GDP: A Brief But Affectionate History
by Diane Coyle
Rating: 3.0 / 5 · Read · Finished 2025-12-28
GDP is theoretically any of three equal values: total output, total expenditure, and total income. Why? Because anything produced (output) is bought and consumed (expenditure), which is revenue (income) for the seller. Net out intermediate values by doing “value added” computations: a business that buys wholesale and sells at a markup “produces” a value equal to the markup.
There are many modifications to this formula. To make values comparable, GDP is seasonally adjusted. Inflation adjusted. Currency adjusted. (Even though you wouldn’t buy a Ghanan haircut in Britain). Purchasing Power Parity. Chain weighting. Hedonic pricing (because a single computer gets better and better, although does our enjoyment grow proportionally?) All the steps involved remind me of epicycles explaining planetary motion.
GDP is supposed to measure production. But what is “productive?” War spending? Even though war is destructive and reduces human wellbeing? Government spending? Does that mean a government can increase GDP at will? Services? Adam Smith didn’t think any services were productive. Housework? A widower who marries his housekeeper reduces GDP. Childcare? Two moms could charge each other for childcare and raise GDP. Trash pickup? Is it a necessary expense that reduces income? Or is it a consumer good that raises the income of local governments? Education? Is the output of a teacher equal to the number of students they teach?
GDP is a made-up concept, and sensitive to tweaks in the formula. Ghana’s GDP went up 40% overnight because of re-weighting the consumer price index, disqualifying them for certain aid. Britain had to get an IMF loan in the 70s to keep deficit at a certain percentage of GDP. Later, revisions to statistics showed they didn’t need the loan. There are various incentives for governments to present a higher or lower GDP, so how can you trust it?
Interestingly, I just read “The Moral Landscape” by Sam Harris, and it proposed a measure of “wellbeing”. This book on GDP also talks about measures of human happiness and welfare, like the Human Development Index.
Random tidbit: you can think of the price of computation as infinite before computers were invented. What are the implications for the consumer price index?
At the end, she argues that GDP does not capture the value from increased variety in goods. I counter: is so much variety really valuable?
Overall, the book is boring and complicated. What else can you expect from a book on GDP? At least it’s short. I currently feel like I never want to hear about GDP again, yet there were a lot of interesting points, and it’s still true that GDP correlates with many things that are good.