GDP: A Brief but Affectionate History Hardcover – February 23, 2014
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"In a charming and accessible new book, Diane Coyle untangles the history, assumptions, challenges and shortcomings of this popular rhetorical device, which has become so central to policy debates around the world. . . . Coyle's book is a good primer for the average citizen as well as the seasoned economist."---Adam Gurri, Ümlaut
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"A lively account."---Gillian Tett, Financial Times
"As a potted history of approaches to quantifying national output from the 18th century onward, GDP: A Brief but Affectionate History deserves high marks. It is particularly edifying to learn about the military motivation behind the initial attempts."---Martin S. Fridson, Financial Analysts Journal
"[A] little charmer of a book.", Wall Street Journal
"Winner of the 2015 Bronze Medal in Economics, Axiom Business Book Awards"
"One of Minnpost.com’s ‘Three (plus) books for the econ buff on your list’ 2014"
"Countries are judged by their success in producing GDP. But what is it and where do those numbers reported on television come from? Diane Coyle makes GDP come to life―we see its strengths and its fallibilities, and we learn to understand and respect both."―Mervyn King, governor of the Bank of England, 2003-2013
"[A] little charmer of a book . . . GDP: A Brief but Affectionate History is just what the title promises. . . . Cowperthwaite himself would nod in agreement over Ms. Coyle's informed discussion of what the GDP misses and how it misfires. . . . Ms. Coyle--a graceful and witty writer, by the way--recounts familiar problems and adds some new ones. . . . [E]xcellent."---James Grant, Wall Street Journal
From the Inside Flap
"Diane Coyle renders GDP accessible and introduces a much-needed historical perspective to the discourse of what we measure and why. A must-read for those interested in the far-reaching impact of GDP on the global economy, just as we seek ways to go beyond it."--Angel Gurría, secretary-general of the Organisation for Economic Co-operation and Development
"Countries are judged by their success in producing GDP. But what is it and where do those numbers reported on television come from? Diane Coyle makes GDP come to life--we see its strengths and its fallibilities, and we learn to understand and respect both."--Mervyn King, governor of the Bank of England, 2003-2013
"This is an engaging and witty but also profoundly important book. Diane Coyle clearly and elegantly explains the fundamental difficulties of GDP--and how this headline figure is liable to radical change by apparently simple changes in method. She also provides a nice treatment of alternative proposals such as happiness surveys."--Harold James, author ofMaking the European Monetary Union
"Well written, interesting, and useful, this book will appeal to many readers. I learned a lot from it."--Robert Hahn, University of Oxford
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Informative: it covers pretty much every issue I know of on the subject, the only exception I can think of being that she fails to educate the reader on the treatment of welfare state transfer payments (they are not included in GDP which, although that is mechanically correct, produces a misleading under-statement of government's role in the economy - a good chunk of the consumption in GDP is paid for with welfare state transfer payments that are not identified as such in GDP). Maybe also some topics are treated too lightly (household production) than others (surprising depth on financial services), but that's to be expected given the obvious intent to be brief. There were a couple recitations of formulas that I think are mis-stated but they were not significant to detract.
Very good introduction to the topic, and more erudite and less polemical than I would have predicted when I opened it.
Some of the other reviews, I think downgrade the book for not sharing the reviewer's ideological perspective. That is unfair to the author. The book's title is exceedingly accurate (which itself is rare in books in this field that often overstate their contents to make more sales): the author is not issuing a"a very conservative defense of GDP orthodoxy" to quote one such review. It is simply what the title says, a "brief but affectionate history". A basic understanding of the topic is a good thing in and of itself before one adopts a critical posture, and this book definitely contributes to such an understanding. Well done.
The book is very insightful as it describes the history of GDP and its shortcomings. I did not know that GDP was so arbitrary and incomplete.
It is scary that governments, financial sectors, and even laypeople live and die by GDP despite its serious flaws. GDP is plagued by measurement errors, construct error (measuring the wrong concept), and statistical massaging. GDP has brought great progress to the understanding of production and economics but I believe that the world now should work on developing a better concept than the current GDP. I think economists and statisticians can work on decreasing the measurement error. Other disciplines could focus on what really matters such as quality of life. I know that it is very hard to define quality of life but we have to start somewhere.
Overall, the book is excellent and the author does a great job at explaining GDP and provides an insightful direction for both policy makers and researchers.
Top international reviews
A couple of things have to be clarified at the outset: GDP (Gross Domestic Product) which is a particular measure of economic activity that takes place in markets and has prices attached should not be confused with economic well being or social welfare though there is a certain degree of correlation between the two. Also it has to be appreciated that GDP is not a physical entity that has to be measured increasingly more accurately but an abstract human construct.
GDP can be measured in three equivalent ways: We can add up all the output in the economy, all the expenditure in the economy, or all incomes.
Using expenditure as a basis, GDP equals consumer spending plus investment spending plus government spending plus exports less imports (the trade surplus or deficit). But while GDP is conceptually easy, implementing it that is performing all relevant calculations and incorporating all amendments and refinements is fiendishly difficult. And if this were not enough, changes in the nature of the economy and new considerations such as environmental issues increase both the disparity between GDP and well being and welfare and necessitate evolution of the GDP statistic.
GDP was an adequate measure for manufacturing physical products and nation state - based economics of the post - Second World War era. Presently we have an economy dominated by services and intangibles, with much greater variety of products, and closely linked across national boundaries. It is not at all clear that GDP measures well the digital, globalized economy, with its proliferation of zero - price services and matching markets. It certainly does not address the increasingly unequal distribution of growth between different people or groups which we are experiencing since around the 1980s. Finally, GDP does not provide us with an insight on how sustain ably the economy is growing , an ever more important question in the wake of both the Great Financial Crisis and increasing concerns about environment and climate change. So while still using GDP to measure economic activity, it is becoming decreasingly useful as a proxy for either well being and social welfare or sustainability.
Also in the light of the above it is also clear that GDP itself has to evolve though we do not know how. We cannot also tell whether we shall use a single statistic for GDP or a dashboard of statistics to encompass a wider array of parameters to include not only economic growth but also well being, social welfare and sustainability.
This reader has long been aware that GDP can be manipulated, misused and abused for political purposes, whether it was the now infamous overstating of the health of the Greek economy, or the general overvaluation of China's economy. As economic growth is often used as a benchmark of sorts for a bill of political health, it made sense to proceed with a comprehensive evaluation of the idea.
Coyle examines the history of GDP, from it's origins as a way of accounting the entire wealth of the Engish nation for military purposes in the late 17th century, to it's official coinage in the 20th century.
While Diane Coyle does not address the current issue of China, Coyle illustrates how the Soviet economy was vastly overstated, out of pressure of meeting targets and quotas, to the invariables of measuring economy today.
Diane Coyle examines other factors, such as Human Development Index and environmental degradation, but she concludes that GDP is a rather flawed measure that fails to account for many factors, such as websites, technological development, variety of products, and other variables that are difficult to quantify.
The general conclusion is that GDP is a flawed measure, but one that is not readily replaceable. A decent and concise read, that probably requires a second reading for proper understanding.
The wonders of social media mean that during my reading of this book when i had a question the author was kind enough to respond to my tweets, so for that interaction alone this was going to get 5 stars.
But even if i had been roundly ignored it would still be worth the purchase.
I have always been interested in just what GDP is, a phrase you hear banned about all the time, and the clarity this book gives as to what it actually means and more importantly how other government policies are manipulated to manipulate it is fascinating.
In particular was the revelation about stay at home parents v putting kids to a sitter.
A parent staying at home does not grow the GDP figure but a Sitter does, even though the same job is being done.
the History of how GDP was just about what you produced, but how it got wrapped up in Government services and War production is also brilliantly informative.
Other highlights are:
"as so often in life the roots of failure lay in the nature of success"
"GDP has never measured service-sector activity well, and services have been growing constantly as a proportion of what we spend our money on. Equally GDP has never captured the most striking and important characteristic of modern capitalism, namely that it is an "innovation machine"
"you can see the computer age everywhere but in the productivity figures"
"humans excel at wasting time, experimenting,playing,creating and exploring. None of these fare well under the scrutiny of productivity. That is why science and art are so hard to fund. But they are also the foundation of long term growth"
Buy this book, it will open up the vox pops of journolists and politician to you...it will also increase GDP .....I think?
1. It was invented to help measure the ability of a state to wage war
2. As such, it's rather good at measuring physical production
3. It's as good as useless at measuring stuff that has no market price
4. It's rather terrible at measuring services
5. It tends to catch up slowly with positive developments that are difficult to quantify
6. It currently understates how well we're doing because we benefit from a number of novel consumer surpluses
7. It overstates the contribution of finance, which affords the authorities an excuse to favor financial institutions
8. Regardless, it's better than the alternatives if you had to sum up in one figure if we're doing better or worse than before
In terms of making these points, the book is a triumph. But it's not "engaging and witty" as it says on the cover.
And it is not in the least technical. The most complicated equation in here is the good, old AD=C+I+G+(x-m). I was kind of hoping to find out about annualizing quarterly GDP or the effect of a surprise in April inputs versus a surprise in June inputs on Q2 numbers. Or a worked example of how to build it for one quarter. Or a comparison of its composition through history. Dunno, something about how agriculture is no longer as important as it once was. Or a comparison between G7 countries and developing countries. You won't find any of that here. The only technical discussion (without the math) is about converting Chinese GDP into western-equivalent GDP via PPP and its alternatives.
It's really for the layman, basically, except I'm not 100% sure that it's simple enough for the layman.
That said, it kept me good company in the tube and it opens the discussion with an anecdote from my country, so I'll award it 4 stars.
Lay people who want to get an introduction into a basic economic concept will find this book not too demanding and be able to get up to speed in a very short time.
Professional economist on the other hand might find the book too superficial and not detailed enough, but as the author points out early on in the book that is a trade-off that she has made by choice.
In my view this book provides the most benefit to professional investors and financial analysts who deal with GDP numbers on a daily basis - often without fully understanding the numbers. How often have we seen a measure of income like GDP compared to specific assets like the debt of a country even though such a comparison is not technically valid? This book will help investors understand the use and limitations of GDP and the uncertainty around its measurements more thoroughly and as a result will help them make better decisions with regards to macro economic developments in different countries.
Wie sie in diesem Buch betont sieht sie inzwischen den schönen neuen Kapitalismus nicht mehr ganz so rosig. Von einer wirklichen Kritikerin des ökonomischen Mainstreams ist die Autorin aber auch heute meilenweit entfernt. Im Buch fallen dann auch so Sätze wie "For all our faults, economists do pay attention do evidence".
Die Theorie der rationalen Erwartungen oder der effizienten Märkte haben mit Evidenz wohl soviel zu tun wie die jungfräuliche Geburt Mariens. Es ist auch bekannt, dass der maximale Horizont von Wirtschaftsprognosen 3 Monate beträgt. Nachdem die Daten zumindest diesen lag haben geht sich bestenfalls eine "Nowcast" (es heisst wirklich so) aus. Trotzdem tretten die sogenannten Wirtschaftsweisen regelmässig vor die Kamera und verkünden der staunenden Menschheit die ökonomische Zukunft. Karl Aiginger, der Chef des Österr. WIFO, sieht seit 3 Jahren einen Silberstreif am Horizont. Der Mann braucht offensichtlich einen Doktor.
Die Ökonomen schaffen sich aber auch ihre "Evidence" selbst. Das Buch ist dafür eine sehr gute Illustration. Die Autorin betont mehrmals, dass das GDP einerseits die zentrale Zahl im politisch-ökonomischen Diskurs darstellt. Andererseits ist es eine weitgehend willkürliche Festlegung. So wurden ursprünglich die Staatsausgaben abgezogen. Der Staat wurde damit implizit als Parasit am ökonomischen Körper einer Gesellschaft definiert. Das passte aber nicht zu Roosevelts "New Deal" und insbesondere zu den Ausgaben für den 2. Weltkrieg. Also drehte man das Vorzeichen um. Die im privaten Haushalt erbrachten ökonomischen Leistungen werden aber bis heute mit dem Argument, sie hätten keinen Marktpreis und man kann daher nicht wissen wieviel sie wert sind, ignoriert. Es haben jedoch auch die meisten staatlichen Leistungen keinen Marktpreis. Die Autorin merkt zur Hausarbeit an:
"It can be measured by surveys, like many other economic statistics, but generally official statistical agencies have never bothered - perhaps because it has been carried out mainly by women".
Es geht hier um die allgemeine Frage der "Production boundary". Was gilt als ökonomische Aktivität und was nicht. "The border also becomes a self-fullfilling, though, as being included in the national accounts definition of GDP is taken as the mark of productiveness".
Es kommt jedoch nicht nur darauf an was, sondern auch wie man zählt. Ein Beispiel ist die Finanzindustrie
"The Original SNA (Standard-Zählweise C.D.) in 1953 had shown the financial services industry as making either a negative or a small positive contribution to GDP. Finance was a more or less unproductive activity."
Das entsprach dem damaligen Keynesianischen Zeitgeist. Mit dem Aufkommen des Monetarismus wurde eine unglaublich künstliche Zählweise eingeführt damit der Finanzsektor seinen in dieser Weltsicht gebührenden Platz im GDP einnimmt.
"That is correct: an imaginary industry supplying no products or services was theoryed into being as the 'buyer of banks' intermediation. The UK adopted this approach in 1973, France in 1975. This change started to turn finance from a conceptually unproductive into a productive sector".
Im Jahr 2001 hat die Autorin - dem Zeitgeist entsprechend - den Finanzsektor noch hymnisch besungen. Nun findet sie, dass man die Zählweise überarbeiten sollte.
Diane Coyle betont im Buch mehrmals dass das GDP und social-welfare zwei verschiedene Paar Schuhe sind. Sie verteidigt jedoch den "Hedonic-Price-Index". Dabei geht es um die simple Frage wie man das Mooresche Gesetz zur Schönung des GDP verwenden könnte. Die entscheidene Grösse beim GDP ist das inflationsbereinigte reale Wachstum. Neben dem Output ist daher die Inflationsrate die zweite wesentliche Schraube beim Drehen am GDP. Eine niedrigere Inflationsrate ergibt einen höheren realen GDP-Zuwachs. Der schöne neue New Capitalism war GDP mässig nur so la la. Der Hedonic-Price-Index lösste das Problem. Mein erster PC hat 40.000 ATS (3.000 Euro) gekostet. Der aktuelle 1.500 Euro. Der aktuelle ist jedoch ca. 10.000x so leistungsfähig. Also ist er nach dem Hedonic-Price-Index nicht nur halb so teuer. Er hat per alter Leistungseinheit den Preis einer Semmel. Meine Freude am neuen PC ist jedoch sicher nicht 10.000x so gross. Sieht man einmal vom "it's never as good as the first time" Effekt ab, dann habe ich damals und heute einen PC am Stand der Technik erworben. Es sind einfach die Ansprüche was ein PC können muss mitgewachsen. Man erstarrt auch nicht in ehrfürchtiges Staunen wenn man am Abend das Licht im Zimmer aufdreht und es tatsächlich auf Knopfdruck taghell wird. In früheren Epochen wäre das ein Wunder gewesen. Heute fällt es einem nur mehr auf wenn das Licht ausfällt.
Die Haltung der Autorin zum GDP lässt sich so zusammen fassen: Ja, er hat einige Schwächen, ja, es ist letztendlich ein willkürlich festgelegtes Mass. Aber der GDP ist da und spielt die zentrale Rolle in der ökonomischen Debatte. Und weil er wichtig genommen wird ist er wichtig.
Wie aus den obigen Ausführungen (hoffentlich) hervorgeht ist das Buch relativ affirmativ. Es enthält aber auch eine Reihe von interessanten Informationen. Zweifellos ist es sehr gut geschrieben. Wenn man es etwas gegen den Strich liest ist es durchaus brauchbar.