I have always been puzzled about estimates of GDP. We regularly get told that GDP figures for China cannot be relied on, but by implication, figures produced by our own noble ONS will be accurate to the second decimal place. There are the known problems like the problem of non-monetary transactions being excluded from GDP altogether - such as the drop of GDP when a man marries his housekeeper. But the problem is much bigger than this.
This article by an FT staffer gives an insight into the scale of heroic guesswork are must be needed to get any sort of figure for GDP at all. It has often occurred to me, when involved in some transaction or investment or other that it is inconceivable that the state could possibly account for it as a part of the sum total of output or input that we label GDP. Most economics books talk a lot about the components of GDP and how they relate to each other but take the figure as an exogenous variable that may be measured as easily as we take the temperature inside a room.
This wouldn't matter so much if it weren't for the attention that is always focussed on this number, not least by GB in his mantra about continued avoidance of recession, defined in terms of changes in GDP, over his stint as chancellor.
It is quite astonishing that any attention is paid at all to the number, let alone the droning on of the Clunking Fist about how we've survived another quarter where this number has narrowly escaped going down again.
There was a fashion about a decade ago to measure inflation by looking at the GDP deflator - the number required to convert (real) GDP to nominal GDP. This went hand-in-hand with the idea that monetary and fiscal policy should target nominal GDP growth, rather than inflation. My own preference would be to target productivity, but as far as I can see, this suffers from all the difficulties of measurement as GDP and a few more.
In the same edition of the FT is this article by Martin Weald which again points out the distorting effects the very low rate of tax on real estate, especially owner-occupied real estate, compared to that on other assets.
