damage. So while using GDP to measure economic activity is one thing, it is becoming decreasingly useful as a proxy for either social welfare or sustainability. (Location 53)
The fingerprint pattern is known as Benford’s Law. Dr. Charlie Eppes, the mathematical genius played by David Krumholtz in the crime drama Numb3rs, uses it to solve a series of burglaries in one 2006 episode, “The Running Man.” Greek GDP statistics did not have the Benford’s Law fingerprint. (Location 91)
In 1665, a British scientist and official, William Petty, produced estimates of the income and expenditure, population, land, and other assets of England and Wales, with the aim of assessing the country’s resources to fight a conflict and finance it through taxes (it was the now little-known Second Anglo-Dutch War, which lasted from 1664 to 1667). Petty wanted to prove not only that the country could bear a higher burden of taxes but also that it was capable of taking on its powerful neighbors, Holland and France.1 There was no need for it to win more land or increase the size of the population to ensure victory, because the available land and capital and labor could be used to better effect. (Location 148)
the GNP statistics established the role of national government in the economy as that of an ultimate consumer, that is as a purchase of goods and services for final use.11 (Location 261)
“the economy” was the private sector. Government played a small role in economic life, and featured mainly because it looked to raise taxes to pay for wars. Its role expanded steadily over the centuries, however. In Victorian times this began to extend to the provision of other services, those we take for granted now such as roads and water as well as the historic government roles of defense and justice. (Location 272)
Keynes wrote, “Every government since the last war has been unscientific and obscurantist, and has regarded the collection of essential facts as a waste of money.” (Location 287)
Aside from the demoralizing effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace. Our policy is directed not against any country or doctrine but against hunger, poverty, desperation and chaos. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.16 (Location 304)
GDP statistics and Keynesian macroeconomic policy were mutually reinforcing. The story of GDP since 1940 is also the story of macroeconomics. The availability of national accounts statistics made demand management seem not only feasible but also scientific. (Location 326)
For example, a one-million-dollar increase in government spending (or cut in taxes) will put more disposable income in the pockets of taxpayers, who will spend some of the extra on goods and services. (Location 335)
As economists would put it, the additional government spending can either “crowd in” or “crowd out” private spending. In the former case, the fiscal “multiplier” exceeds one, and in the latter case is less than one—some estimates have it actually being negative. The multiplier is a measure of how much GDP changes compared to the change in government spending (or tax revenues). (Location 340)
Note: sloooooow down, diane!
the economic crisis of the late 1970s. (Location 344)
Note: uk only?
A few of the machines remain in universities, as curiosities—but the “engineering” mindset still has a firm grip on economic policy. (Location 350)
In early 2013, after some years of austerity measures cutting government spending in European countries and Japan, the IMF’s chief economist concluded that, contrary to the Fund’s earlier official view, the multipliers on fiscal policy in the early years of the crisis were substantially above one, or in other words that austerity measures had done more harm than good to short-term GDP growth. (Location 365)
Nigeria, already one of Africa’s largest economies, added 89 percent to its GDP in one swoop in 2014, taking it well past South Africa in size, just by taking account of changes including the growth of booming industries like mobile telecommunications and Nollywood movies. (Location 511)
Kenya, another country with a rapidly growing mobile technology sector, added 25 per cent to its level of GDP through statistical revisions. (Location 513)
Sometimes an increase in the price of an item reflects an improvement in quality, and failing to take account of this would lead to an underestimate of real GDP. For many years, this issue was ignored. (Location 553)
The chancellor of the exchequer Denis Healey was on his way to the airport for a trip to Washington when, dramatically, he had to turn back and give a press conference announcing that the United Kingdom was asking the IMF for an emergency loan. Its condition was that the government’s fiscal deficit had to be slashed as a proportion of GDP. The Labour government introduced savage public spending cuts. Three years later, Margaret Thatcher swept to power in a Conservative government. Later—some time later—both the borrowing and the GDP figures were revised to an extent suggesting that the “crisis” hadn’t actually been all that bad. Reflecting on the crisis in later years, Healey said, “If we had had the right figures, we would never have needed to go for the loan.”33 Who knows whether Mrs. Thatcher would have won the same kind of election victory if her predecessors in power had not had to bring in the IMF? (Location 566)
There is no simple explanation for the thirty-year success story, and it is probably a story in which politics matters as much as economics, given that it applies to the western democracies in that period.3 One hypothesis, put forward in 1969 by Ferenc Janossy, was that the postwar economy had just been reverting to its pre-1914 trend, and when it had caught up to that trend, growth would slow again—as it later did.4 Most economists prefer less fatalistic explanations, however, and divide the reasons for long-term growth into increases in the availability of resources (described as “factors of production”)—mainly labor and capital—and improvements in the use of the available resources, or improved productivity. (Location 686)
The phenomenon of mass consumerism came to life in the postwar years, however. Numerous products spread steadily to a growing proportion of households until by the 1970s they were almost ubiquitous: cars, radios, refrigerators, washing machines, TVs, cameras, lawnmowers, telephones … the list is long. Nondurable goods followed: fashions, music, Elizabeth David or later Julia Child cookbooks, and dinner parties for friends. Teenagers were invented. (Location 700)
The communist countries had centrally planned economies, not market economies. Ministries in Moscow set the figures for the total number of all the items to be produced in the economy and cascaded that down to specific production quotas for different industries and individual factories. With the benefit of hindsight we can see that the idea that bureaucrats could possibly know enough in detail about a large, complex economy to plan it from the center successfully is ludicrous. (Location 722)
Note: what is singapore?
This matters: one example is that China’s government is said to have persuaded the World Bank in 2000 to reduce its estimates of its GDP per capita in order to keep it below the threshold level for concessional loans.8 (Location 780)
Note: how?!
The dismal economic experience of the 1970s paved the way for both a revolution in thinking about the economy and a political revolution, too. In economic theory, there was a loss of faith in the simple Keynesian demand management tool of adjusting the government’s budget deficit. Instead, the new consensus was that the government should concentrate on creating a good environment for business—low and stable taxes, labor market deregulation, and the new policy of privatization of formerly state-owned corporations in the United Kingdom, followed by other countries. (Location 968)
Academics dived down the long dead end of Marxist-inspired critical theory, only now fizzling out in university departments. (Location 1002)
In Europe, the low-income fringe—Italy first, then Ireland, Spain, and Portugal, and finally Greece—caught up a long way toward the high-income core. (How real or durable that catch-up has been is an open question at the moment, in the aftermath of the financial crisis.) (Location 1054)
Note: yah a little bit
But GDP per capita isn’t everything in this index. My own country, the United Kingdom, has high GDP per capita but, at twenty-eighth in the HDI ranking, is surprisingly close to Greece or Slovakia, with much lower GDP per capita. (Location 1077)
Within a relatively short time, the polarization of views among economists that had marked the turbulent 1970s—between Keynesians and monetarists—gave way to a more or less monetarist consensus. (Location 1111)
His example is the electric motor, which transformed factories and made assembly-line production possible. The fundamental inventions in electricity dated back to the 1870s, but it was not until the 1920s that most U.S. factories used electric power. (Location 1134)
It was a radical reinvention of retailing. Studies of businesses investing in computer and communications equipment in the United States in the 1990s and 2000s indicate that without restructuring the business, productivity gains are small. But those that do restructure experience very large improvements in productivity. (Location 1168)
Note: how do you guarantee this
Economists try to calculate the potential growth rate, looking at how fast the supply of labor and capital are growing and how (Location 1176)
Many governments worry about poor productivity performance in public services, but in some cases they may be overlooking this statistical factor. (Location 1211)
Research published in 2001 indicated that this variety had been increasing by an astounding 1 percent a year for forty years in the United States, and at an accelerating pace. (Location 1295)
Note: creating demand thru marketing
America’s dependence appears even greater, since China holds more than one trillion dollars’ worth of U.S. Treasury bonds, financing the U.S. government deficit, although that is in reality a mutually dysfunctional relationship. (Location 1371)
In China, the global financial crisis is termed the “North Atlantic crisis.” (Location 1373)
The estimated cost of the crisis, including economic output forgone because of the resulting recession, is between one and five times the whole world’s annual GDP. (Location 1389)
Relatively few financial services involve direct fees or commissions. For the most part, banks do not generally sell services for a fee. A large proportion of their profits comes instead from the gap between the interest rates at which they can borrow (or pay depositors) and lend, or from trading activity. As the OECD GDP statistics manual puts it: “Measurement using the general formula [for constructing GDP] would result in their value added being very small, if not negative; in other words, their intermediate consumption would be greater than their sales!”9 Unable to imagine when this was written that banking could be subtracting value from the economy, statisticians sought to find a way of measuring these earnings from financial intermediation. So for many years the convention was to count financial services as the negative output of an imaginary segment of the economy. (Location 1408)
The FISIM statistical mirage affects all countries’ GDP. One study of the United States concludes: “Making conservative assumptions, we show that the current official method overestimates the service output of the commercial banking industry by at least 21% (amounting to 116.8billionin2007:Q4forexample)andGDPby0.352.9 billion in 2007:Q4 for example) between 1997 and 2007.”12 For the Eurozone, adjusting for banks’ risk-taking would reduce the measured output of the financial sector by 25–40 percent. If the same factor were applied in the United Kingdom, the measured contribution of the financial sector would have been 6–7.5 percent of GDP in 2008, rather than 9 percent.13 These figures are staggering: the size of the financial sector in recent years has been overstated by at least one-fifth, maybe even by as much as one-half. Why does it matter that the contribution of the financial services industry to GDP is overstated? The answer is that political leaders shape economic policy around key sectors. During the financial crisis, the industry’s lobbying has had a substantial impact on political decisions about regulatory reform, not just because investment banks make donations to political parties, but also because politicians genuinely believe the industry to be fundamentally important to jobs and economic growth.14 “Our economy needs the industry,” wrote Alastair Darling, the U.K. chancellor of the exchequer, in his memoir of the crisis, despite having experienced the height of the crisis when the industry had, on the contrary, nearly torpedoed the economy. (Location 1431)
It portrays finance as an economic activity like any other—just as a manufacturer takes raw materials and transforms them into more valuable products, banks take a risk-free return and transform it into a higher return by taking risks, providing a service to both the source of the funds—the ultimate depositor or lender—and the recipient or borrower. (Location 1467)
In principle, GDP avoids the need to distinguish productive from unproductive because it measures what people pay for, and their willingness to pay can be taken as an indicator of productive value (although of course there might be alternatives to money as a measure of value). (Location 1482)
Note: IKWIG and birth of business statistics
whereas subsequently the economic consensus has favored including them. (Location 1487)
Note: bcos ww2
“This treatment, whereby commercial products are valued at market price, government services are valued at cost and unpaid household activities are simply ignored, is not a matter of principle but of practical convenience. It can be defended, therefore, only on practical grounds.” (Location 1489)
The border also becomes self-fulfilling, though, as being included in the national accounts definition of GDP is taken as a mark of “productiveness. (Location 1494)
the national accounts have come to represent a perfect vehicle for the ongoing enactment of our obsession.” (Location 1497)
Preliminary estimates suggest unpaid childcare is worth about three times as much as financial services, while (Location 1556)
Note: i don’t understand how this contributes to gdp
The most important new practical finding from these studies is that mental ill-health is a major contributor to unhappiness, and yet almost everywhere it is a low priority in public health policies. (Location 1622)
On the other hand, he notes that conventional national accounts omit the way innovation and productivity gains will increase the amount that can be sustainably consumed from a given amount of capital (financial, physical, and natural) assets. This is a question of growing concern, and something the future approach to measuring the economy needs to take on board. (Location 1679)
Although paying for World War II was the trigger for the modern definition of GDP, after the 1930s the government also began to undertake more collective consumption and investment, spending our tax money on our joint behalf either on services and transfers, or on building roads and other infrastructure. (Location 1709)
The collection of statistics in the shape of GDP and the national accounts went hand in hand with the development of macroeconomic policy, (Location 1713)
Note: it ws a tool that had been developed that was available for the purpose (where previously science had stepped in see humphrey jennings)
Still, even if we haven’t been counting it, it is obvious that variety is increasing in the case of consumer goods and services we experience every day. Increasingly, we can even customize what we buy, from shoes to (famously) Dell computers—customization being the ultimate in increased variety, every item different. There is even the promise of customized medicines for fighting cancer and other diseases, drugs tailored to each individual patient’s genetic code. (Location 1766)
I already quoted Robert Solow’s famous 1987 version of the productivity puzzle: “You can see the computer age everywhere but in the productivity figures.” (Location 1801)
This translates directly into higher labor productivity and—eventually, and if workers acquire the necessary skills, and society develops the necessary tools for managing income distribution—higher wages. (Location 1846)
how the incomes are shared is a social and political challenge. (Location 1849)
The gap between what a consumer pays and the value he or she receives from the purchase is called “consumer surplus,” and the growing prevalence of zero-priced goods and services online seems to be increasing consumer surplus. (Location 1869)
Note: suggests veblen goods might become a ting
GDP statistics do include a measure of the depreciation of physical assets (“capital consumption”), but this is a narrow indicator of how far capital is being used up to consume today by reducing the scope for consumption tomorrow. (Location 1892)
As long as political contests focus on economic growth, as I think they always will, a set of statistics labeled “satellite” is unlikely to be influential. (Location 1922)
A third type of asset is what economists term “human capital,” or a development economist might instead label as “capabilities”—in other words, how well equipped is a people to make use of the other assets they have at their disposal? What is their level of education and practical skill, or their ability to create and innovate? (Location 1932)
A country should not regret forgoing some increase in GDP this year for the sake of investments that will contribute to human and/or social capital. (Location 1940)
Without economic growth, there would not be enough jobs to keep the unemployment rate down to a tolerable level. (Location 1956)
Note: post-growth?
‘No growth,’ desired by some, is for the rich. (Location 1958)
Note: bcos capital accumulation
Wade, “Is Globalization Reducing Poverty and Inequality?” World Development 32, no. 4 (2004): 567–589. (Location 2152)
