BEYOND THE STATISTICAL FOG
Economist Diane Coyle provides a historical perspective on GDP, an abstract piece of jargon that can decide elections but can’t make people happy
WHILE THE AUTHOR REMAINS ‘AFFECTIONATE’ TOWARDS GDP, AS THE TITLE SUGGESTS, SHE NONETHELESS ARGUES THAT IT IS FLAWED AND SEARCH FOR ITS ALTERNATIVE HAS BEEN ONGOING
t is a ‘made up entity’ that has become the rallying point for governments to reflect their economic prowess. Usually expressed in single digit, it needs sustained nurturing lest governments be toppled and fresh elections enforced. Since it was formally coined in the 1940s, GDP has continued to engage the best economic brains to develop a standard measure of a country’s economy. Yet, this familiar piece of jargon means little to most people because the health of the country’s economy often has little bearing on peoples’ lives.
No wonder it can decide elections but can’t make people happy, and it can make news but can’t erase income inequality. GDP is a powerful teaser that has thus far remained artificial, abstract and complex. Providing a much-needed historical perspective on this elusive bit of static, Harvard Economist Diane Coyle argues that GDP has remained a piece of ‘static’ in the hands of the ‘state’, and must not be confused with social welfare.
At best, it creates a self deceptive image of contributing to overall welfare. In reality, much of the welfare activities, for lack of mathematical expression, do not get counted in it. Ms Coyle has been grateful to her dog Cabbage, who may not have contributed to GDP but did greatly to her welfare!
Since the making of physical commodities count toward national income, green forests hold zero value whereas chopped trees add to the GDP. Environmentalists, therefore, believe that GDP leads to an overemphasis on growth at the expense of the planet, obscuring the wrongs of the capitalist market economy.
Such assertion is not without reason, as spending on pollution-abatement equipment adds to GDP but the negative effect of pollution doesn’t pull GDP down. GDP may have worked despite its fallibilities till now, but it is unlikely to serve its purpose, henceforth, as the economy gets driven more by innovation, services, and intangible goods.
While the author remains ‘affectionate’ towards GDP, as the title suggests, she nonetheless argues that it is flawed and states that the search for its alternative has been ongoing. However, alternatives ranging from the Measure of Economic Welfare (MEW) to the Better Life Index (BLI) haven’t evoked enough confidence in replacing the ubiquitous piece of static. Welfare has been the leitmotif of the proposed change, but counting intangibles has remained a challenge. Even more challenging is to count the value of zero-priced goods like online music, search engines, crowd sourcing, and so on. These do contribute to productivity, and even loss of jobs, in many ways, without being captured in GDP statistics.
Coyle presents a fascinating biography of GDP which, despite its inherent fallacies, continues to remain the greatest innovation of the 20th century. Yet, as the Greek tragedy unfolds, the so-called irrational exuberance has led to selfdelusions and inadequacies of regulatory bodies, leading, in turn, to financial crises. Since market-led global capitalism is sweeping the whole world, GDP needs to be sanitized from the overt influence of market manipulation. The financial crisis has made it necessary to rethink the economic valuation of the quality of products, of zero-priced goods, and of the efficiency of services. As the economy is driven more by innovation and services, accounting activities operating outside the tax net and production matrix have become imperative. With the boundary between growth and progress, and between leisure and work going through a significant transformation, GDP will lose relevance if it doesn’t translate into increased happiness. For GDP to remain relevant it must resolve the well-known paradox of a widower who marries his house maid. His marriage leads to reducing GDP as he longer pays her the wages, but should the happiness both gain be left unaccounted for? In this engaging book, Coyle leaves the reader with the challenging optimism of life beyond the prevailing statistical fog.