Is GDP the Batting Average of Economics?

The first thing you learn when following baseball sabermetrics is that not all statistics are created equal. Popular statistics can easily be misleading, a prime example in baseball is batting average. The rate at which a player makes contact maybe interesting in itself, but doesn’t exactly tell us much about what a player contributes to a team’s ability to win or score runs. Likewise, I am led to wonder if popular economic statistics like the Gross Domestic Product really tell us all that much about the economic reality of a nation.

I have to assume that real economists have better statistics, but either through ignorance or bias the media keeps shoving the same old misleading statistics down our throat.

I feel that the net size of an economy tells us very little about that economy, other than it is large. It is common to note, often in fear, how fast the Chinese economy is growing, and that one day it may overtake the American Economy. Really? America is a nation of around 300 million people, China can cover that 300 million and add a billion more. It’s not a problem that China’s economy overtakes ours, instead it’s a problem that China with four times our population, can’t even come close to matching our own.

Gross numbers are fun to play with, but if we want an accurate picture of how the common person is living, it is far more useful to look at the average figures. GDP per capita is a start, but a straight mean average can be distorted by large amounts of wealth accrued at the top, and distort the conditions of the common man. Median income figures would give a more accurate assessment.

I feel that even median income gives us only a partial picture, because as we all know, we aren’t allowed to keep all of the income we earn, a good portion is taken away in the form of taxes. Thus I favor after-tax income figures, to pre-tax. The median after-tax income (normalized for inflation, when comparing between years) seems like a pretty good number to describe the economic condition of the common man. For more fun, use quartiles to get a picture of class economics.

Another pet peeve of mine is throwing around the GDP without taking into account the government debt of that year. If the GDP grew by $300 billion, but the government took on $500 billion of debt, did the GDP really grow?

Speaking of debt, too many people freak out over our national debt looking at only the raw numbers, but taking them entirely out of context. Yes, a national debt of over $9 trillion looks bad, but when you compare the ratio of debt to GDP and then compare that to other industrialized nations like France, Germany, the UK or Japan, our debt is nothing special. Now this shouldn’t be an excuse for unrestrained spending or taking on further debt, while it’s ok to be in the middle of the pack, it’s even better to lead.

So this is probably all information that economists have long figured out, and more than likely bettered, I still find the general economic information to be sorely lacking.