Gross domestic product (GDP) is the most commonly used measure of countries' production and income. Moreover, on a per capita basis, GDP is the main proxy for a population's standard of living due to its correlation with variables such as life expectancy, infant mortality, and daily calorie intake. Other available measures attempt to provide more holistic alternatives to capture indicators of human development and happiness. But GDP per capita is usually quite correlated with these measures as well. And, as most countries have systems of national accounts that are relatively reliable and easy to build and calculate, the use of GDP and its per capita variant is universal.
However, GDP per capita is not a perfect measure of the population's standard of living in several aspects, which is why the search for alternative measures always returns to the political and academic debate. In this respect, an important point to note is that GDP does not perfectly capture transactions that occur outside the market, something that has more severe implications during the coronavirus disease (COVID-19) pandemic. Lockdowns and quarantines have become measures that have been widely and repeatedly implemented around the planet as a way to contain the spread of the virus, leading to significant contractions in economic activity—at least as measured by GDP. The second quarter of 2020 showed the hardest side of these effects, with an average drop in GDP for the countries of the Organisation for Economic Co-operation and Development (OECD) of 9.8% compared to the first quarter, and 9.7% in Brazil.
Such declines are easily understood, as the closing of factories and offices has led to complete or partial paralysis in the production of goods and services. Further, school operating restrictions have moved students to a remote model, creating mobility difficulties for fathers and mothers participating in the labor market. Finally, mobility restrictions led to a drop in demand for various services such as barber shops and hairdressers, hotels, restaurants, bars, and even hospitals.
However, for some activities, much of the production may have disappeared only from national accounts but has not been completely closed. For example, consider how many meals eaten at home have replaced meals eaten at restaurants, or how many private trips have replaced disrupted public transport services. This is to give some examples. In other words, although GDP declines during the pandemic reached unprecedented historical levels, in fact, economic activity has declined less than that. This activity moved from the market to households, outside of official measures.
This does not mean that the economic impact of COVID-19 should be minimized, or that the measurement of GDP should be abandoned. A meal at home does not necessarily offer the same benefit to an individual as a meal at a restaurant, so they are not perfect substitutes. More than that, different individuals have different domestic work skills. But the point to be highlighted is that in such an extraordinary period as the current one, the strict reliance on GDP can lead to overstated conclusions about the effects on the standard of living and consumption of the population.
Essentially, in addition to this movement from market production to domestic production, what we are observing is an increase in the discrepancy between different economic activities—notably those that can be done working from home and those that cannot. This is certainly due to another difference that affects the standard of living and individual satisfaction during the pandemic. Not only are there differences in the productivity of domestic production between individuals, but some still manage to maintain a good part of their income in market activities during the pandemic. This results in an even greater heterogeneity of the social and economic effects of the pandemic, which an exclusive assessment of GDP prevents us from inferring.
In summary, although GDP is the main and most common measure of economic activity and social well-being, at a time as serious and atypical as the current one, it is clearly insufficient. The COVID-19 pandemic generates economic effects that go beyond the assessment of only what we have been able to capture by national accounts, and caution in assessing new economic data is essential for a complete assessment of the scenario.