Politicians pay too much attention to this outdated indicator of economic growthby Diane Coyle / February 20, 2014 / Leave a comment
Published in February 2014 issue of Prospect Magazine
The 1870s and 1880s were a period of rapid industrialisation and innovation. Alexander Graham Bell’s telephone, Nikola Tesla’s twophase induction motor, Herman Hollerith’s punched cards, the electric fan, the seismograph, the motorcycle—all of these advances were made in this period.
So presumably the “new economy” that these inventions helped bring about can be seen in the economic statistics of the 19th century. But no: the Statistical Abstract of the United Kingdom for 1871-1885 contains just a few pages of figures on the new technologies of the period—textile factories, railways and so on. In contrast, there are almost 200 pages of the finest detail on the traditional economy: agricultural production and trade. In other words, economic progress has always outstripped our ability to measure it.
Today’s principal economic indicator, Gross Domestic Product (GDP), was invented to serve a specific purpose, namely measuring the production available for the war effort and the sacrifice required of consumers at a time of real scarcity. The man often thought to be the inventor of GDP, Simon Kuznets, had in fact argued against it. He would have preferred the government to measure economic well-being.