Dirk Philipsen, Senior Fellow at the Kenan Institute for Ethics at Duke University, has a new book hitting the shelves: The Little Big Number: How GDP Came to Rule the World and What to Do About It. KIE’s Katherine Scott recently spoke with Philipsen about the book, and how Gross Domestic Product became such a driving economic force.
The GDP is something we all take for granted. In your new book, you examine its origins and illustrate some of its limitations. How did it become so established?
Up until the Great Depression, no one had these numbers, this knowledge, or had been measuring an economy by this metric. From 1850-1929, the sudden explosive growth of productivity and wealth that came along with industrialization is pretty well known. What is less known is that the growth also created constant crises – sometimes of massive proportions. This translated into people’s lives as unemployment, poverty, and despair. We now describe it as boom and bust cycles, but no one at the time knew why this was happening. The dominant economic theory was that the market would take care of things. Then the great depression hit. By 1932, the signs were clear that the system was in deep distress. Companies and banks were going bankrupt, over a third of the workforce was either unemployed or underemployed, and there was real public fear that America was falling apart. People like Senator La Follette pushed the Commerce Department to hire economists to figure this out. Through questionnaires, they generated the first ever comprehensive data set on national income – a tally of what was being produced, what happened to investments and profits, and how many resources there were. This became the foundation for the New Deal.
Then the U.S. entered the war. That’s what really pulled us out of the depression. Those economists who created the system to collect the data were able to make the U.S. the most productive nation in pretty short order. After the war ended, there was a lot of destruction and a lot of pressure to rebuild nations. People still didn’t understand how the great depression happened, and were afraid that another might come. The solution was to latch on to increasing productivity. Industries latched onto it for profit, politicians latched onto it to increase the tax base, and workers latched onto it in hopes of employment and increased wages.
Through Bretton Woods, the United Nations, and the Marshall Plan, these national accounts then spread throughout the world, and this very basic output measure not only became the standard for measuring an economy, but also for welfare and progress. With globalization, the solidification of the GDP became complete. In order to support international trade and lending, you need the same metrics for comparison. There is no other ideology or system as universal as GDP. It’s as universal as the water in the fishbowl.
What are we missing be relying on the GDP now?
It doesn’t measure the quality of the productivity, the direction or purpose of the output, or the environmental impact. What initially was a means to analyze an economic crisis then became a means to win a war. After the war, this purely descriptive tool of output transformed into something prescriptive; productivity increase became the goal and the very definition of a national economy. When we discuss the economy today, we aren’t talking about the time and effort spent raising our children, the tomatoes grown in our backyards, or the freshness of the air. Because none of these things are measured in the GDP. Every nation in the world has as its primary function to keep alive the growth regime supported by the GDP, but this unending growth is completely unsustainable on our finite planet. You can see it in the news, this constant tension between those in finance and politics who constantly call for and reward productivity and consumption and those scientists who are trying to explain that there is a real environmental and social crisis.
Where does that leave us?
With a range of far-reaching opportunities. Changing the goal and metric of economic activities to something smarter, something that begins to reflect what people actually want, has the potential to be a game changer. It could be the most significant lever to address, at once, core problems like inequality, climate change, and social disintegration. All that is explored in more detail in the book
The Little Big Number is available in hardback, ebook and audiobook. All three are available at Amazon.com