A short guide to GDP

For the last 42 years my sister and her friend have grimly and grittily edited a little journal called The Book Review. Snobbishly, they only review academic books; and, cloyingly, children’s books. 

I regularly steal books of both types from there. When I get caught they make me write a review. But often, I manage to avoid writing it by the oldest trick known to reviewers: Postpone till your pursuers give up. 

Anyway, the other day while looking for some other book at home I found one I have no recollection of buying or borrowing. I had probably stolen it from my sister. The date of publication is 2014 so I guess it’s safe to write about it in 2019. 

It’s got a marvellous title: GDP — A Brief But Affectionate History. The author is an economist called Diane Coyle. She has a PhD from Harvard and obviously loves economics. Why else would she feel affectionate towards, of all things, GDP?

The kids these days would call it a “cute” book, just 140 pages. The publisher is Princeton University Press, which is surprising considering it’s the sort of book any trade publisher would have happily published. That way the book would have got more of an airing. 

As things stand, I don’t think anyone has heard of it in India. Or may be less than 25 have and even fewer read it, which is a pity because it is by far the best book I have ever read on this pesky and surreal subject. 

But Ms Coyle breathes coherence into it. She makes GDP comprehensible. So even though I have avoided writing about economics in this space, I think I can be allowed a little latitude. 

Besides, GDP is the flavour of the day. Even politicians are talking about it. They (and young journalists) must read it as an exercise in adult education. It will improve their perspective on what, in the end, is a statistical abstraction that is best referred to once, not four times, a year. 

A troublesome thing 

Ms Coyle has devoted the first five chapters to the history of GDP and its vexatious measurement. She makes it quite a fun read and I think even someone as exasperatingly exacting as T N Srinivasan would have been hard put to find fault with her discussion of it. These chapters leave you fully aware that GDP is important but not the be all and end all of economic performance. 

That said, it’s the last chapter that hooked me. It’s called “The Future: Twenty-First Century GDP”. She says GDP must now keep in mind three things: Complexity, productivity and sustainability.

This not only thickens the soup, it makes targeted intervention impossible. You have to rely on the two broad-spectrum antibiotics — fiscal and monetary policy and pray. 

Complexity means, just to mention one thing about it, an increase in the types of one product. How do you account for 100 different types of soap? Or how do you account for what happens when driverless cars become the norm? Then there is the global supply chain problem of outsourcing. It overstates import bills but understates import volumes. And so on. 

Higher productivity means you produce the same amount with less inputs. Does the reduced consumption of some things — say, energy — increase or reduce GDP? 

She cites a telling example: Musicians can double GDP by doubling the number of performances, rendering the music at twice the speed. Apply this to health and see what happens. And, of course, there’s information. If the Modi government has increased the number of official websites and the consumption of information by citizens, how does this reflect in GDP growth? 

Then there is the Nordhaus-Tobin question about capital widening as opposed to mere widening. Broadly, this means there has been an increase in the per capita use of capital to keep future consumption steady. This is also something the Modi government has succeeded in doing without realising it, of course. Conventional measurement methods don’t account for this sort of thing.

Finally, there is sustainability. If your current consumption will lead to overall reduced output in the future, how do you account for it? As she asks, what’s the balance between “investment in new assets and the depletion or depreciation of existing assets? 

This lies at the heart of the sustainability question and no answers are available. The Modi government’s emphasis on solar energy and the inability of current methods to account for it — is a case in point. 

To sum up, the measurement and importance of GDP is not captured by the number of underclothes and cars sold. It is certainly not something for amateurs to discuss.