EVERY quarter the financial markets wait eagerly for the latest estimate of the size of the American economy, dubbed gross domestic product or GDP. Politicians are judged by their ability to get this number rising; a sharp fall in GDP (a recession) is seen as a crisis.
At the beginning of the 20th century people had no way of measuring the volume of economic activity. But the great depression and the second world war made politicians realise that it was essential to generate such numbers. A brilliant and resourceful economist called Simon Kuznets devised a way of doing so. In the process, he, and those who followed him, had to decide what to measure. Understandably, they focused on monetary transactions.
In a new book, “The Little Big Number: How GDP Came to Rule ther World and What to Do About It”, Dirk Philipsen, an American economic historian and environmental advocate, argues that this approach has distorted our view of society and the economy ever since. Wash your own windows and GDP is unaffected; employ a window cleaner and output is boosted. Smash your car on the highway and the costs of repairing it add to GDP. The production of cigarettes that cause lung cancer and handguns that are used in murders are also counted as a positive in GDP terms.
These flaws have been understood for decades ; in 1968, in a campaign speech that was mostly about the...Continue reading
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