Among the most significant economic challenges in America today is getting Americans to understand what an economy is.
When the Latin term oeconomia was first used in the 1500s it meant “household management.” A few centuries later, the term political economy was used in reference to the economies of states or polities. It wasn’t until the modern era, though, that “economy” became to refer primarily to the production and distribution of national income and wealth and lost almost all connection to the household.
Because of that shift, we often see a confusion of terms and concepts. Take, for instance, the opening sentence of this recent news report:
The U.S. economy grew at a modest 2.4 percent annual rate from January through March, slightly slower than initially estimated.
The problem with this is that “U.S. economy” is conflated with gross domestic product (GDP) — the market value of all officially recognized final goods and services produced within a country in a given period of time. While GDP can potentially be an important economic indicator, it is not a true measure of the nation’s economy (aka political economy).
Derek Scissors provide a superb explanation for why a better measurement is one that gauges the original economy: