BOOK REVIEW: GDP: A Brief But Affectionate History, by Diane Coyle.

As Coyle points out, an increase in the variety of goods also produces gains in welfare that are not included in GDP. Again, think about this from the standpoint of consumer surplus. If you and I go to a food court with many restaurants, then I will choose the meal that gives me the most consumer surplus, and you will choose the meal that gives you the most consumer surplus. Each of us will get more consumer surplus than if we had been forced to get food from the same restaurant.

Overall, one arrives at a mixed verdict on GDP. On the one hand, it is the best way that we have to measure economic capability. On the other hand, because it fails to account for consumer surplus, GDP statistics lead us to take an overly pessimistic view of the economy. There is no Great Stagnation. There is only a widening gap between the rate of economic improvement and our ability to measure that improvement.