In seeking to measure everything, econometricians gave us the dubious gift of gross national product and gross domestic product, the latter being in fashion today and the former in times past.
Although there are different ways of measuring it, GDP is commonly taken as a measure of spending, comprised of household spending, government spending, investment spending, and net exports. The Bank of England’s guide says that it is a measure of the size and health of the economy. And the US’s Bureau of Economic Analysis similarly says, “the growth rate of GDP is the most popular indicator of the nation’s overall economic health”.
Although GDP is a measure of the size of an economy, it is an error to describe it as a measure of the economy’s health. Economic theory and empirical evidence are clear on the matter: an economy dominated by government spending is not a healthy economy, compared with one dominated by private spending; yet these two different models can produce the same total consumption figures. When Gordon Brown was Britain’s chancellor of the exchequer at the turn of the millennium, he consistently delivered GDP growth greater than forecast by independent economists. But when you took the numbers apart, it was achieved not by a private sector doing well, as everyone assumed, but by the government spending more than expected.