9 of 9 people found the following review helpful
on 23 February 2014
Gross Domestic Product is a concept so massive, so convoluted, so compromised by rules, exceptions, patches, and qualifications, that only a handful of people in the world fully understand it, and that does not include the commentators and politicians who bandy it about, daily. “There is no such entity out there as GDP in the real world, waiting to be measured by economists. It is an abstract idea.” That sets the tone of Diane Coyle’s excellent and sympathetic examination of GDP. Then it’s on into the impenetrable forest.
Inconsistencies abound. If you care for your child, it doesn’t count in GDP. If you take in neighborhood children, it does. If you paint your bedroom, it doesn’t count. If you hire the kid next door, it does. Technology and technical improvements don’t count much, because we don’t know how to measure and incorporate them. Even in the mid 90s, we knew that technology was actually trimming inflation by 1.3%, but that was never acknowledged. This is the black hole of GDP, as tech becomes huge.
A special conundrum comes from the soaring financial sector, which makes money without actually producing anything. Accounting for that has evolved from “Alice and Wonderland” to “statistical mirages” that warp the GDPs of many nations. Financials account for nearly 8% of US GDP, but the way we account for them overstates their heft by 20-50%. For example, both borrowing are lending are considered productive businesses, and their numbers pad GDP both ways, using the same funds.
Coyle stays focused, giving us an overview that is understandable (as well as frustrating). She does it by structuring her book as history, showing how economies and GDP have evolved over eras. There are diversions, but they are mentions of societal changes, wars and the like, which made GDP evolve the way it did.
There is so much wrong with GDP, it’s hard to plough a straight row through. Coyle shows great skill in not following tangents, like how bizarre the Consumer Price Index (CPI) is or how inaccurate unemployment rates are. The unemployment rate only accounts for those receiving benefits. Once those are exhausted, you’re no longer unemployed (Only 59% of working age Americans are employed vs the 7% unemployment rate). Yet major decisions are based on that index’s relation to GDP. As for CPI, it excludes “volatile” energy and food, which are the most common and frequent purchases, far more important than say, personal computers. If you add in healthcare and alcohol, these factors make up 40% of consumer spending. But the CPI says there is no inflation. This same kind of inaccuracy is the standard in computing GDP.
I do get annoyed at the tiresome economists’ argument (made here by Coyle) that technology has improved so much, it has massively reduced the effective costs of many things. That is only partly true. Computers do have much more memory for far less money today, but the systems and software are now so complex that the base unit cannot be compared to prior art. You could not operate a computer today equipped they way they were 25 years ago; they are essentially completely different tools. So we need to rebase the equivalence. Similarly with cable tv. Yes, we have 200 channels today, but if you don’t want 200 channels, too bad. You pay for them anyway. It doesn’t matter that they each cost 30 cents a month instead of 75. The monthly $60 today is not necessarily better than the old $6 for 15 channels. Rebasing is required. The same goes for GDP itself. It constantly needs rebasing as our society evolves, or it becomes a(nother) near meaningless number we rely on totally, which is the case today.
The economy is a fluid concept, and Coyle says we just need to keep refining GDP to work with it. One day, we’ll figure it out – and then it will be instantly obsolete again. Lifetime employment for economists.
2 of 2 people found the following review helpful
on 11 May 2014
Diane Coyle enjoyable book is not only an entertaining history of how GDP became the most prominent measure of economic output but also a very valuable deep dive in the uncertainties of the measurement of GDP.
Lay people who want to get an introduction into a basic economic concept will find this book not too demanding and be able to get up to speed in a very short time.
Professional economist on the other hand might find the book too superficial and not detailed enough, but as the author points out early on in the book that is a trade-off that she has made by choice.
In my view this book provides the most benefit to professional investors and financial analysts who deal with GDP numbers on a daily basis - often without fully understanding the numbers. How often have we seen a measure of income like GDP compared to specific assets like the debt of a country even though such a comparison is not technically valid? This book will help investors understand the use and limitations of GDP and the uncertainty around its measurements more thoroughly and as a result will help them make better decisions with regards to macro economic developments in different countries.
1 of 1 people found the following review helpful
on 7 March 2015
Diane Coyle addresses an often used, but not fully understood term, and through the process of the study, reveals why a full understanding of GDP is almost impossible to ascertain.
This reader has long been aware that GDP can be manipulated, misused and abused for political purposes, whether it was the now infamous overstating of the health of the Greek economy, or the general overvaluation of China's economy. As economic growth is often used as a benchmark of sorts for a bill of political health, it made sense to proceed with a comprehensive evaluation of the idea.
Coyle examines the history of GDP, from it's origins as a way of accounting the entire wealth of the Engish nation for military purposes in the late 17th century, to it's official coinage in the 20th century.
While Diane Coyle does not address the current issue of China, Coyle illustrates how the Soviet economy was vastly overstated, out of pressure of meeting targets and quotas, to the invariables of measuring economy today.
Diane Coyle examines other factors, such as Human Development Index and environmental degradation, but she concludes that GDP is a rather flawed measure that fails to account for many factors, such as websites, technological development, variety of products, and other variables that are difficult to quantify.
The general conclusion is that GDP is a flawed measure, but one that is not readily replaceable. A decent and concise read, that probably requires a second reading for proper understanding.
on 14 August 2014
An exceptional book, packed full of insight and condensed into a quick read, but capable of being mind for more detail if you wish.
The wonders of social media mean that during my reading of this book when i had a question the author was kind enough to respond to my tweets, so for that interaction alone this was going to get 5 stars.
But even if i had been roundly ignored it would still be worth the purchase.
I have always been interested in just what GDP is, a phrase you hear banned about all the time, and the clarity this book gives as to what it actually means and more importantly how other government policies are manipulated to manipulate it is fascinating.
In particular was the revelation about stay at home parents v putting kids to a sitter.
A parent staying at home does not grow the GDP figure but a Sitter does, even though the same job is being done.
the History of how GDP was just about what you produced, but how it got wrapped up in Government services and War production is also brilliantly informative.
Other highlights are:
"as so often in life the roots of failure lay in the nature of success"
"GDP has never measured service-sector activity well, and services have been growing constantly as a proportion of what we spend our money on. Equally GDP has never captured the most striking and important characteristic of modern capitalism, namely that it is an "innovation machine"
"you can see the computer age everywhere but in the productivity figures"
"humans excel at wasting time, experimenting,playing,creating and exploring. None of these fare well under the scrutiny of productivity. That is why science and art are so hard to fund. But they are also the foundation of long term growth"
Buy this book, it will open up the vox pops of journolists and politician to you...it will also increase GDP .....I think?
The aim of this book is to get across a bunch of messages about GDP
1. It was invented to help measure the ability of a state to wage war
2. As such, it's rather good at measuring physical production
3. It's as good as useless at measuring stuff that has no market price
4. It's rather terrible at measuring services
5. It tends to catch up slowly with positive developments that are difficult to quantify
6. It currently understates how well we're doing because we benefit from a number of novel consumer surpluses
7. It overstates the contribution of finance, which affords the authorities an excuse to favor financial institutions
8. Regardless, it's better than the alternatives if you had to sum up in one figure if we're doing better or worse than before
In terms of making these points, the book is a triumph. But it's not "engaging and witty" as it says on the cover.
And it is not in the least technical. The most complicated equation in here is the good, old AD=C+I+G+(x-m). I was kind of hoping to find out about annualizing quarterly GDP or the effect of a surprise in April inputs versus a surprise in June inputs on Q2 numbers. Or a worked example of how to build it for one quarter. Or a comparison of its composition through history. Dunno, something about how agriculture is no longer as important as it once was. Or a comparison between G7 countries and developing countries. You won't find any of that here. The only technical discussion (without the math) is about converting Chinese GDP into western-equivalent GDP via PPP and its alternatives.
It's really for the layman, basically, except I'm not 100% sure that it's simple enough for the layman.
That said, it kept me good company in the tube and it opens the discussion with an anecdote from my country, so I'll award it 4 stars.
1 of 1 people found the following review helpful
on 19 April 2014
Even for those trained in economics who think they know all about GDP, this is a short and sweet book which tackles the issues around GDP - what it is and isn't, why it's a useful measure and why it might not be. Accessible to non-economists. Plenty of food for thought. Worth a read.