Why GDP No Longer Reflects the Real Economy

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• GDP says the economy is growing, but your daily life might tell a different story, and that disconnect matters.
• Economist Diane Coyle unpacks why our most trusted economic number leaves out the most valuable parts of modern life.
• From unpaid labor to digital tools we rely on, this blog reveals what GDP misses and why a new way of measuring progress is long overdue.

It starts with a strange paradox: You read the headlines: “GDP is up.” You look around: wages stagnant, housing unaffordable, services crumbling, your groceries cost 30% more than two years ago. Something doesn’t add up.

For decades, GDP has been the scoreboard of economic success. A rising GDP was supposed to mean progress, prosperity, and security. But more and more, it feels like GDP is running victory laps while the rest of us are stuck in traffic. Why? According to economist Diane Coyle, it's because we’re still measuring the 2025 economy with tools built for 1945.

What the Numbers Don’t See

Gross Domestic Product was created in the wake of the Great Depression and World War II. The world back then was industrial, tangible, and you could measure productivity by counting how many tons of steel or yards of fabric rolled off a factory line.

Since then, the global economy has dematerialized. Today, some of the most valuable things we use have no price. Gmail is free, Google Maps is free, and open-source software powers much of the web, yet isn’t bought or sold. Millions of people contribute to these systems with no paycheck attached, no invoice generated, no economic statistics updated.

It’s not only digital products. The modern consumer is now also the worker. You scan your own groceries, you install your own software, you troubleshoot your WiFi. Tasks once handled by paid employees are sometimes your responsibility. The transaction disappears from GDP, but the work still happens. In a way, we are all unpaid interns in the economy of convenience.

The Mirage of Growth

On paper, we’re growing. But what’s really happening is substitution.

An algorithm replaces a travel agent. A YouTube video replaces a lecture. An AI bot replaces a customer service rep. GDP shrinks or stagnates, not because less is being done, but because less is being paid for.

Take cloud computing. A government agency used to buy servers, hire staff, and build in-house IT teams. That spending showed up as investment in national accounts. Today, that same agency pays a subscription to AWS or Azure. It’s counted as an expense, not investment. The underlying infrastructure and services may be far superior, but GDP says it’s less.

Or consider medical innovation. A $2,000 monthly drug replaced by a $55 alternative is a triumph for science and society. But in the GDP ledger, it’s a loss. Less money spent, therefore less economic activity.

The more efficiently we solve problems, the more progress looks like contraction. This is why GDP no longer reflects the real economy.

When the Invisible Becomes the Foundation

We live in an era where the most important things are increasingly invisible: data, code, ecosystems, trust.

GDP has always been about flows, including how much money moves in a given period. But it tells us nothing about stocks, the assets we hold, the systems we rely on, the capacities we are building or destroying. A healthy society depends not only on what it earns, but on what it owns. Not just income, but infrastructure. Not just transactions, but trust. Yet we barely measure these things.

A forest filters air, stabilizes soil, and regulates climate. It’s priceless until it's priced, but GDP only sees the timber after it’s cut down. A teacher trains thousands of minds over decades. Her impact compounds, but GDP counts her salary, not her influence. A nation’s social fabric frays, institutional trust erodes, and rules get ignored. GDP climbs anyway, even as the scaffolding underneath crumbles. In this way, we are navigating with a broken compass.

A Better Map

What if instead of one number, we had a dashboard? What if we tracked not just output, but the condition of our inputs? Imagine an economic balance sheet with six core assets:

1. Physical capital – buildings, machines, infrastructure
2. Human capital – skills, education, health
3. Natural capital – air, water, biodiversity
4. Social capital – institutions, trust, cohesion
5. Knowledge capital – ideas, research, data
6. Financial capital – money and credit systems

Each of these fuels future prosperity, each can be depleted or expanded, and each deserves to be measured.

Right now, we track financial capital religiously. Every quarter, every decimal. But natural capital? Human capital? Social capital? They live mostly in footnotes or academic reports, often with no dollar value attached.

You can’t manage what you don’t measure, and if we continue to ignore these invisible foundations, we’ll wake up one day wondering where all the progress went.

Time Is the Missing Variable

There’s another element GDP doesn’t see: time. Not economic time, but human time.

What does it mean when your internet is faster, but you spend more hours fixing it? When groceries are cheaper, but you spend Saturday night talking to a chatbot about your refund? When services are automated, but the burden of labor shifts to the customer?

This “time tax” is real, and rising. We’re paying in hours instead of dollars. But those hours are valuable: They are the currency of our lives. A modern economic system should account for time spent, time saved, and time stolen. It should ask not only “how much did we produce?” but “how did we spend our days?” In the end, our lives are made of time, not money, especially now.

The Danger of False Certainty

The power of GDP lies in its simplicity. One number to rule them all.

But that’s also its danger. Because when the number keeps rising, it creates a false sense of security, and it becomes easy to believe that things are fine. That the economy is working, that progress is happening…until the illusion breaks, voters revolt, workers strike, and institutions fracture. Then we realize that the scoreboard was broken all along.

Fixing it won’t be easy. The new tools are harder to build, the new data is harder to collect, and the categories are harder to define. But the alternative is flying blind, or worse, trusting a map that no longer matches the terrain.

Progress Beyond the Dollar

We have never had more ways to create value. We can solve diseases with data, educate billions at scale, and share knowledge across the globe instantly. These are such powerful achievements unfolding in daily life, but these breakthroughs are often invisible to traditional metrics.

We need new measurement systems not because the old ones are evil, but because the world they were built for no longer exists. Economic statistics should reflect what we value. Today, we value well-being, sustainability, time, fairness, trust, and opportunity.

If GDP doesn’t capture that, then GDP isn’t telling us the whole story. So, it’s time to stop confusing a growing number with real progress and start counting what really matters.

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.