For actual GDP, such frequent and large forecast revisions are inevitable. Potential GDP, however, is supposed to be more stable, as it does not depend on demand side developments.

Although government statisticians do their best to gauge the rise in real GDP through time, there are two problems that are very difficult to overcome in measuring real incomes increases in the quality of goods and services, and the introduction of new ones. I believe that both of these problems cause the official measure of real GDP growth to understate the true growth of the standard of living that real GDP is supposed to indicate.

Country A, in 1990, had about 300 per capita GDP as compared with Country B, which had 460 in per capita GDP.

China s economy has certainly become more unstable, with major slowdowns in real GDP growth in 2009 and again in 2012. Its imbalances have gotten worse as well, with the investment share of GDP approaching 50 and private consumption falling below 35 of GDP.

In a recent paper, Mark Kamstra and I proposed that governments issue shares in their GDP, with each share amounting to a trillionth of GDP. These trills would help individual countries manage their GDP risks.

You know, it looks at economic power measured by GDP.

By 2008, Country A has surpassed Country B with 700 per capita GDP as compared with 650 per capita GDP.

But that is logically flawed even with deflation, real purchasing power would fall, and the real value of debts would rise (debt deflation), as the real depreciation occurs. More importantly, the exit path would restore growth right away, via nominal and real depreciation, avoiding a decade long depression.

The aim of the concept of potential as opposed to actual GDP is to take into account that, like an engine, an economy often operates below or above potential. In a demand driven recession, actual output falls below potential, which results in a rise in unemployment.

The IMF initially projected that Greece s real (inflation adjusted) GDP would contract by around 5 over the 2010 2011 period, stabilize in 2012, and grow thereafter. In fact, real GDP fell 25 , and did not recover.

Moreover, low inflation and periods of deflation did not prevent real incomes from rising in Japan. From 1999 to 2013, real per capita GDP rose at an annual rate of about 1 (which reflected a more modest rise of real GDP and an actual decline in population).

Gordon also points to the recent slowdown in real (inflation adjusted) GDP growth. According to official US statistics, real GDP per worker grew at an average annual rate of 2.3 from 1891 to 1972, but by only 1.5 since then.

Greece s GDP is now 25 below its 2009 level. And while some predict a recovery in 2016, I fail to see how any analysis of demand flows can justify that forecast.

Argentina s long term GDP growth has been disappointing. In fact, real GDP per capita declined 15 over the 25 year period from 1965 to 1990 a period that saw some Asian economies quintuple in size.

The government now officially estimates that achieving this target will require average annual GDP growth of 6.5 over the next five years. Given that China is still a relatively poor country, with per capita GDP only about 25 of the level in the United States, maintaining such a rapid pace of growth certainly is not impossible.

Indeed, according to the OECD, by the end of this year, America s national debt GDP ratio will climb to 108.6 . Public debt in the eurozone stands at 99.1 of GDP, led by France, where the ratio is expected to reach 105.5 , and the United Kingdom, where it will reach 104.2 .

The federal budget deficit has declined from 8.4 of GDP in 2011 to a predicted 2.9 of GDP for all of 2014. And, according to the International Monetary Fund, the structural deficit (sometimes called the full employment deficit ), a measure of fiscal stimulus, has fallen from 7.8 of potential GDP to 4 of potential GDP from 2011 to 2014.

Last year, Chinese GDP growth reached a 13 year low, and no upturn is in sight. But, as Premier Li Keqiang seems to recognize, this trend could actually be beneficial, spurring the structural reforms that China needs to achieve its longer term goal of more balanced and stable GDP growth.

Some will object that there is little point in creating GDP linked bonds in advanced countries, because there is little uncertainty about GDP growth there. However, even in the relative calm of the post war era, long term real GDP growth in advanced countries has been rather variable.

For Greece, with an overall deficit of 4.1 of GDP and a debt GDP ratio of 170 , the debt ratio would fall if the combination of inflation and real (inflation adjusted) GDP growth exceeded 2.4 . Stated differently, now that Greece has achieved a zero primary budget deficit, its debt burden will decline if its nominal growth rate exceeds the average interest that it pays on its government debt.

Syriza also plans to demand a substantial reduction in Greece s foreign debt, the nominal value of which remains very high close to 170 of GDP. In fact, the real present value of the debt is much lower, given that most of it is now held by governments or other public entities and carries long maturities and low interest rates.

Japanese real per capita GDP growth averaged 3.9 a year in the 1980 s, but only 1.4 since 1990. If real per capita GDP growth had continued after 1990 at the rate of the 1980 s, Japan s economy would be 60 larger than it is today implying losses in the trillions of dollars.

But those historical rates prevailed at times when fiscal deficits and federal government debt were much lower than they are today. With budget deficits that are projected to be 5 of GDP by the end of the coming decade, and a debt GDP ratio that has roughly doubled in the past five years and is continuing to grow, the real interest rate on Treasuries should be significantly higher than it was in the past.

In fact, Greece's official creditors have granted it long enough grace periods and low enough interest rates that the burden is bearable. Greece actually spends less on debt service than Italy or Ireland, both of which have much lower (gross) debt to GDP ratios.

China s current account surplus peaked in 2008 at more than 10 of GDP and has since narrowed dramatically, to 1.9 last year. China s trade adjustment in some respects followed that of Japan, the original focus of American trade anxieties in the 1980s.

In minutes of the rates decision, the Bank said In the MPC's central forecast, gross domestic product (GDP) remains sluggish in the near term as the squeeze on households' real incomes continues to weigh on consumption.

Finally, GDP indexed bonds and other tools for dealing sensibly with unsustainable debt could be applied exclusively to member states debt not covered by the program and in line with international best practices for sovereign debt management.

According to recent BEA estimates, real (inflation adjusted) GDP grew at a 2.7 average annual rate in 2013, compared to only 2 in 2012. Most forecasters including the nonpartisan Congressional Budget Office, the so called Blue Chip consensus, and the Federal Reserve predict that annual real growth will reach at least 2.8 in 2014.

That was in the early 2000s when India was going gung ho about GDP growth as the means forward looking at China with its stellar growths of eight, nine, 10 percent and wondering, why can we do the same?

In the last five years, the Palestinian trade deficit with Israel as a percentage of GDP ranged between 32 per cent in 2002 and 40 per cent in 2004.

The Black Hole in America s GDP

Of course, it is possible for too large of an increase to put pressure on real interest rates, thereby crowding out potential private investment. If there is significant exchange rate risk, such as in non reserve currency countries, that, too, should be taken into account.

Among the 82 countries for which 2004 data are now available, there has been really good news real per capita GDP has risen by an average of 18.9 between 2000 and 2004, or 4.4 per year. People generally are a lot better off than they were just a few years ago.

For example, many countries in Sub Saharan Africa do not update their reporting often enough, so their GDP numbers may miss large and fast growing economic sectors, like cell phones. When Ghana updated its reporting a few years ago, its GDP jumped by 60 .

Indeed, a key reason for China s slowdown in 2011 2012 is that officials wanted it. While the real GDP growth rate stated in the 12th Five Year Plan should not be viewed as a fait accompli, the fact that the Plan s growth rate was lowered to 7 is a powerful signal of official intent.

And this is GDP per capita on this axis.

In real terms, wages no longer rose (indeed, the average real wage has been stagnant for 25 years in the US), and a growing share of manpower (currently around 15 ) was without steady employment. Everywhere, the share of wages and incomes began to fall as a proportion of GDP.

The economy therefore limped along year after year, with real GDP in the final quarter of each year less than 2 higher than it had been a year earlier. Employment grew more slowly than the population, and annual real wage increases averaged only about 1 .

The gap between actual and potential GDP is thus a gauge of an economy s spare capacity. The distinction is also useful for policy purposes weak potential growth cannot be addressed by demand side initiatives supply side measures are needed.

Much of the income from GDP growth went to large state owned enterprises, which strengthened their monopoly power. And a substantial share of China s output goes abroad, with exports exceeding imports by enough to create a current account surplus of more than 350 billion over the past year.

Moreover, Italy spends around 4.5 of GDP on education, while the Scandinavian countries spend more than 6 of GDP. As a result, Italian students scores in the Program for International Student Assessment are significantly lower than those of their counterparts in many other OECD countries.

Just to show you what we plotted, here is income, GDP GDP of the city crime and patents all on one graph.

The government now stresses three macroeconomic goals job creation, price stability, and GDP growth. And, as evidenced by the annual work report that the premier recently submitted to China s National People s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list.

The British economy is now growing fast by current European standards, so 2 of GDP is becoming a larger sum. (The same is true of the UK s similar commitment to the United Nations to spend 0.7 of its GDP on international development assistance.)

But the growth formula that long underpinned South Korea s success a form of state guided capitalism that focuses on export led manufacturing is no longer working for many South Koreans. GDP has nearly tripled over the past 20 years, but, with real wages rising at less than half this rate, growth has become decoupled from the fate of ordinary citizens.