April 22, 2013

Zackary Karabell’s essay “It’s an old numbers game” [Business, April 21], on gross domestic product and other economic indicators,was contradictory and misleading. Mr. Karabell voiced concern that “GDP has only existed as a reliable statistic since the 1930s”; later, he worried that the statistics “were all developed more than a half-century ago” and thus “remain a product of a different world” in spite of his admission that they have been tweaked and refined. As an economist who worked on the GDP at the Commerce Department for more than 25 years, I can attest that the statistics that make up the GDP are regularly updated in revisions, such as one scheduled for later this year.

Mr. Karabell also suggested that GDP is understated because it misses the true value of long-lasting light bulbs that use less energy. He reported on work by Massachusetts Institute of Technology’s Erik Brynjolfsson that tries to quantify the value of “free goods,” such as the Internet, that improve daily life but that are somehow undervalued.

A fundamental principle of national economic accounting holds that the value of an item purchased is best measured by the market price that a consumer is willing to pay and that a seller is willing to take for the item. The price of the light bulb would reflect the purchaser’s evaluation of the energy saved and the longer life expectancy of the bulb; the offered price would reflect the additional cost of production.

Mr. Karabell stated that negative trade balances subtract from GDP. In fact, trade balances have no effect on the measurement of GDP.

Gerald F. Donahoe, Riva