As well as money, national accountants need political cover. Statistics are controversial. They don’t always bring convenient news. Attempts in the US during the Clinton administration to introduce regular “green accounts” were stymied by a Congress responding to the interests of big business, including the coal industry.23 Bill Clinton said, “We need not choose between breathing clean air and bringing home secure paychecks. The fact is, our environmental problems result not from robust growth but from reckless growth.” Congress thought otherwise. The Bureau of Economic Analysis was threatened with a 20 percent funding cut should it pursue green accounting—which was quietly sidelined. “Statisticians really can’t be expected to carry that kind of water,” says one bureau insider, still bruised by the encounter two decades later. “This has got to be a societal decision to do these things. The statistical agencies can do all their homework, advance a proposal. But if democracy says no, then it’s no.”24
The gap between what economists tell us and our own experiences—the one that Nicolas Sarkozy said was so dangerous—is twofold. It is also somewhat contradictory. On the one hand, GDP may actually be underestimating how well off we are. Because it is poor at measuring innovation, bald figures on income and production cannot capture the huge advances that have been made in health, technology, comfort, and access to knowledge. GDP may be making us all more miserable than we have any right to be by underrepresenting what we already have. On the other hand, GDP overestimates some aspects of our lives. Though the economy is supposedly in constant forward march, many feel left behind, marginalized, abandoned, and trapped in a never-ending race to pay for the goods and services that are supposed to define our lives. In these circumstances, simply increasing the size of the economic pie and then hoping we’ll each grab a decent slice is not a satisfactory or sustainable policy.
* * *
—
If we need better numbers, there’s an opposite and equal truth. We cannot govern by numbers alone. Rulers rule with rulers: they measure. But not everything can be costed and quantified. Not everything looks better because it is adorned with a dollar sign. That is one of the lessons of the recent political backlashes in which voters have rejected politics-as-usual.
The invention of GDP has given rise to a class of technocrats and economists who implement policy for the good of the economy, but not always for the good of the rest of us.25 They have inherited a Newtonian view of what an economy is, as though it were a rational and predictable system, “a singular entity with well-defined mechanical relationships between different moving parts connected by metaphorical pipes, cogs and levers.”26 Too often it is thought of as something outside human experience. As one unorthodox thinker wrote, “Mathematics brought rigor to economics. Unfortunately, it also brought mortis.”27
Before the invention of GDP, the word economy never figured in political discourse, something almost unimaginable today. No one thought about it as a separate entity. Until 1950, the idea of an economy never once appeared in a UK political manifesto with its modern meaning. All that changed with the invention of GDP. GDP was like a back door through which economists sneaked on to the public stage—and into the halls of government and bureaucracy.
Economists can bring valuable discipline to policymaking. But theirs is not the only view. There are competing ways to govern. It should not be necessary, as the venerable British Library has done, to justify its activities on the basis that, for every £1 it receives in public funding, it creates £4.40 for the economy.28 Nor should a well-known children’s charity need to encourage dads to read to their children on the basis that improved literacy will add 1.5 percent to GDP by 2020. Some things—safe streets, good jobs, clean air, open spaces, a sense of community, a sense of security and well-being—are good in themselves. So is the love of books and reading. Sometimes more income will help us achieve what we want. Sometimes it will not. But more income—more GDP—should never itself be the goal. At most, it should be the means by which we achieve our ends. As Simon Kuznets himself asked, “What are we growing? And why?”
Our priesthood of economists depends on “the idea that there are economic laws we cannot contradict any more than we could contradict physical laws: that however much we should like to, we cannot go against the logic of ‘the economy.’ ”29 And yet, sometimes we can. And sometimes we must. The economy is not real. It is merely one way of imagining our world. Gross domestic product is not real either. It is just a clever way of measuring some of the stuff that we humans get up to. Growth was a great invention. Now get over it.
NOTES
THE CULT OF GROWTH
1. See Pankaj Mishra, Age of Anger, Farrar, Straus and Giroux, 2017; Ed Luce, The Retreat of Western Liberalism, Little, Brown, 2017.
2. Borrowed from Diane Coyle, GDP: A Brief but Affectionate History, Princeton University Press, 2014, p. 124.
3. I’ve always attributed this phrase to Bill Emmott, former editor of The Economist. Whether or not he invented it, he uses it frequently.
4. “Chinese Factory Worker Can’t Believe the Shit He Makes for Americans,” Onion, June 15, 2005: www.theonion.com.
5. “The 30 Most Insane Things for Sale in Skymall,” Buzzfeed, July 10, 2013: www.buzzfeed.com.
6. Joseph Stiglitz, The Price of Inequality, W. W. Norton & Company, 2012, p. xii.
7. Sarah F. Brosnan and Frans B. M. de Waal, “Monkeys Reject Unequal Pay,” Nature, Vol. 425, September 2003.
8. David Card, Alexandre Mas, Enrico Moretti, and Emmanuel Saez, “Inequality at Work: The Effect of Peer Salaries on Job Satisfaction,” November 2011: www.princeton.edu.
9. “The Cost of Living in Jane Austen’s England”: www.janeausten.co.uk.
10. Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, Mismeasuring Our Lives: Why GDP Doesn’t Add Up, The New Press, 2010, p. ix.
11. Walter Berglund, the lawyer and environmentalist in Jonathan Franzen’s novel Freedom, expresses similar ideas.
12. In nominal terms Japan’s economy hardly budged from 1990 to 2017. In real per-capita terms it performed much in line with most Western economies by virtue of falling prices and a dwindling population.
13. It is true that suicide rates were high.
CHAPTER 1: KUZNETS’S MONSTER
1. These are the findings of economic historian Angus Maddison. Only with the Great Depression, triggered by the Industrial Revolution in Western Europe, did China and India’s share of the global economy fall sharply, reaching a nadir of around 9 percent in 1950. Today it has risen to around 30 percent. See “The Economic History of the Last 2000 Years in 1 Little Graph”: www.theatlantic.com.
2. Benjamin Mitra-Kahn, “Redefining the Economy: how the ‘economy’ was invented 1620,” unpublished doctoral thesis, City University London, p. 18.
3. Ibid. These ideas are all covered in Benjamin Mitra-Kahn’s brilliant thesis.
4. There had been many earlier attempts to survey a country’s assets, including the Domesday Book of 1086. However, unlike Petty, who tried to incorporate flows of money into his calculations, earlier efforts had concentrated almost exclusively on assets, mainly land.
5. Mitra-Kahn, “Redefining the Economy,” p. 4.
6. Ibid., p. 24.
7. The Kuznets curve posited the theory that, as an economy advances, inequality first rises before subsequently falling. The theory has come under significant criticism in an age of inequality, with some economists saying they see no statistical evidence for Kuznets’s theory.
8. For a good description of Kuznets’s character and methods see Robert William Fogel, Political Arithmetic: Simon Kuznets and the Empirical Tradition in Economics, University of Chicago Press, 2013.
9. Ehsan Masood, The Great Invention, Saqi Books, 2014, p. 15.
10. Kuznets originally conceived of gross national product rather than gr
oss domestic product. The latter calculates production inside a nation’s borders. Kuznets’s measure counted what was produced by US companies and individuals, whether at home or abroad.
11. Dirk Philipsen, The Little Big Number: How GDP Came to Rule the World and What to Do About It, Princeton University Press, 2015, p. 99.
12. Mitra-Kahn, “Redefining the Economy,” p. 14.
13. Ibid., p. 27.
14. James Lacey, Keep From All Thoughtful Men: How US Economists Won World War II, Naval Institute Press, 2011.
15. Mitra-Kahn, “Redefining the Economy,” p. 210.
16. Ibid., p. 237.
17. Masood, The Great Invention, p. 31.
18. Quoted in Mitra-Kahn, “Redefining the Economy,” pp. 239–40.
CHAPTER 2: THE WAGES OF SIN
1. The decision was taken in 1995 under Eurostat’s updated European System of National and Regional Accounts 95 (ESA95).
2. That is because the amount each member country pays in the European Union is determined by the size of its economy, measured by gross national income, or GNI, a close cousin of GDP. Of course, this was before Britain took the decision in a referendum to leave the European Union altogether.
3. “I think you’ll find this annoyingly dull,” said Gareth Powell of the UK Office for National Statistics when quizzed on the methodology. “They did most of the work in the office using already published data.” Telephone interview with author, March 2016.
4. For a detailed account of their calculations, see Joshua Abramsky and Steve Drew, “Changes to National Accounts: Inclusion of Illegal Drugs and Prostitution in the UK National Accounts,” UK Office for National Statistics, May 29, 2014.
5. Their figures excluded male prostitutes, who amount to 42 percent of all UK sex workers. Stuart Jeffries, “Time to Tax? Prostitution and Illegal Drugs Add £12.27bn to the Economy,” The Guardian, October 5, 2014: www.theguardian.com.
6. See later in this chapter for more detail on value-added.
7. David Lang, “Percentage of GDP Is a Strange Benchmark for a Defence Budget,” Letter to Financial Times, March 3, 2015: www.ft.com.
8. Matthew Bristow, “Drugs Fade in Colombian Economy,” Wall Street Journal, April 3, 2010: www.wsj.com.
9. William Echikson, “Il Sorpasso Has Italians Riding High,” The Christian Science Monitor, May 8, 1987: www.csmonitor.com.
10. “Australia Carbon Laws Fail to Pass Senate,” Financial Times, December 2, 2009: www.ft.com.
11. Simon Briscoe, “Britons Highly Sceptical Over Data,” Financial Times, December 29, 2009.
12. Kate Allen and Chris Giles, “Statisticians Face Hard Facts,” Financial Times, September 5, 2012.
13. Estimate from Darren Morgan, interview with author, London, June 2016.
14. Net domestic product would deduct the wear and tear of the machinery that makes the goods, something known as depreciation. Working out depreciation is not easy and so gross domestic product is the preferred measure.
15. The production method is sometimes called the output method.
16. This example is used by Ha-Joon Chang in Economics: The User’s Guide, Bloomsbury Press, 2015, p. 212.
17. It is often rendered C + I + G + (X - M) where C is household spending, I is business investment, G is government spending, X is exports of goods and services and M is imports of goods and services.
18. Author interview with Umair Haque, London, June 2016.
19. In the now more frequent case of deflation they do the same if prices fall.
CHAPTER 3: THE GOOD, THE BAD, AND THE INVISIBLE
1. Janice’s real name was not used in Steven Brill’s superb exposé, “The Bitter Pill: Why Medical Bills Are Killing Us,” Time, February 20, 2013: www.uta.edu.
2. These details are taken from ibid.
3. Figures from World Health Organization for 2014.
4. World Health Organization, 2015.
5. Bryan Harris, “South Korea Set to Take Japan’s Life Expectancy Crown,” Financial Times, February 22, 2017: www.ft.com.
6. Chris Conover, “5 Myths in Steven Brill’s Opus on Health Costs,” Forbes, March 4, 2014: www.forbes.com.
7. According to the Center for Responsive Politics, quoted in Steven Brill, “The Bitter Pill.”
8. These numbers are taken from ibid.
9. In fact Japan’s economy had not been performing quite as badly as commonly assumed. Nominal GDP had stalled, but adjusted for prices and a shrinking population, real per-capita growth in Japan was reasonable.
10. Leo Lewis, “Japan, Women in the Workforce,” Financial Times, July 6, 2015: www.ft.com.
11. Sarah O’Connor, “America’s Jobs for the Boys Is Just Half the Employment Story,” Financial Times, February 7, 2017.
12. This example was provided by Angus Deaton during a conversation with the author.
13. Katrine Marçal, Who Cooked Adam Smith’s Dinner?: A Story About Women and Economics, Portobello, 2015.
14. Ibid.
15. Jonathan Franzen, The Corrections, HarperCollins, 2013, p. 288.
16. David Pilling, “No Formula Can Better a Mother’s Milk,” Financial Times, March 6, 2013.
17. Julie P. Smith, “Lost Milk? Counting the Economic Value of Breastmilk in GDP”: www.researchgate.net.
18. J. Steven Landefeld, Stephanie H. McCulla, “Accounting for Nonmarket Household Production Within a National Accounts Framework,” The Review of Income and Wealth, September 2000: onlinelibrary.wiley.com.
19. Benjamin Bridgman et al., “Accounting for Household Production in the National Accounts, 1965–2010,” Survey of Current Business, Vol. 92, May 2012.
20. “Household Satellite Account (Experimental) Methodology,” UK Office for National Statistics, April 2002.
21. “Unpaid Household Production,” UK Office for National Statistics, January 2004.
22. The list includes Australia, Canada, Finland, Germany, Hungary, Mexico, and Nepal.
23. Benjamin Bridgman et al., “Accounting for Household Production in the National Accounts,” Bureau of Economic Analysis, May 2012: www.bea.gov.
CHAPTER 4: TOO MUCH OF A GOOD THING
This chapter’s title is adapted from John Kay, Other People’s Money, Public Affairs, 2015, p. 3. This is a brilliant book on financialization.
1. Kimiko de Freytas-Tamura, “Secret to Iceland’s Tourism Boom? A Financial Crash and a Volcanic Eruption,” New York Times, November 16, 2016: www.nytimes.com.
2. Ibid.
3. Richard Milne, “Olafur Hauksson, The Man Who Jailed Iceland’s Bankers,” Financial Times, December 9, 2016.
4. Michael Lewis, Boomerang, W. W. Norton & Company, 2011.
5. Ibid.
6. Ibid., p. 17.
7. David Ibison and Gillian Tett, “Iceland Feels the Heat After Years of Growth,” Financial Times, November 24, 2007.
8. Kate Burgess, Tom Braithwaite, and Sarah O’Connor, “A Cruel Wind,” Financial Times, October 11, 2008.
9. Ibid.
10. Author Matt Taibbi’s delicious description of Goldman Sachs.
11. Andrew Haldane, Simon Brennan, and Vasileios Madouros, “What is the contribution of the financial sector: Miracle or mirage?,” chapter 2 in The Future of Finance, The LSE Report, London School of Economics and Political Science, 2010.
12. According to The Banker magazine, reported in ibid.
13. China, like other Asian success stories before it, conducted what is known as financial repression by siphoning up savings and distributing them to favored industries through the state-owned banking sector. For years China ran huge current account surpluses, investing the money in US treasuries and the sovereign debt of other Western countries.
14. Kay, Other P
eople’s Money, p. 1. It is worth noting that, in the upside-down world of banking, assets are not quite what you might expect. They are the money the bank has lent out to other people. They are assets because theoretically the banks can get them back one day. Liabilities, on the other hand, are the monies deposited with a bank, which one day it will have to give back.
15. Andrew Haldane, “The $100 Billion Question,” 2010: www.bankofengland.co.uk.
16. Haldane, Brennan, and Madouros, “What is the contribution of the financial sector,” p. 92.
17. Diane Coyle, GDP: A Brief but Affectionate History, Princeton University Press, p. 99.
18. Haldane, Brennan, and Madouros, “What is the contribution of the financial sector,” p. 88.
19. Coyle, GDP, p. 102.
CHAPTER 5: THE INTERNET STOLE MY GDP
1. Sir Charles Bean, “Independent Review of UK Economic Statistics,” Cabinet Office, HM Treasury, March 2016.
2. This does not appear in GDP. The ad fees are added to the revenue of the site supplying advertising space, but are deducted from the revenue of the advertising company as an expense. From an accounting perspective, they cancel each other out.
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