When economics professors teach the basics of Gross Domestic Product (GDP), we usually caution our students that it is not a good measure of welfare. Unfortunately, many economists go on to give GDP far more credit than it deserves. They tend to consider fiscal and monetary policy positive if these policies increase GDP, but they often fail to ask, let alone answer, whether those same policies increase or reduce welfare. I have a term for giving GDP such a sacred a place in economists' reasoning: GDP fetishism. If we return to some basic principles of economics, we will avoid GDP fetishism, do better economic analysis, and propose better policies.
An explanation about how I've categorized this post. I've put it under Macroeconomics for obvious reasons but also under Microeconomics because all my criticisms are based on well-accepted microeconomic principles. My main point is that the careless use of GDP ignores some of these principles.
Thanks to Jeff Hummel and Bob Murphy for looking at earlier drafts and providing comments.