GDP: A Brief but Affectionate History – Book Review

GDP: A Brief but Affectionate History – Book Review

GDP: A Brief but Affectionate History – Book Review by David Markel, CFA of The Aleph Blog.

This is a short book. It should be judged by short book rules.

1) GDP: A brief but affectionate history is aimed at giving a general understanding to readers not familiar with all of the assumptions that go into the calculation of GDP.

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2) The book uses no math to explain what is a highly mathematical topic, and yet gets the main points across.

3) GDP: A brief but affectionate history explains the controversies surrounding GDP in a simple way that most people could understand, and does not make you head spin with economic gibberish.

4)  The book explains many of the important strengths and weaknesses of the GDP calculation.  Maybe that should read — what GDP can measure, and what it does not measure.

5) It explains in simple terms the difference between “real” (inflation-adjusted), and “nominal” (unadjusted) GDP.  It could have spent more time on that topic, I think, because the issues around price indexes (including the implicit price deflator, which was not mentioned) are significant.

6) GDP: A brief but affectionate history motivates the history of how GDP calculations come to be, morphing from a way to figure out taxation capacity in wartime, to a figure that guides the economic policies of bureaucrats that tinker with something bigger than themselves, and they do not understand it (but won’t admit it).

7) The book drives home the idea that much helpful human action is *not* captured in GDP, and likely *can’t* be captured in GDP.  Also it shows how many harmful actions (i.e. pollution, etc.) are not captured in GDP.

Now some will criticize some omissions of GDP: A brief but affectionate history, and minor inaccuracies, but I am not going to beat on those, because this is a short book, and not meant to be deep for experts to contemplate.  At 140 small pages, it packs a lot in!

After all, there is an alternative.  You could go an buy an intermediate macroeconomics textbook used by many universities.  It will be in many ways more technically precise.  There will be a lot more math, and esoteric discussions.  It will lose average people, who will say “I’m glad I am not an economist.”

This book will not provoke that response.  It is meant for average people, not experts, who need to get a basic grip on what GDP means and does not mean.

My Main Misgiving

If I were writing GDP: A brief but affectionate history, I would recast this book into the need to estimate a balance sheet of the US, complete with liabilities  and intangible assets.  After all, the income statement describes the change in balance sheets across two periods.  Imperfectly, that could help us deal with intangibles that don’t get counted (E.g. all of the book reviews that get written for free, but give people a better idea of what to buy).  Even though the estimates will remain very imperfect, and maybe worse if we try this with intangibles, it might give us a sense of how much good we do as a society.  It would also make the financial sector net out for the most part, the value of which is difficult to measure.


If you want a basic book that teaches you in a non-technical way how and why one of our most basic economic statistics is calculated, this book will give you that.  And if you want that, you can buy it here: GDP: A Brief but Affectionate History.

Full disclosure: The PR people asked me if I wanted a copy of GDP: A brief but affectionate history, and I said “yes” and they sent it.

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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