I just listened to a very interesting lecture called Rothbard as Historian that derided the use of GDP alone to gauge the health of the economy. You can hear it in the podcast available from Mises.org.
The relevant comments come about 25 minutes into the lecture. The issue is that much of GDP is gov't spending and gov't spending is a net drag on the economy (given that its revenue subtracts from economy in nearly equal amount as it spends). What Rothbard suggested is that we measure Private Product Remaining (which the gov't does not measure) which is GDP minus what the gov't takes out.
The lecturer, Thomas Woods, uses 1946 as an example. It supposedly was a bad year looking only at GDP figures. GDP dropped because wartime spending ended. GDP would lead you to believe the previous years were better, but in fact WW2 was not a time of great prosperity. True, unemployment was low (11 million people were in the military and some of them died -- this was not an ideal situation). In fact, lots of goods were rationed during the war. People were scraping by -- they had money, but nothing to buy. In 1946 soldiers came back, re-took their old jobs when they could (9 million of them) and replaced the less productive, less skilled people who had been doing this job (women, young and the very old). Is it reasonable to believe that productivity shrank by 22% in that year as GDP would indicate?
Rothbard claims that the only spending decisions that help when measuring the economy are voluntary transactions (rather than gov't controlled spending) because these are the only ones we can be reasonably sure are made to increase the individual's well-being. Private output increased by 30% in 1946 -- we've never had a year over year improvement as good as that. And, people living in 1946 will tell you that the American economy did very well that year, even though the standard economic measurements would have you believe it was catastrophic.
Mises.org is an extraordinary online resource. The lectures are quite Libertarian, so you'll hear about Rand, Rothbard, Mises, Hayek, etc. They like to take swipes (and outright attacks) against the Iraq War. I part company with them concerning foreign policy, but the economic thought is compelling.
You can find there a lecture entitled Senior Economics Seminar by Mark Thornton which examines the fallacies of alcohol and drug prohibition. It got me thinking. My son used a product which was adulterated and it killed him. He used it properly. If this were a legal product sold at Wal-Mart, his mother would be able to sue the manufacturer and probably Wal-Mart and definitely whoever it was who mishandled the product for wrongful death. Who is going to support her in her old age now that her only child has died? But because the product was an illegal narcotic and because it was sold only in an illegal market, none of the normal legal protections are available. In all likelihood, if narcotics were openly sold at a profit-making store (maybe not Wal-Mart), the capitalists who maintained that market would make sure the product was safe when used properly, lest they lose their profits through product liability lawsuits.