The Wealth Project

On Monday & Tuesday I attended an absolutely terrific conference, The Wealth Project, which is about “changing how we measure economic progress,” to quote the conference strapline. The aim is to develop concepts and measures of different kinds of wealth so that policies and decisions take due account of the future potential for consumption and well-being, as well as the short term. This has been a preoccupation of mine since at least writing as well as my . The Wealth Project will produce a book around the end of 2016 or start of next year.

Meanwhile, it’s always interesting to see what books people cite at conferences. This week I noted: C.A.Bayly, ; David Hume, ; Karl Polanyi, ; Dieter Helm, . I referred back to the recent crop of GDP books and the Inspector Chen novel featuring GDP growth as villain.

[amazon_image id=”0631236163″ link=”true” target=”_blank” size=”medium” ]The Birth of the Modern World, 1780-1914: Global Connections and Comparisons (Blackwell History of the World)[/amazon_image]  [amazon_image id=”0140432442″ link=”true” target=”_blank” size=”medium” ]A Treatise of Human Nature: Being an Attempt to Introduce the Experimental Method of Reasoning into Moral Subjects (Penguin Classics)[/amazon_image]  [amazon_image id=”B017LCJ8XE” link=”true” target=”_blank” size=”medium” ]Natural Capital: Valuing the Planet by Dieter Helm (2015-05-01)[/amazon_image]

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China and GDP

I’ve been a bit unwell this week so have been relaxing with not one, not two, but three detective novels – Chief Inspector Chen in the series by Qiu Xiaolong set in Shanghai. They’re hardly action packed but they have a lot about Chinese politics and also the fabric of everyday life, including food. Fascinating.

One of this week’s has a plot about environmental activism against industrial pollution. Whatever China’s GDP growth has been – much disputed – it has been fast enough to have exacted a serious environmental cost. Inspector Chen reports back to his Party patron: “I focused my research on issues of the environment. … Pollution is so widespread that it’s a problem all over China. To some extent, it’s affecting the core of China’s development with GDP-centred growth coming at the expense of the environment. It can’t carry on like this, Comrade Secretary Zhao. Our economy should have sustainable development.”

I’ve been working on a paper on the political economy of economic statistics, for a conference in 10 days. Many, many people would agree with Chief Inspector Chen, and not just about China, but it’s hard to move from GDP-centred to something else centred without a consensus about what the something else should be. Perhaps China could assist the political economy of such a transition given its need for a measure that can show increasing economic welfare without costing the earth.

[amazon_image id=”1473616786″ link=”true” target=”_blank” size=”medium” ]Don’t Cry, Tai Lake: Inspector Chen 7 (Inspector Chen Cao)[/amazon_image] [amazon_image id=”1473616808″ link=”true” target=”_blank” size=”medium” ]Enigma of China: Inspector Chen 8 (Inspector Chen Cao)[/amazon_image] [amazon_image id=”1473616824″ link=”true” target=”_blank” size=”medium” ]Shanghai Redemption: Inspector Chen 9 (Inspector Chen Cao)[/amazon_image]

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National accounts as metaphor

I happened to be reading (as you do) an essay by Thomas Schelling in an out-of-print 1958 NBER volume, . It’s a very thought-provoking challenge to the very idea that the double (or in fact quadruple) entry system is appropriate for aggregate economic measurement. He argues that they are an elegant theoretical construct but few of the numbers have any practical interest. He suggests the drive for consistency can be counter-productive: “There is no need to impose consistency on our tables if, in fact, businessmen evaluate a significant magnitude wrongly, or just differently from the economist; both estimates are of economic significance.”

Schelling also writes: “The fact is that the real accounts do not balance, only money accounts do. I think this point is insufficiently appreciated. …[W]hat we call “real” magnitudes are not completely real; only the money magnitudes are real. The “real” ones are hypothetical.” Real values don’t follow the rules of accounting, he emphasises.

This brought to mind the illustrations in Andre Vanoli’s (another out-of-print volume – is this a theme?) of the simplified social accounting matrices set out by Richard Stone in his work in the early days of modern national accounting. Increasingly large, they have only a small proportion of cells with anything in them. The actual numbers don’t matter; the point is the logical relations between them. As Schelling says in his essay, they might just as well be asterisks or emoticons (well, he doesn’t say emoticons but they would do fine). It’s ironic that what appears to be the area of economics closest to the coal face of actual data – national accounting – is no less saturated with theoretical (‘hypothetical’) constructs than any other area of economics.

The famous Punch cartoon of the Phillips Machine still has bite

The famous Punch cartoon of the Phillips Machine still has bite

HT for the title of this post

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It’s all about GDP

Who would have thought economic statistics would become such a hot topic? Certainly not me when I decided a couple of years ago to write a book about GDP for non-specialist readers. It isn’t as if GDP has lacked for critics. Over the decades there have been both environmentalist and feminist critiques, not to mention the blossoming interest in the direct measurement or targetting of happiness or subjective well-being. Still, there is a new wave, more focused on the political economy and historical context of the policy focus on GDP growth and rankings. There are (at least) two conferences on statistics over the next few months, following a joint RES/RSS/IFS conference earlier this month. Surely the scholarly debate, like the policy interest reflected in the Bean Review, is a precursor of change?

The latest book I’ve read is Matthias Schmelzer’s . The book begins with what has become familiar territory, the development of the forerunner of GDP and the system of national accounts in world war II, building on pioneering work by Colin Clark and Simon Kuznets. What became GNP (and GDP) differed crucially from these pioneers’ ideas, however, by moving away from a clear relationship with economic welfare, and embedding Keynesian macroeconomics. As Schmelzer writes: “The emergence of macroeconomic policies based on such theoretical constructs as consumption, demand, savings, investment, expenditure and their relationships made the rigorous measurement of these aggregates a public necessity, reaching far beyond the mere interest in the comparative wealth of a country and the different production factors.”

[amazon_image id=”1107130603″ link=”true” target=”_blank” size=”medium” ]The Hegemony of Growth: The OECD and the Making of the Economic Growth Paradigm[/amazon_image]

The book provides a distinctive focus by exploring in detail the role of the OECD in the spread and normalisation of the new accounting standards and, by the late 1950s or early 1960s, the adoption of GDP growth as a policy target. The organisation’s forerunner, the OEEC, had been the distributor and overseer of Marshall Aid throughout Europe. The American administration had, as it still does, great influence over its approach. The heating up of the Cold War led the Kennedy Administration to insist on the centrality of growth, making GDP as much a weapon of the Cold War as it had been of the Second World War. Schmelzer says: “The public acceptance of economic expansion as a political goal, as well as the active support of influential societal groups such as capital, labour or the press, had to be actively produced.”

He goes on to describe how orienting the OECD around the goal of growth took it steadily into areas of policy previously not linked to the economy at all, such as science policy and education. In addition, through the aid donors’ club at the OECD, the Development Assistance Committee, the idea became firmly embedded that economic growth and development were essentially the same. Through both geographical reach and policy expansionism, the book portrays the OECD as a key organisation in shaping the ‘growth paradigm’ – even though it also, paradoxically, also gave birth to the earliest, and influential, critique of ‘growthmanship’ in the shape of the Club of Rome report.

The book ends by speculating that the famous ‘hockey stick’ of exponential growth might be about to become an equally familiar S-curve because of ‘secular stagnation’, not least because of environmental limits. Schmelzer argues that GDP growth is part of the paradigm of ‘high modernism’ so brilliantly described in Seeing Like A State. The ‘hegemony of growth’ may be ending; it is certainly changing as the context has changed so dramatically. My money is on the idea of growth being transformed in order to measure better sustainability and economic welfare, but this is exactly what all the new wave of scholarship is investigating. The outcome will be just as contingent and negotiated through political and historical processes as the emphasis on GDP growth was in the first place.

This book provides an interesting perspective on the GDP debate; I hadn’t previously registered the importance of the OECD’s role in particular. The author has clearly dug deep into the archives and provides a lot of fascinating material, shedding new light on what is steadily becoming increasingly well explored territory. There are other new books for the non-specialist out on this subject. I have reviews on two out soonish, Ehsan Masood’s (in Nature) and Philipp Lepenies’ (in the Journal of the History of Economic Thought).

[amazon_image id=”B01FKTBW3O” link=”true” target=”_blank” size=”medium” ]The Power of a Single Number: A Political History of GDP by Philipp Lepenies (2016-04-26)[/amazon_image] [amazon_image id=”B019G14YKK” link=”true” target=”_blank” size=”medium” ]The Great Invention: The Story of GDP and the Making and Unmaking of the Modern World[/amazon_image]

These titles join an older batch of general titles; not only my own but also Zachary Karabell’s , Dirk Philipsen’s , Lorenzo Fiaramonti’s , Sen, Stiglitz and Fitoussi’s .

[amazon_image id=”0691169853″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image] [amazon_image id=”1451651228″ link=”true” target=”_blank” size=”medium” ]The Leading Indicators: A Short History of the Numbers That Rule Our World[/amazon_image] [amazon_image id=”0691166528″ link=”true” target=”_blank” size=”medium” ]The Little Big Number: How GDP Came to Rule the World and What to Do about It[/amazon_image] [amazon_image id=”1780322720″ link=”true” target=”_blank” size=”medium” ]Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Economic Controversies)[/amazon_image] [amazon_image id=”1595585192″ link=”true” target=”_blank” size=”medium” ]Mis-Measuring Our Lives[/amazon_image]

And there are more. Morten Jerven looks at African economic statistics in . Brett Christophers addresses the measurement of finance in . Expect more to come!

[amazon_image id=”B00FKYOLGU” link=”true” target=”_blank” size=”medium” ]Poor Numbers: How We are Misled by African Development Statistics and What to Do About it (Cornell Studies in Political Economy (Paperback)) (Paperback) – Common[/amazon_image] [amazon_image id=”1444338285″ link=”true” target=”_blank” size=”medium” ]Banking Across Boundaries (Antipode Book Series)[/amazon_image]

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Going beyond GDP: walking the talk

Today I’m working on a talk for a conference organised by the Royal Economic Society, Royal Statistical Society and Institute for Fiscal Studies on the agenda for modernising economic statistics. The day’s programme covers a wide range of questions including regional statistics and measuring the digital. My contribution will be about ‘beyond GDP’. I was just reflecting that in the two years since my book, GDP: A Brief But Affectionate History was first published there have been enough other books on this issue to declare it a new genre.

Precursors were in 2009:

by Sen, Stiglitz, Fitoussi (the report of the Commission set up by former President Sarkozy)

[amazon_image id=”B00E32LW1C” link=”true” target=”_blank” size=”medium” ]Mismeasuring Our Lives: Why GDP Doesn’t Add Up by Stiglitz, Joseph E., Sen, Amartya, Fitoussi, Jean-Paul published by New Press, The (2010)[/amazon_image]

and in 2013:

by Marc Fleurbaey and Didier Blanchet

[amazon_image id=”019976719X” link=”true” target=”_blank” size=”medium” ]Beyond GDP: Measuring Welfare and Assessing Sustainability[/amazon_image]

Then:

by Diane Coyle

[amazon_image id=”0691156794″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]

by Lorenzo Fioramonti

[amazon_image id=”1780322720″ link=”true” target=”_blank” size=”medium” ]Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (Economic Controversies)[/amazon_image]

by Morten Jerven

[amazon_image id=”0801451639″ link=”true” target=”_blank” size=”medium” ]Poor Numbers: How We are Misled by African Development Statistics and What to Do About it (Cornell Studies in Political Economy)[/amazon_image]

Later:

by Dirk Philipsen

And new/forthcoming:

by Ehsan Masood

[amazon_image id=”1681771373″ link=”true” target=”_blank” size=”medium” ]The Great Invention: The Story of GDP and the Making (and Unmaking) of the Modern World[/amazon_image]

by Philipp Lepenies.

[amazon_image id=”0231175108″ link=”true” target=”_blank” size=”medium” ]The Power of a Single Number: A Political History of GDP[/amazon_image]

When this kind of thing happens, there is certainly change afoot.

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