Here’s What GDP Actually Tells Us

Today, the U.S. Bureau of Economic Analysis released its second estimate of Q2 Gross Domestic Product. But the way economists talk about the economy can sometimes muddle the underlying story. This is especially true when talking about how big the economy is, how fast it grows, and why. To bring these concepts to life, let’s consider a smaller-sized example, say, the economy of a Tax Foundation analyst. If we wanted to measure how much output a Tax Foundation analyst–let’s call her E–produces, we could count all the blogs and research papers E writes and the number of reporters E talks to. This would be a simple math problem: E’s Work Output = Blogs + Papers + Interviews Suppose in E’s first year at Tax Foundation, she writes 50 blogs and 15 research papers and completes 35 interviews. E’s output is 100 units of work (using the simplifying assumption that a blog, a paper, and an interview equal the same amount of work). Now imagine in…

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