In a fascinating paper they compare the official GDP figures to their “core GDP” measure and find that the choice of method makes a big difference to the relative sizes of the western and non- western economies. For instance, according to the official figures the non-West only overtook the West in the middle of 2000, but according to the core GDP figures the cross-over took place much earlier – at some point before 1990 (when the comparison starts).
Choice of statistical method doesn’t change how rich or poor people actually are, but the authors observe that the bias to the West does impact on “our perception of growth in the world” and also on the weight of western influence in global institutions like the World Bank and the IMF. [...]
In fact, taking rent out of GDP would remove some deeply perverse incentives for policy-makers. Ever wondered why government does such a bad job of solving the housing crisis? Well, if it did a better job, and rental values came down, GDP would take a corresponding hit.
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