Brent R. Moulton
Your fathers’ mistakes: Critiques of GDP and the search for an alternative
Bureau of Economic Analysis
international financevolume 21 issue 3 p 333340 book reviewfree access fathers mistakes critiques gdp search alternative brent r moulton brent r moulton economist consultant retired us bureau economic analysissearch papers author brent r moulton brent r moulton economist consultant retired us bureau economic analysissearch papers author first published 23 october 2018 httpsdoiorg101111infi12148aboutsectionspdf toolsrequest permissionexport citationadd favoritestrack citation shareshare give accessshare full text accessshare fulltext accessplease review terms conditions use check box share fulltext version articlei read accept wiley online library terms conditions useshareable linkuse link share fulltext version article friends colleagues learn morecopy url share linkshare onfacebooktwitterlinkedinredditwechat great invention story gdp making unmaking modern world ehsan masood new york london pegasus books 2016 growth delusion wealth poverty wellbeing nations david pilling new york tim duggan books 2018 gdp brief affectionate history diane coyle princeton oxford princeton university press 2014 spent 19 years working bureau economic analysisthe us government agency responsible measuring nations gross domestic product gdp like medium large organizations bea used performance measures track agencys performance words william thompson lord kelvin measure speaking express numbers know something crosby 1997 p 225 2008 example agency 500 employees using seven different performance indicators many indicators would need track performance nation canada decided ask citizens needed included index wellbeing responses led development canadian index wellbeing index 64 indicators centered eight domainscommunity vitality democratic engagement education environment healthy populations leisure culture living standards time use pilling 2018 pp 236237 think us would agree domains important wellbeing nation people yet amazingly international comparisons economic social performance made often use single indicatorgdp gdp measures value goods services produced national economy one widely reported national numbers united states example quarter private economists federal reserve banks attempt forecast first estimate us gdp issued bureau economic analysis roughly 30 days end quarter number finally announced major newspapers publicize analyze implications front pages financial markets react news similar process repeated major countries throughout world economic data different countries need compared gdp usually basis comparisons three books use measurement gdp framework broader discussion economic social policy gdp measures economic activity measure economic social wellbeing equality opportunity environmental protection happiness use gdp main yardstick judging policy success failure says nations value economic growth else nations wish pursue goals growth need yardsticks gdp books critique gdp stands critique obsession growth search alternatives gdp stands search societal goals objectives 1 critique gdp despite centrality evaluating prosperity nations gdp surprisingly recent invention crisis great depression 1930s followed need mobilize resources second world war led governments united kingdom united states engage leading economists time developing new systems measuring economy war marshall plan relied gdp help rebuild economies europe auspices united nations gdp became international statistical standard gdp part national accounts system based doubleentry accounting principles measures aggregates economists interested every economic transaction involves least two parties supplier user national accounts thus measure concepts multiple ways basic definition gdp production approach value added enterprise industry equal output minus intermediate inputs used production example bea worked territorial government american samoa develop gdp estimates territory major industry territory population 60000 tuna canning output canned tuna main intermediate inputs fish mostly imported nonresident fishing vessels metal plates cans value added gdp tuna canning industry value output minus value inputs gdp total economy simply sum value added industries two approaches measuring gdp expenditure approach based products used sum consumption households governments investment capital formation exports less imports income approach based income earned production sum wage nonwage compensation paid employees operating surplus proprietors income earned owners capital taxes payable producers principle three approaches calculating gdpproduction expenditure incomeshould add value though realworld data likely statistical errors discrepancies coyle 2014 pp 2528 three approaches refer measuring gdp nominal terms measured current prices reflected value nations monetary unit dollars euros money unstable yardstick inflation erodes purchasing power less commonly deflation causes purchasing power rise economic analysis often requires changes nominal gdp split changes prices changes volume goods services produced real gdp gdp course includes thousands goods services prices volumes split must made using index numbers coyle 2014 pp 3031 soon gdp conceived debate commenced whether best way assess economy economist simon kuznets wrote would great value national income estimates would remove total elements standpoint enlightened social philosophy acquisitive society represent disservice rather service pilling 2018 pp 2930 kuznets would preferred measure excluded socially harmful wasteful products including spending armaments government spending looking measure wellbeing rather production gdp covers market production exhaustively less exhaustive coverage production marketed example services provided volunteers mostly counted gdp count work household members themselvesactivities child care meal preparation household cleaning maintenance household pays service provider activities included gdp household members coyle 2014 pp 3739 internet smart phones transformed modern life many traditional products longer appear gdp generation ago people spent money cameras film developing photos mostly rely smart phones photography post photos online longer need buy develop film people communicate using free websites apps services funded advertising free services make people better may counted gdp productivity statistics generally official statistics trouble taking account quality improvements associated innovative technology pilling 2018 pp 7379 last three decades global economic inequality fallen large formerly poor countries like china india developed raised hundreds millions people poverty global middle class nations usually look inequality within nation rather globally several countriesespecially united stateshave seen large increases inequality gdp measure aggregate production measure equally benefits production shared gdp tell nations total production growing cannot tell incomes rising segments society pilling 2018 pp 9699 discussing economic development poor countries pilling 2018 writes growthand mean even raw growth measured imperfectly gdphas power transform poor peoples lives p 124 growth gdp per capita lead reduced child mortality better education better health positive outcomes inevitable angola example oil wealth flowed narrow elite connected government failed improve child mortality life expectancy translating economic growth improvements welfare takes good policies time pilling 2018 pp 132133 economic growth often accompanied environmental degradation omitted gdp country tempered growth maintain clean air water biodiversity may rank lower gdp one fact sometimes increase gdp may reflect production exists counteract effects environmental degradation patients require medical treatment effects particulate emissions masood 2016 p 9 gdp successful holding attention economists policy makers fails onesizefitsall measure national progress welfare citizenry fill gap various alternative measures suggested 2 measures welfare nordhaus tobin 1972 proposed measure economic welfare attempted remove expenditures directly contribute welfare defense expenditures commuting costs add imputations leisure nonmarket work omitted gdp contribute welfare addressed sustainability sense measuring capital requirements maintaining per capita gdp also discussed natural resources concluded natural resource constraints would act major drag economic growth however measure economic welfare generated academic interest government statistical agencies largely ignored another measure achieved success official governmental use genuine progress index gpi based work herman daly ecological economist measure adopted state maryland 2010 also starts gdp adjusts income inequality nonmarket benefits environment activities like volunteer work counted gdp based 26 economic environmental social indicators expressed dollars produce single number maryland compiled gpi back 1960 showed economic growth measured gdp often offsetting effects environment congestion state policy makers use gpi take account effects economic growth environment health gpi calculated several states localities within united states well countries pilling 2018 pp 223231 perhaps widely used indicator welfare developed pakistani economist mahbub ul haq un development programme 1990 launched human development index highlight indicator human development report index based three indicators available developing countrieslife expectancy adult literacy per capita income indicator measured scale 01 category scores averaged masood 2016 pp 8997 2015 countries highest hdinorway australia switzerland denmark netherlandsall high incomes differed countries highest gdp per capitaqatar luxembourg singapore brunei kuwait hdi gdp per capita measuring different things hdi reflects differences income also reflects factors literacy health matter welfare recently un added measure inequality index coyle 2014 pp 7275 pilling 2018 pp 232234 global financial crisis great recession 2008 french president nicolas sarkozy decided mismeasurement living standards one problems urgently needed addressed assembled allstar international commission look alternatives gdp led stiglitz sen fitoussi 2010 report mismeasuring lives recommends policy makers pay less attention gdp pay attention distribution quality life sustainability think single indicator replace gdp rather recommended dashboard indicators describe nations wellbeing focusing especially household perspective taking account nonmarket activities looking indicators health education governance social connections relationships environment insecurity 3 environment article nature costanza et al 1997 attempted measure value worlds ecosystem services natural capital measured services dollars could compared directly gdp services transacted markets largely relied indirect methods value themespecially estimates willingness pay estimate value ecosystem natural capital services huge33 trillion 1997 much larger world gdp time estimates also proved controversial economists criticized methodology required substantial extrapolation limited data potentially implausible assumptions environmentalists hand attacked idea putting dollar value nature masood 2016 pp 130140 despite criticism united nations environment programme carried work area global initiative economics ecosystems biodiversity teeb 2006 nicholas stern team uk treasury produced report addressed climate change global warming review concluded climate change reflected massive market failure spending 1 gdp tackle global warming worlds economies could avoid eventual 20 loss global consumption due inaction report impact subsequent global recession attention largely returned traditional growth masood 2016 pp 150154 4 happiness hard find indicators wellbeing perhaps simply pursue happiness directly 1972 king bhutan jigme singye wangchuck called nation declared gross national happiness rather gdp would prime goal national policy bhutans idea happiness however thing western academics would measure surveys distinctly buddhist version happiness one according bhutans prime minister jigme thinley emphasized serving others living harmony nature realizing innate wisdom true brilliant nature minds conception happiness coincide western consumerism indeed 1999 television banned bhutan pilling 2018 pp 215217 since 1990 study subjective happiness economists taken researchers asked makes people happy happy people used happiness data try answer various economic puzzles clark 2018 work based survey data asks people assess happiness british happiness researcher lord richard layard focuses seven main determinants happiness family relationships financial situation work friends health personal freedom personal values example people stable partner especially married report substantially higher happiness divorced separated widowed never married unemployment also takes heavy toll happiness religious belief seems positive effect happiness whereas chronic pain mental illness sources unhappiness findings may suggest surprising possible policies improving happiness taxing statusseeking behavior giving employees right opt afterhours emails pilling 2018 pp 199203 206212 since 2012 world happiness report provided rankings happiest countries nordic countries generally dominate list happy countries tend rich unhappy ones tend poor income explain differences 2016 report example costa rica ranked 14th happiness whereas ranked 77th gdp per capita authors report attribute variation happy unhappy countries six variables gdp per capita healthy life expectancy social support someone count freedom make life choices generosity lack corruption pilling 2018 pp 203206 5 great invention ehsan masood science writer journalist book great invention looks topic lens invention inventors story however scientists lab coats entrepreneurial engineers rather academic economists midlevel government officials bureaucrats international organizations united nations story largely told series biographical vignettes relatively unknown individuals developed new ways measuring economies societies learn mahbub ul haq pakastani economist created human development index maurice strong canadian oil executive became founding executive director un environment programme learn jigme singye wangchuck king bhutan teenager championed idea gross national happiness herman daly one creators subfield ecological economics masoods book wellwritten engaging three books think one learned terms new information also mention couple issues disagree masood concludes gdp entrenched policy tool way conduct better policy radically change definition gdp masood 2016 pp 157160 169172 seem recognize current definition gdp appropriate measure many types policy example central banks monetary policy governments tax revenue projections would improved probably would worsened definition gdp changed radically include ecosystem services subjective happiness indicators mean broader indicator set indicators would also useful policy means different measures appropriate different policy purposes two books acknowledge multiple indicators needed masood strongly resists idea issue disagree story invention gross national product gnp gnp created gdpprobably closely tied statistics national income already developedand driven depression world war ii1 invention gnp collective endeavor creation single individual think three books get aspect right think get wrong overemphasizing importance famous economists simon kuznets nobel prize winner john maynard keynes father macroeconomics2 men play important roles story keyness 1940 book pay war first work calculate measure gnp including government expenditures example warburton 1934 1935 brookings institution developed estimates included government spending believe first use term gross national product full history invention gnp gdp yet written think involve actors less driven great men narrative popularly told 6 growth delusion david pilling editor writer financial times reported several continents book growth delusion gives considerable attention developing world third book focusing problems economic development tells stories interviews people many countries3 writing lively engaging readers studied economics probably accessible three though really three books accessible enjoyable read book learn example icelandic financial crisis american opioid epidemic gdp measured subsistence farmers africa unlike masood would like overhaul gdp pilling calls retaining gdp one component dashboard indicators provides specific examples indicators would use one criticism pillings book chapter measuring wealth pilling 2018 pp 157167 agree wealth important income gdp found surprising mention countries produce estimates least components wealth system national accounts snathe international standard national accountsincludes detailed recommendations measuring balance sheets several advanced economies produce wealth statistics statistics available less developed countries even developed countries cover everything pilling would like see example would like see estimates human capital generally covered national wealth statistics though countries starting put together experimental measures generally would like seen attention given exploring data gdp available 7 gdp brief affectionate history diane coyle economist worked business academia journalism government book reflects deep understanding gdp used economic practitioners affection subtitle genuine book also brief main text running 140 pages story tells summarized writes story gdp since 1940 also story macroeconomics coyle 2014 p 20 quite bit book brief economic history europe north america postwar period discusses rebuilding europe world war ii era stagflation 1970s financial crisis recession last decade writes lively prose style pleasure read books critique gdp emphasizes ways problematic even measure productionthe problems adjusting quality change new goods failure cover household production main point disagreement coyle criticism national accounts treatment financial services think financial services produced bank provides services customers depositors borrowers fund services besides sometimes charging fees banks also rely interest spreadthey make money spread interest charge borrowers interest pay depositors national accounts treat spread indirect service charge allocate part service depositors part borrowers thus treatment gdp assumes part interest paid borrower indirect service charge remainder pure interest one coyles criticisms treatment financial services addition interest covering service charge pure interest third component covers risk associated defaulting loans coyle 2014 pp 98104 136 treatment recommended sna recognize component could cause gdp overestimate service charge point us national accounts recognize criticism valid 2013 changed treatment remove default risk hood 2013 1011 coyle wants go abandon snas treatment entirely revert simplest approach snas current approach consistent economic theory developed example william barnetts research monetary aggregates avoids serious problems afflicted earlier simpler approaches extent problems persist measuring financial services think associated faulty price indexes rather underlying conceptual framework 8 conclusions three books provide interesting insight challenges measuring performance economy environment overall wellbeing also use framework statistics challenge views goals society pursuing one recommendations people use statistics think carefully concepts measured take care statistic actually measuring concept question gdp almost certainly overused many cases data net national income household disposable income household consumption would better fit intended use become familiar available statistics learn make better informed use brent r moulton economist consultant retired us bureau economic analysis gaithersburg md email brentmoultonfastmailcom endnotes 1 difference gdp gnp mostly multinational production gdp measures production enterprise units reside country whereas gnp measures production capital labor supplied residents country example swedishowned multinational operates subsidiary germany production subsidiary would counted german gdp profits would counted swedish gnp 2 hand nobel prize winner richard stone really play leading role story creating accounting framework central subsequent work gdp national accounts 3 one people interviewed pilling book references clark e 2018 four decades economics happiness next review income wealth 64 245 269 httpsdoiorg101111roiw12369 costanza r darge r de groot r farber grasso hannon b van den belt 1997 value worlds ecosystem services natural capital nature 387 253 260 httpsdoiorg101038387253a0 coyle 2014 gdp brief affectionate history princeton oxford princeton university press crosby w 1997 measure reality quantification western society 12501600 cambridge cambridge university press hood k 2013 measuring services commercial banks national income product accounts changes concepts methods 2013 comprehensive revision survey current business 932 8 19 httpsappsbeagovscb masood e 2016 great invention story gdp making unmaking modern world new york london pegasus books nordhaus w tobin j 1972 growth obsolete w nordhaus j tobin eds economic research retrospect prospect volume 5 economic growth pp 180 new york national bureau economic research retrieved httppapersnberorgbooksnord721 pilling 2018 growth delusion wealth poverty wellbeing nations new york tim duggan books stiglitz j sen fitoussi jp 2010 mismeasuring lives gdp doesnt add report commission measurement economic performance social progress new york new press warburton c 1934 value gross national product components 19191929 journal american statistical association 29 383 388 httpsdoiorg10108001621459193410503252 warburton c 1935 national income spent 191929 journal american statistical association 30 175 182 httpsdoiorg10108001621459193510504152 volume21 issue3winter 2018pages 333340 referencesrelatedinformation