Nearly 80 years ago — during the height of the Great Depression — economist Simon Kuznets envisioned a system capable of measuring productivity and economic activity. In a report to Congress, Kuznets proposed charting all economic production with a single measurement that would decrease when the economy struggled and increase when it thrived. He called it gross domestic product, or GDP.
Nations throughout the world embraced GDP as the standard for measuring economic activity; Kuznets eventually won the Nobel Prize for his creation. The popularity of GDP belies its effectiveness, however, as the measure systematically under-reports the significance of production.
The most recent data from the U.S. Bureau of Economic Analysis showed that the country’s GDP increased by about 1.4 percent in the second quarter of this year, which was encouraging news to some. GDP in the U.S. had increased by about 0.8 percent in the first quarter of the year. While this seems like positive news, it’s difficult to say exactly what it means for the average consumer.