculate the number create inaccurate readings that can overstate or understate our economic health.

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