The Power of a Single Number: A Political History of GDP

The author's tone and enjoyable writing style make this an accessible read for those in the know and those who want to know more about GDP. He succeeds in guiding the reader through historical twists and political positioning that have made GDP what it is today and uncovers how GDP came to be the benchmark for growth and why it persists regardless of legitimate criticism.

There are a surprisingly large number of books devoted to GDP and its criticism. This book is somewhat novel in the sense that it is not about economics at all; it's about the diffusion of an idea in society.The first chapter introduces a 17th century political analyst named William Petty, who attempted to estimate the components of national income. The goal is to restructure taxation, which was then mostly on fixed assets; Petty believed that the flow of current output was much greater and a better base of taxation. Later, in the 20th century, Colin Clark (UK/Australia) developed many of the ideas and techniques of national income. He also is credited with the ieda of economic growth as a major tool of social progress, and an urgent mission of government in the less-developed countries (LDCs).It was the Depression-induced revolution in economic thought, however, that made national income accounting (NIPA) a concern of economists. Keynes's colleagues, James Meade and Richard Stone NIPA data collection in the UK, while Simon Kuznets did the same in the USA. Kuznets was originally interested in business cycles and he would continue to conduct pathbreaking research in that area. But having accomplished the logistical feat of calculating national income at the NBER (1), that job was taken over by the US Department of Commerce under Milton Gilbert. Gilbert largely "invented" GDP, although mainly by incorporating advice from Meade and Stone.Gilbert was an assistant of Kuznets who rejected his efforts to make national income data reflect economic objectives. Gilbert regarded GDP as a narrow metric of economic capability, and was heavily influenced by wartime concerns. Specifically, capital depreciation and government expenditures (including on armaments) were included in GDP. Kuznets objected to the inclusion of either because both were "regrettable necessities" rather than items of value. In general, after 1946, Kuznets was to call for a more value-laden national income metric, and many critics of mainstream economics have taken up this call.The chapter on Germany adds to the richness of narrative, as federalism, then world war, posed immense challenges to the collection of economic statistics. German experts were highly skeptical of the worth of national income estimates in and of themselves (2). Ironically, modern economic data collection returned to Germany via a team of experts tasked with using the data to destroy the German economy (and win the war). The leader of the team was J.K. Galbraith; other members, like  The Joyless Economy: The Psychology of Human Satisfaction and Consumer Dissatisfaction (Galaxy Books) , Small Is Beautiful: Economics as if People Mattered , and  Monopoly Capital: An Essay on the American Economic and Social Order , were all to become famous as harsh critics of American economic and social outlook. After the war ended, Galbraith, his international team, and ex-Nazi officials compiled the first reliable data on the German economy; the job was handed off to a British-German team in the late '40s. Not surprisingly, here Lepenies seizes on this new statistical office of the Federal Republic as an example of Anglo-Saxon cultural imperialism (p.120). He does admit that the French leadership recognized GDP data as a valuable administrative tool, and took to it readily.After chapter 5, Lepenies shifts away from the realm of academic debate among politically inconsequential, but brilliant, statisticians and economic pioneers, to a new world that these men have created. The champions of growth, having saved the world from depression and fascism, are now complacent technocrats dogmatically inflicting the gospel of growth on a reluctant world. I feel that this is needlessly conspiratorial: GDP growth was a vital objective if countries were to preserve market economies AND preserve tolerable social models. Voters, business managers, and workers all favored growth in incomes. Additionally, the Cold War imposed both a military urgency and an ideological competition in economic performance. The immense debt of the war and the cold war, reconstruction, and urbanization(3) imposed their own treadmill on the world economic system. Finally, growth was now virtually inevitable in a tolerably well-managed economy.In summary, this is a good introduction to GDP as an intellectual challenge, but it doesn't really address any modern criticisms of GDP, or explain in what sense it's very powerful.____________________________________________NOTES(1) GDP is the sum of the values of all goods and services produced in a country; it differs from GNP in so far as the latter includes net income from land and capital employed abroad. The methods of estimating GDP are now very explicit, but the broader, more universal idea of aggregate national output/revenue is referred to as "national income" (not to be confused with gross national income, or GNI). Simon Kuznets famously had a controversy with Milton Gilbert over several aspects of national income estimating; Kuznets, in particular, argued that depreciation needed to be deducted from the NIPA, especially during peacetime. Piketty (2014-endnote #18 from p.58) endorses Kuznets's position.(2) German experts and economists were largely scornful of the potential value of any estimate of national income, regardless of methodology or accuracy. One reason was that the estimates produced were presented as metrics of general well-being, and therefore, afforded a judgment of governance. The Third Reich (1933-1945), aside from the total wreckage it made of Germany, spawned a large number of agencies with murky jurisdiction.(3) "Urbanization" is an inadequate term for the huge scope of responsibilities governments were required to assume after World War II. Agriculture experienced a technical revolution, and this created a huge drop in farm employment. The destruction of cities in Europe and their obsolescence everywhere else (because of modern transport, etc.) imposed a greater burden than even the debt/current spending burden from war. Growth made this burden manageable____________________________________________ADDITIONAL READINGDiane Coyle,  GDP: A Brief but Affectionate History , Princeton University Press (2015), for a defense of GDP (but not its misuse)Partha Dasgupta,  An Inquiry into Well-Being and Destitution , Clarendon Press, Oxford (1993), Chapter 4Lorenzo Fioramonti  Gross Domestic Problem: The Politics Behind the World's Most Powerful Number , Zed Books (2013); see comments for a link to my review of this book.Ehsan Masood  The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World , (2016); this book rubbed me the wrong way, and I feel it supports a rather conspiratorial approach to the history of ideas.Thomas Piketty,  Capital in the Twenty-First Century , Belknap Press (2014)Thomas A. Stapleford,  The Cost of Living in America: A Political History of Economic Statistics, 1880-2000 , Cambridge University Press (2009), Welfare and the National Accounts," pp.319-29. Please note that this work is focused on the most obvious technical challenge of GDP estimation, viz., adjusting for inflation; ALSO, it is focused on the situation in the USA. I was quite pleased with it.

"Gross domestic product (GDP) is the most powerful statistical figure in human history. No other indicator has ever had such an impact. At first glance, GDP is simply the measure of a country’s economic output, the value of all goods and services produced in a specific period, expressed as a number. However, GDP is far more than a mere statistic. Together with growth, which describes its rate of change, GDP serves as the key indicator of development and progress."So begins author Philipp Lepenies' 2013 book, recently translated to English. The opening paragraph establishes the importance of the subject, and readers might reasonably expect the following chapters to be full of statistical gymnastics. Instead, Lepenies delivers an engaging account of: the centuries of ideas that led to the establishment of GDP; its impact, for example in helping the West reach full productive capacity to win World War II; and its weaknesses, for example in politicians' increasingly slavish devotion to the economic measurement when it is demonstrably different than how we measure quality of life.Three people are central to the ideas behind GDP. First, William Petty in seventeenth century England tried to introduce a scientific rigour to politics through measurement and statistics, going so far as to calculate the theoretical tax burden on citizens that could be imposed in order to finance the ongoing war with France. Prior to Petty, taxes had been imposed at whim, often to suboptimal effect.Centuries later, a second Englishman, Colin Clark, introduced the notion that growth of the economy rather than just the level of production was the important measure, and that both the level and growth could be used as a basis for international comparison.Nobel laureate Simon Kuznets is the third central figure in Lepenies' book, who in addition to his many contributions to measurement of the level of GDP also stressed the importance of measuring the distribution of income within society.The book weaves important historical events and many economic luminaries (Malthus, Pigou, Marshall, Keynes, Adam Smith), and even some wartime kidnapping and intrigue into the text. This enhances the story line, and renders the occasional references to statistical methodologies - such as the explication of the three methodologies used to calculate GDP - as natural compliments rather than central issues. It also elevates the book's central point from 'this is how GDP works' to 'this is why we measure GDP'. A well-researched, well-written, and concise reminder of the adage that 'what gets measured gets done.' Lepenies provides context to the powerful single number driving modern politics, and gently reminds us that our lives are more than data points in pursuit of this number.