It’s intuitive to suppose that there is a positive correlation between an economy’s strength (as measured by GDP) and its productivity (in terms of producing things that people actually want).
Intuitive, but wrong. GDP measures the flow of capital: how quickly dollars and commodities turn over. An illustration: imagine a country containing immeasurable wealth in which, over the course of a year, no money or commodities changes hands. This country has a GDP of zero. On the other hand, a comparatively poor country in which a lot of trading of money, goods, and services occurred would have a comparatively high GDP. So, when we talk about GDP and “the economy,” we’re talking about the flow of capital and not actual benefits to the populace.
This is one big reason why the strongest growth in the US economy during the twentieth century was–wait for it–during World War II.
If productivity correlated to GDP, we’d expect a large dip in GDP during WWII, when the economy’s resources were diverted from producing consumer goods and poured into the war effort (i.e. literally producing destruction).* But we find just the opposite. Why? Because, to borrow from Richard Wolff, the US put half its unemployed workforce into military uniforms, and put the other half to work making those uniforms. In other words, WWII created demand. It gave goods and services somewhere to go, thus reinvigorating the flow of the US economy. The correlation between WWII and US GDP growth demonstrates that there is no necessary correlation between GDP and production of actually-desired goods and services. That is, while GDP captures the market-value of goods and services in a country, what is marketable is not necessarily productive. (Consider, for instance, how the advertising industry’s prime directive is to create desire where there had previously been satisfaction.)
GDP does not only include unproductive activity; it also misses productive activity. Marilyn Waring has pointed out how unpaid domestic labor (e.g. traditional “women’s work” at home) is a massive sector of essential work that is wholly absent from GDP as a measure of the economy. (Ditto for nature.) Other feminists have argued that this exclusion is not incidental, but is rather that capitalism can only exist when it’s propped-up by non-market labor. Whatever the force of the latter argument, I want to note that unpaid domestic labor is an example of how productive work exists outside the economy (not to mention, just off the top of my head, unpaid internships and the vast majority of care-activities): useful human work is not limited to wage-labor. So in addition to including unproductive activity, GDP excludes much productive activity.
While GDP can overvalue counter- or un-productive work, it does accurately reflect the market valuation of economic activity within a country during a given period of time: it’s nothing other than a sum of the market value of all goods and services produced/sold/bought during some period of time (conventionally a year).** This flow of capital inside the market is a real thing: real people are affected by changes in the GDP. It is meaningful for us to be concerned with GDP, just as it is meaningful for us to be concerned with the unemployment rate. However, as I have shown, GDP is only one tool for describing the material productivity of a country in terms of actual effect on human wants and needs, and it’s incomplete and misleading when used by itself.
*This is not an evaluation of the utility of the war itself. I’m pointing out only that wars, by definition, are the opposite of productive.
**GDP can be calculated by summing production, income, or expenditure. Theoretically/definitionally, these are all three ways of counting the same thing–because every sale is also a purchase, including the sale of labor in the production process.