Government Statistics (GDP, Unemployment)

GDP: The Most Important Number That Misleads

Gross Domestic Product measures the total monetary value of all goods and services produced in a country over a period. It is the most cited economic statistic in the world and the primary measure by which economies are judged. But GDP has profound limitations that its creator, Simon Kuznets, warned about as early as 1934: 'The welfare of a nation can scarcely be inferred from a measure of national income.'

GDP counts a car accident as positive (car repairs, medical bills, legal fees generate economic activity). It counts pollution and then counts cleaning it up. It does not count unpaid household labor, volunteer work, or environmental degradation. Two countries with identical GDP can have vastly different qualities of life depending on how the income is distributed, how the environment is managed, and how much of the economic activity is genuinely productive.

Unemployment: Which Number Do You Mean?

The US Bureau of Labor Statistics publishes six different measures of unemployment, labeled U-1 through U-6. The 'headline' rate — the one politicians cite — is U-3, which counts only people who are actively looking for work and cannot find it. It does not count discouraged workers who have given up searching, underemployed workers who want full-time jobs but can only find part-time work, or people who have left the labor force entirely.

U-6, the broadest measure, includes all of these categories and is typically 3-5 percentage points higher than U-3. During the 2009 recession, U-3 peaked at 10% while U-6 peaked at 17.1%. Which number you cite depends on the story you want to tell.

This is not deception — each measure captures something real. But when a politician says 'unemployment is at 3.5%,' understanding which measure they are citing and what it excludes is essential to understanding the actual state of the labor market.