A pointless tirade against GDP

If you have ever studied economics then this is a remarkably frustrating book to read. By the same logic, it would be, I am guessing, a remarkably cathartic book to read for those who have never come within one arm’s distance of an economics text. This is a surprising result since the author, David Pilling, is a wellregarded journalist working at the Financial Times and the book carries praise from some highly regarded economists such as Nobel Prize winner Angus Deaton. But, if you didn’t know Mr Pilling, then a couple of pages into the book you would feel the urge to Google him and check if this is a real book or some kind of a spoof.

That is not to suggest that the essence of what the author says is incorrect. For the record, he says that there is excessive stress on the use of gross domestic product (GDP) in modern-day policymaking and that GDP alone does not capture all aspects of human wellbeing. Given that this is the upshot of the whole book, it is a singular achievement that the author could elaborate on this rather obvious bit for over 300 pages. However, in doing so, especially in the first half of the book, the author comes across as someone who hasn’t really grasped the simple notion that GDP is just one statistical measure — it is, as Encyclopaedia Britannica defines it, the total market value of the goods and services produced by a country’s economy during a specified period of time — and its purpose is not to map either well-being or prosperity or any other imagined attribute one might want to read into it.

Yet, in the very first paragraph, the author states: “[GDP] has become our principal means of judging how beautiful we are, both as economies and as societies”. But that’s not true. It is hard to recall the last time someone referred to India as the world most “beautiful” major economy just because it is the world’s fastest-growing one. Nor is US society routinely anointed as the most “beautiful” because the country has the world’s biggest economy. Similarly, on page 3, the author needlessly personalises the measure. “If GDP were a person, it would be indifferent, blind even, to morality”. But GDP is no moral compass and yes, of course, it is blind to morality, and incidentally, thank god for that.

But the author continues to pass one illogical and unsubstantiated judgement after another with a polemical flourish. Sample these: “GDP likes pollution” and then quotes some anonymous individual to claim “If you’re stuck in traffic for an hour, that contributes to GDP”. These are befuddling conclusions from an international-level financial journalist. For instance, in this last case, overall impact on the country’s GDP can be determined only after taking into account, at the very least, what one would have done had he not been stuck in traffic. If he typically created value of $1,000 per hour and was stuck in traffic for 24 hours then it is more likely that the GDP will fall. Imagine, for argument’s sake, the whole country being stuck in traffic for a whole year. Would the GDP still go up?

In trying to show what a naughty boy GDP has been, the author poses before us prudish questions such as: Wouldn’t adding income from prostitution not reflect that we endorse this “sort of society”? He then raises the bizarre quotient by suggesting that to take the “exercise to its logical conclusion, should we not, for example, also count hit men ...as part of our national economy?” For one, it is unclear how a woman’s income from voluntarily having sex with a willing partner is on the same “logical” plane as the income from killing someone against their wish? Moreover, GDP is about measuring the market value of goods and services — not composing an economic Manusmriti of sorts that lays down if and when a woman can charge for sex and the rate therein. There are many such examples and one might have to write another 300 pages to bust them all. It is true that GDP has become the first variable people use while comparing economies — and frankly there are valid reasons for doing so, notwithstanding its downsides; to be sure, every alternative will have some downsides.

What makes the author’s overall criticism end with an anti-climax is his answer to the biggest question: What would you replace GDP with? His answer (in the order stated): GDP per capita, median income, inequality (Gini coefficient), net domestic product (NDP, calculated after subtracting depreciation of capital goods from GDP), well-being (using Maryland’s Genuine Progress Indicator) and, lastly, carbon dioxide emissions.

The fact is GDP is just one of the measures. Yes, it is used as the primary indicator for the size of the economy and is broadly correlated with better standard of living on an average, yet for those who want to probe further, there is no dearth of measures to arrive at a nuanced understanding. If policymakers “fetishise” GDP, it is their fault, not the measure’s incompetence. For instance, many in India obsess over the GDP growth rate comparison with China, little realising that India’s current attainment in Human Development Index is roughly what China had almost 15 years ago even though the two countries were neck and neck in 1990. If Indians (politicians and followers alike) still think they have beaten China black and blue, they are free to delude themselves.