GDP: A Brief but Affectionate History
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Why did the size of the U.S. economy increase by 3 percent on one day in mid-2013--or Ghana's balloon by 60 percent overnight in 2010? Why did the U.K. financial industry show its fastest expansion ever at the end of 2008--just as the world's financial system went into meltdown? And why was Greece's chief statistician charged with treason in 2013 for apparently doing nothing more than trying to accurately report the size of his country's economy? The answers to all these questions lie in the way we define and measure national economies around the world: Gross Domestic Product. This entertaining and informative book tells the story of GDP, making sense of a statistic that appears constantly in the news, business, and politics, and that seems to rule our lives--but that hardly anyone actually understands.
Diane Coyle traces the history of this artificial, abstract, complex, but exceedingly important statistic from its eighteenth- and nineteenth-century precursors through its invention in the 1940s and its postwar golden age, and then through the Great Crash up to today. The reader learns why this standard measure of the size of a country's economy was invented, how it has changed over the decades, and what its strengths and weaknesses are. The book explains why even small changes in GDP can decide elections, influence major political decisions, and determine whether countries can keep borrowing or be thrown into recession. The book ends by making the case that GDP was a good measure for the twentieth century but is increasingly inappropriate for a twenty-first-century economy driven by innovation, services, and intangible goods.
national stock of assets. This framework evolved over the decades.2 Later authors emphasized different aspects of the economy. Some—among them the novelist and pamphleteer Daniel Defoe—thought that the key to the nation’s prosperity was increasing trade, both overseas and within the country. At another time, the debate in coffeehouses and pamphlets centered firmly on the national debt, the figures for which the government published frequently between the late seventeenth and late eighteenth
subsequently “caught up” when they began to adopt the same technique. Other countries, including the United Kingdom, Canada, and Japan, have subsequently followed suit in calculating hedonic prices for such goods. A second change made in the U.S. statistics at the same time had the same kind of effect. That was to switch from counting purchases of software by companies as a form of investment rather than a purchase of an intermediate good as it had been. In other words, software was no longer to
number of types of personal computer had risen from zero to four hundred in twenty-eight years, the number of websites from zero to nearly five million.2 Earlier, I referred to the increase in the variety of products and services that make up GDP in all the advanced economies; these specific comparisons just help indicate how dramatic the proliferation of variety has been. Indeed, variety could be considered one of the key indicators of economic development. To be poor is to have little choice
our usual estimates we include at the value of the net product they yield on the market, do not really represent net services to the individuals comprising the nation but are, from their viewpoint, an evil necessary in order to be able to make a living.9 These observations prefigure some of the criticisms made of GDP in our own time: GDP definitely does not attempt to measure welfare or well-being (a subject picked up again in chapters 5 and 6). With this aim, in fact, Kuznets was out of tune
this final chapter, I’ve set out some important areas to consider, but this is certainly not the last word on what “the economy” consists of today. Meanwhile, it is above all important not to confuse GDP with social welfare. The way the economy has changed has made the gap between GDP and welfare bigger than it used to be. The acceleration in the variety of products, in customization, and in the blurring of the boundary between leisure and work in many creative professions or vocations—all of