Dirk Philipsen: The Little Big Number by Brenda Jubin, Reading the Markets

What we measure matters. As Dirk Philipsen writes in his forthcoming The Little Big Number: How GDP Came to Rule the World and What to Do about It (Princeton University Press), “Choices about what to count, and how to count it, define many of our core values.” (p. 5)

The strength of a national economy—and, by extension, the prosperity and progress that most people believe are byproducts of economic growth—is measured by a well-known but, Philipsen argues, fatally flawed metric, the gross domestic product.

GDP was born in crisis and forged in war. In 1933 Simon Kuznets and a small staff from the Commerce Department and the National Bureau of Economic Research got the job of providing estimates of total national income for the years 1929-1931. The team found that total national income paid out to individuals had declined by 40% between 1929 and 1932. Their report was something of a best seller: “within eight months of its printing, almost 4,500 copies were sold at $ .20 a copy.” (p. 103) Soon enough the concept of national income became part of everyday political culture. “As a 1936 New York Times editorial remarked, ‘Estimates of national income, once discussed only among a handful of economists and statisticians, are now cited glibly in conversations over cracker boxes and brass rails, and many campaign arguments are based upon them.’” (p. 105) By World War II Kuznets and his students “turned the statistics of the gross national income and product accounts into information essential for planning and wartime production.” (p. 115)

GDP began to take on a life of its own. “Growth of GDP promised to create employment and necessary demand; it allowed the United States to provide vital aid to Europe and Japan and to maintain a large military during times of rising tensions with Soviet communism and growing threats to global resources and foreign markets; it eventually helped the United States win the Cold War and a series of proxy ‘hot’ wars against communism; it helped ease domestic unrest and prevented possible ‘class wars’ by raising the standards of living (as defined by per capita GDP).” (p. 126) Eventually it became a global article of faith.

What does GDP measure? For the most part, only goods and services that have a price, that are bought and sold in the market. The author introduces us to Ms. Golden Arrow, our guide to how this all plays out. Here are a few examples. “If Ms. Arrow stays home with [her children], perhaps even schools them at home, none of her work is factored into GDP, and officially nothing grows. If she does any of the things increasing numbers of American parents do—send them to private schools, enroll them in after-school activities, drive them from music lesson to math tutoring to basketball practice, hire babysitters for the much-needed evening out with her spouse—her GDP contribution grows by leaps and bounds. … If Ms. Arrow manages to stay happily married throughout all this, her spousal bliss adds nothing to official accounts of national economic success. If she runs into marital problems, requiring doctors, pills, and therapists, or perhaps even law enforcement, her GDP meter starts ticking in earnest. It hits full stride if she ends up in divorce: lawyers, courts, domestic help, separate living quarters, eating out, membership fees for dating services.” GDP remains stagnant when she lives in a safe, stable neighborhood. “But introduce things like severe inequality, social strife, or economic distress, and the resulting need of extra security measures—added police, home security systems, locks, handguns, jails—will advance GDP growth. So does her decision to move to a distant suburb: more roads, more gasoline, more construction, more accidents, more residential services.” (pp. 155-56) You get the picture. GDP is quality-blind, people-blind, justice-blind, ecosystem-blind, complexity blind, accountability-blind, and purpose-blind.

Philipsen maintains that, as a measure, GDP is both primitive and dangerous and should be abandoned. It is a delusion that jobs, the good life, or progress itself depends on GDP growth. (p. 208) Sustaining and expanding human well-being, which should be our goals, are not the same as promoting growth or income.

We need new measures that speak to these goals. We need “a national dialogue about goals of an economic constitution based on the four essential sides of our goalpost: sustainability, equity, democratic accountability, and economic viability. Simultaneous to this dialogue, taking place nationally and internationally, we can have ‘experts’—legal scholars, economists, ecologists, climatologists, medical professionals, philosophers—begin the process of figuring out how best to measure the performance of the goals embedded in our new economic constitution, and thus establish structures and regulations that support and incentivize the pursuit of these goals.” (p. 271) Some efforts are already underway, most notably the “Beyond GDP” initiative by the European Commission, but much remains to be done. Philipsen’s book is a clarion call.

Dirk Philipsen: The Little Big Number

The Little Big Number: How GDP Came to Rule the World and What to Do about It by Dirk Philipsen