NC State Economist Mike Walden – What Really is GDP?

Mary Walden:  Mike, GDP, which stands for Gross Domestic Product is a keenly watched barometer of our economy.  Some argue it is the very best measure of the economy. But, what exactly does this number represent?

Mike Walden:  Mary, it goes back about 60 years, it was developed after World War II, and you can look at GDP in one of two ways, the first is the value of everything produced in our economy in a given period of time, usually a year, being careful not to multiple count inputs.  In other words, you don’t’ want to count the lumber that goes into the building of a home, you don’t want to count that at the lumber yard, then count it in the home.  You want to net that out.  Secondly, however, it can be looked at the sum of income earned from all sources, including labor income, investment income, and profits.

GDP, interestingly, interestingly enough, isn’t the same as sales.  And that really gets to that point about multiple counting.

It’s not a perfect measure.  One, money has to change hands for some economic transaction to be in GDP, and second, it doesn’t account for cost, like to the environment that are imposed when we are making things in the economy.  And the value of free time is not included, and the fact is that really docks you when it comes to GDP.

So, it’s not a flawless measure, we economist know it, it’s probably the best measure we have, it’s used all around the world.  Our economy, right now is sitting at a GDP of around $17 trillion.”

A native of the Texas Panhandle, Rhonda was born and raised on a cotton farm where she saw cotton farming evolve from ditch irrigation to center pivot irrigation and harvest trailers to modules. After graduating from Texas Tech University, she got her start in radio with KGNC News Talk 710 in Amarillo, Texas.