The Trouble With Using GDP to Measure Economic Growth

Alan Berube follows on recent news about the sluggish national economy with data that focuses more on the economic well-being of metropolitan areas, while also producing some larger conclusions about the connections between economic growth and economic well-being.

First came the news from the U.S. Commerce Department "that GDP growth slowed to an annual rate of 0.7 percent in the fourth quarter of 2015, stoking fears about whether the ongoing recovery from the Great Recession can sustain momentum in the face of global economic instability."

Berube, however, reminds readers of the Brooking Institution's Metro Monitor tool, which allows additional insight into the economic health of the country. According to Berube, the Metro Monitor shows that 95 of the 100 largest metro areas showed increases in growth categories. "Yet growth in metro economies did not reliably improve all residents’ economic fortunes," states Berube.

To make that point Berube shares a chart laying out growth rankings and inclusion rankings, showing a weak relationship between the two categories. From that exercise, Berube produces the following findings:

Many metro areas that had high growth performed worse than their peers on inclusion, and vice versa (the upper left and lower right-hand quadrants). Nashville’s economy grew at a rapid rate from 2009 to 2014, ranking fifth among metro areas, but median wages fell and relative poverty rose. In Springfield, Mass., however, relative poverty dropped significantly, ranking the metro area second for inclusion, despite anemic overall growth that ranked the metro area 64th among the 100 largest.

The article concludes with an appeal to policy leaders to keep in mind all the measures of economic opportunity—not just the obvious—when evaluating the performance of the economy.