U.S. GDP Over-Estimated, Says New Study

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To: National Desk, Political and Business Reporter

Contact: Melissa Haynes of Redefining Progress, 510-444-3041 ext. 305 or haynes@rprogress.org

OAKLAND, Calif., March 11 /U.S. Newswire/ -- A new analysis of the nation's economic activity shows that the GDP has overestimated the health of our economy by $7 trillion. Ironically, one of the key factors contributing to this over- counting is the expenditure that have resulted from the accounting scandals at Enron, WorldCom, Arthur Anderson and others.

The wrongdoings at Enron alone will contribute up to $1 billion to the US economy, in the form of legal fees, jail time, media frenzy and associated payouts.

The 2002 Genuine Progress Indicator (GPI) update, released today, draws a stark comparison with the Gross Domestic Product (GDP). According to the GPI, which considers both the quality and distribution of economic growth -- the value of the nation's economic activity grew by less than 1 percent. The GPI also considers the value of housework, caring for children and the elderly, volunteerism and the hours spent on free time or family and community activities -- all of which can be viewed as "good for the economy", despite no money changing hands.

"The GPI highlights a significant problem with the GDP and its use by politicians: the quality of economic development is at least as important as the quantity of economic activity measured by GDP," said Jason Venetoulis, Ph.D, author of the report. "Admittedly, the GPI cannot accurately reflect everything of value in an economy, or life, for that matter. However, economic policy might be more effective if it included more discerning information about what is really occurring in the economy and its effect on all Americans. Instead it relies on the GDP which makes no distinction between expenditures that can be considered "good" for the economy such as net capital investment, and spending that results from crime or the cost of health care for those who fall ill as a result of increased air pollution."

The GDP shows that in the period from January 2000, -- the year before George W. Bush became president -- to January 2003, the economy grew approximately 2.64 percent --about $272 billion or $180 per American. Without reference to quality and distribution, this economic growth may look good on the surface. Using GPI analysis, however, the value of economic activity grew by less than one percent (0.12 percent) during the same period. On a per capita basis, from 2000 to 2003 there was actually a $212 decline in GPI, with the biggest reductions coming from the degradation of natural resources and increased national debt. On the other -- positive -- side of the ledger, GPI shows a $600 billion increase in the value of housework and volunteer work from 2000 to 2003, which is not counted in the GDP.

The GDP is not without value as an economic tool, particularly for investment planning in business or services in a single index where gains in one area are offset by losses in another. Overall, however, the GPI aims to measure the quality of our economic health as opposed to the quantity of final transactions measured by the GDP.

The full report can be found at http://www.redefiningprogress.org.

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