| Lots of things. |
| First, it excludes things that affect our standard of
living, but that are included as part of measured GDP: crime rates, happiness,
the quality of the environment, the sense of community, political freedom. |
| Second, it excludes things that are quite explicitly
produced but that do not enter into a commercial transaction. These include
providing your own children with home health care and education; mowing
your lawn, etc. Note the arbitrariness of this exclusion: if I mow my lawn
it is not in GDP, but if I pay someone else to mow my lawn it is in GDP
(at least theoretically). Activities such as this are collectively termed
household
production, and their exclusion can lead to some serious
errors
in evaluating a country's standard of living. |
| Third, GDP excludes the loss
of assets due, for example, to natural disasters. |
| Note the common theme here: GDP fails to include things
that do not go through a commercial process by which an explicit price
is revealed. If we don't observe a price, it is very hard for a statistician
to know what value to attribute to the good (and this value is needed
to calculate GDP). |