GDP by Diane Coyle, and Austerity by Florian Schui, book review

Allowing for intangibles: Diane Coyle (PA)

Diane coyle is known to many of us as a colleague and serious economist. Here, she tracks the beginnings of our obsession with measuring Gross Domestic Product, a concept first developed in the 1940s. So much depends on GDP, even if it lacks accuracy: fortunes are made and lost if the outturn is worse or better than predicted. Sovereign credit ratings get adjusted, with serious repercussions. Years down the road, figures are revised and what may have appeared a calamity turns out to have been healthy growth – we just didn’t know it at the time!

The measurement of GDP tends to ignore the fact that we have increasingly moved on from physical production. Take computers, for example, which can do so much more than they could just a few years ago. Despite attempts to capture that increased productivity, surveys on which GDP estimates are based still focus on how many machines have been produced at any relevant period. Thus, crucial “intangibles” (to use economic jargon) are missed.

Different estimates of GDP, such as expenditure or income measures, also fail to capture increases in productivity. So it follows that international comparisons of economic wealth can be misleading. GDP in Soviet East Germany once seemed impressive but its people didn’t benefit. American GDP has always been enviable – unless you need healthcare, while the benefits of our own NHS improved patient care are hardly reflected in GDP figures. Coyle believes that although GDP is an artificial concept and probably not fit for the 21st century, it is still the best measure. She is dismissive of the time, effort and resources spent on alternatives such as the current obsession with measuring “happiness”. Hurray!

Coyle’s connecting link to Florian Schui’s Austerity is Greece, my place of birth. She bemoans the fact that the Greek chief statistician, Andreas Georgiou, is being hounded for daring to point out that Greek GDP statistics had for years flattered national growth and allowed extra, unjustified borrowing to take place. Schui trumps this by explaining that austerity is a Greek word meaning dryness of tongue or harsh conditions. He cites Aristotle, who argued that how you were expected to spend your money and enjoy work and leisure was determined by ethical norms and your family’s position in society – which has hardly changed through the generations.

Much of the population’s current acceptance of counter-intuitive and self-defeating belt-tightening can be traced to social norms and teachings going back to ancient times, Schui argues.

Although his dismissal of austerity lacks convincing detail, it is an entertaining read and teaches us a lot about the difficulties of escaping one’s history even after a good few thousand years have passed.

Maybe this explains the relative stoicism of the Greeks in the face of a 25 per cent collapse in GDP over the past six years as the government pursues an externally imposed “austerity” doctrine.