A senior Treasury official has admitted that his department has been guilty of overusing gross domestic product (GDP), after recognising that it is a flawed measure of economic wellbeing and social progress.
The Treasury's macroeconomics director Dr David Gruen told an audience at the NatStats conference in Sydney today that the body uses gross domestic product to measure economic wealth despite knowing its limitations.
"Economists and statisticians have long known that GDP is not and was never intended to be a measure of wellbeing or progress. While we have long known its limitations, we as a discipline, have not done enough to discourage its use in inappropriate places," Dr Gruen admitted.
"In fact, we arguably, if inadvertently, do much to promote GDP as a measure of progress. For example, speaking of my own institution, in the budget papers we present detailed analysis on the level and growth of GDP as well as its determinants."
As Dr Gruen reflected on the use and importance of the GDP, he cautioned institutions to be more mindful of how it is utilised.
He went on to say that the GDP has a lot of limitations, particularly because it does not take into account most household production.
It also does not factor in many goods and services produced by the public sector, thus in effect favouring the private sector and privatisation.
"It is largely a measure of market production and therefore misses a significant amount of household activity as it excludes home production of goods and services other than imputed rents," Dr Gruen explained.
"It doesn't appropriately measure the goods and services produced by the public sector, and it can also sometimes give a misleading picture of how well the economy is performing."
Dr Gruen's views were echoed across the NatStats panel which included oeCD chief statistician Martine Durand, United Nations statistics division director Professor Paul Cheung and Griffith University's Associate Professor Geoff Woolcock.
Ms Durand preceded Dr Gruen's speech by saying that governments need to stop using GDP as the primary measure of wellbeing and instead use a range of indicators with broader coverage.
She also added that whilst statisticians recognise the limitations presented to them by using GDP as a measure, they should not be hasty to replace it with another indicator, but rather to find a measures that complement it.
"We know GDP is not a good measure of wellbeing. What we need now is not something to replace GDP, but to compliment GDP in order to address the right issue," Ms Durand said in her address.
"Don't start by saying throw away GDP and replace it with something else, I think that will be wrong.