But this is for your own knowledge–an education beyond your education, so to speak. Because what they tell you in economic textbooks is simply wrong.

The truth is–GDP is totally irrelevant to economic well being. Our economy is based on consumption, not production.

An economy with the highest, most efficient production in the entire world–but which does not consume anything… consider it a failed economy. We produce -in order- so that we may consume. Producing half a billion factory widgets per hour is totally meaningless if there is no “food on our plate.”

In fact, this is how the free market was designed. It relies on people acting out of their own self-interest. The butcher can’t be relied upon to cut meat for you because “he loves you.” Or because he has a sense of “loyalty” to his community. Or for some other lofty ideal. He acts only so that his own interests may be furthered — i.e. he acts for pay, which he uses for consumption.

So if there is no consumption going on–but there is a ton of production…what does that tell you? Someone’s interests are not being satisfied.

Now, you might say–well. Our companies wouldn’t produce if we didn’t already have markets available to sell the goods/services. Because normal market forces pressure businesses to be efficient and turn a profit , or otherwise they will bust.

This assumes too much. Companies that strive to be efficient may still miscalculate the demand for goods/services and wind up with shortages or surpluses. New laws can also lead to this. Substitute goods may become available. Alternative markets may become available. Essentially, there are too many variables that can affect production.

I would not rely on any level of production it in order to determine the level of consumption, i.e. economic well being.

More importantly, however—don’t rely on statements in textbooks as the “authoritative truth” on an issue without questioning it carefully!

Certain economies are topheavy, with a high amount of income going to the wealthy few. Mexico is a stunning example. There is a huge disparity between rich and poor.

Sweden would be at the other extreme. With its heavy taxation and universal health care, a decent standard of living is shared by a cross section of society.

Another problem with the GDP is it doesn’t consider the cost of living. Here in California incomes are high but so are expenses. In my community, the medium price of a house is over $700,000. There are many areas of the country where a better house might be purchased for half that amount.

Its the growth of GDP that is most important in determining economic well being. It is not always the case, but in most cases, yes.