GDP: A Brief but Affectionate History

GDP: A Brief but Affectionate History

Diane Coyle

Language: English

Pages: 184

ISBN: 0691169853

Format: PDF / Kindle (mobi) / ePub

Why did the size of the U.S. economy increase by 3 percent on one day in mid-2013--or Ghana's balloon by 60 percent overnight in 2010? Why did the U.K. financial industry show its fastest expansion ever at the end of 2008--just as the world's financial system went into meltdown? And why was Greece's chief statistician charged with treason in 2013 for apparently doing nothing more than trying to accurately report the size of his country's economy? The answers to all these questions lie in the way we define and measure national economies around the world: Gross Domestic Product. This entertaining and informative book tells the story of GDP, making sense of a statistic that appears constantly in the news, business, and politics, and that seems to rule our lives--but that hardly anyone actually understands.

Diane Coyle traces the history of this artificial, abstract, complex, but exceedingly important statistic from its eighteenth- and nineteenth-century precursors through its invention in the 1940s and its postwar golden age, and then through the Great Crash up to today. The reader learns why this standard measure of the size of a country's economy was invented, how it has changed over the decades, and what its strengths and weaknesses are. The book explains why even small changes in GDP can decide elections, influence major political decisions, and determine whether countries can keep borrowing or be thrown into recession. The book ends by making the case that GDP was a good measure for the twentieth century but is increasingly inappropriate for a twenty-first-century economy driven by innovation, services, and intangible goods.

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1970s, as discussed in chapter 3, were a terrible decade for the economy (as well as fashion and haircuts). Growth was low; inflation was high. Britain did particularly badly and had a ballooning trade deficit—so large, relative to GDP, that it was not clear the country would have enough foreign currency to pay for its imports. The financial markets lost confidence and the value of the pound plunged. The chancellor of the exchequer Denis Healey was on his way to the airport for a trip to

1781 did the French king have similar strategically important economic and financial data, when the finance minister Jacques Necker delivered a famous compte rendu au roi, or report to the king, on the strength of the French economy. It enabled the king to raise new loans but did not, of course, help him avert the French Revolution in 1789. Throughout the eighteenth century a number of successive statistical pioneers built on these first British attempts, although each was measuring slightly

their figures. It increased the size of the economy by about a fifth, taking Italy past the United Kingdom to become the fifth biggest in the world, just behind France at number four. It was labeled il sorpasso, the overtaking. “A wave of euphoria swept over Italians after economists recalibrated their statistics, taking into account for the first time the country’s formidable underground economy of tax evaders and illegal workers,” reported the New York Times.24 The observation and labeling of 37. J. Bradford DeLong, “How Fast Is Modern Economic Growth?” Accessed 12 July 2013. 38. Nicholas Oulton, “Hooray for GDP!” Centre for Economic Performance, London School of Economics, June 2012, paper submitted to the LSE Growth Commission. 39. Report of the Commission on the Measurement of Economic Performance and Social Progress, available at

ultimate consumer, that is as a purchase of goods and services for final use.11 The first American GNP statistics were published in 1942, distinguishing between the types of expenditure, including by government, and permitted economists to see the economy’s potential for war production. “The inclusion of business taxes and depreciation [in GNP measured at market prices] resulted in a production measure that was more appropriate for analysis of the war program’s burden on the economy.”12 Kuznets

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