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Then there is the issue of things that GDP does not count. The Internet, to me, is the most
important innovation of my time. It has toppled governments, accelerated research and
development, reduced the cost of education and increased educational effectiveness.
Were it not for the Internet, we would still be trying to decode the genome. In the world
of Internet, Google and similar search engines, are the single most important service.
Strange then that the universal measurement of living standards, GDP, ignores the value
of Google in its measurement of living standards.

In fact, at times, GDP moves in the opposite direction than that of living standards.
A case in point: If googling the Internet involved some type of subscription cost, it
would contribute positively to the GDP, but because the service is free, it does not. But if
the price of Google increases, ceteris paribus, living standards would decline because
the size of the basket of goods and services that can be afforded is reduced. Odd then
that to increase GDP, we would need to decrease wellbeing.
This is true for the sharing economy in general, the true sharing economy that is, not
the one that masquerades as sharing such as Uber or AirBnB. These type of firms do not
share any more than my local video store shares rental movies with me, or any more
than the Protea hotel chain shares rooms with their patrons. Just because many small
providers make their wares available online at a cost, does not (in any way) make it a
sharing economy. But I digress, back to GDP and its peculiarity. If my neighbour and I
live in our own respective paid up homes, there is no contribution to GDP, but if we live
in each other’s homes for R10 000 per month respectively, GDP increases by R20 000
per month. At the risk of belabouring the point, from a living standards or wellbeing
perspective, GDP has some glaring oddities.

A statistic that has become rather topical of late is that of economic wellbeing of US
households. Notwithstanding wealth creation of biblical proportions, middle income PROVINCIAL OUTLOOK NATIONAL OUTLOOK GLOBAL OUTLOOK GAP HOUSING INVESTOR NARRATIVE SPOT THE OPPORTUNITY PORTFOLIO INSIGHTS KHULISA NEWSLETTER ELECTRIC VEHICLES ENERGY SECURITY LOOKING AT GDP
households are no better off than their parents were in the 1960s. Using GDP as an
indicator for wellbeing, that may be true, but if incomes today are identical to that of
the 1960s, surely by virtue of the fact that we live longer, that we developed cures to
many of the diseases that would cause suffering, that we have so much more choice,
that we have the Internet, and that communication with loved ones at the other end
of world is all virtually free, this would imply an increase in living standards. To drive
this point more aggressively, even though Augustus Caesar was worth more than $4.6
trillion – considerably more than my net wealth – I get to experience more of the world,
in greater comfort and have access to more than a 100 channels on DSTV. Oh and I am
immune to Polio and Chicken Pox, he was not!

Alternatives

GDP’s popularity as a measure to understand the health of the macro-economy is
found in its simplicity – a true rarity in economics – but paradoxically, it must not be
used as the central indicator in the development of economic policy and strategies
aimed at improving economic health and living standards. For that, it is just too simple
a measure to capture the complexities of macro-economic health. Neither can the
measure, on its own, be used to infer wellbeing of the citizens. It was never its intended
use. Kuznets famously pronounced that the welfare of a nation can scarcely be inferred
by a measure of national income.

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