Connecticut Gross Domestic Product Grew in 2011 (But Is the Indicator Real?)

Economists, like doctors, create instruments to measure our well being. One way the economists at the U.S. Commerce Department’s Bureau of Economic Analysis (BEA) track our national economic health is to tally the total dollar value of all goods and services produced during a specific period and measure how much it changes compared with an earlier period. (Stay awake: this gets better.)

According to BEA, the nation’s GDP increased 2.6% between 2009 and 2010 and Connecticut’s increased 3.1% during that period.  Because GDP measures the value of output, the increase suggests that insurers are writing more policies and factories are producing more jet engines.  In fact, the finance and insurance, durable goods, and retail sectors put numbers on the board for Connecticut.

If GDP is picking up, then the economy is improving, no? We would all like to think so, but The Atlantic Monthly’s business and economics editor Megan McArdle warned that GDP may be a misleading indicator, especially for those who believe it gages our well being. GDP “counts the dollar value of our output, but not the actual improvement in our lives or even in our economic condition,” she wrote.

For example, “GDP does not, and cannot reflect the waste of enormous effort, and precious natural resources, that went into building something that suddenly no one wants. Moreover, it misses many other aspects of our existence. Strip mining a picturesque mountaintop, or clear-cutting a primeval forest, shows up in GDP only as a boost to output.” In other words, GDP may not capture the downside of economic growth.