GDP Shortcomings

Via MR, Michael Mandel's article this week in BusinessWeek is a must read. The opening paragraphs:

the official [GDP] statistics are not designed to pick up cutbacks in "intangible investments" such as business spending on research and development, product design, and worker training. There's ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can't compete in a knowledge-based global economy. Yet you won't see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction.

In effect, government statisticians are trying to track a 21st century bust with 20th century tools. Not only is that distorting the critical data that investors, policymakers, and corporate executives use to evaluate the economy, but it might also be creating a false sense of relief as Americans battle a brutal recession.

If increasing GDP is the ultimate goal, but measuring the ultimate goal is structurally flawed, how are policy makers expected to accomplish the ultimate goal in a beneficial and efficient manner?

More on the current state of macro in a bit.