Given that I’m writing a dissertation on the history of national income accounting, I hate to say this, but… GDP just isn’t as important as some people want to make it out to be. Some of the worst offenders in this genre of claim seem to be, unsurprisingly, GDP’s biggest critics. Let’s take an example from an op-ed in this week’s New York Times*, Our Mismeasured Economy by Lew Daly at Demos. The editorial follows in a nearly 100-year old tradition of criticizing how national income statistics handle hard to measure, non-market production, in this case government output. Daly argues, sensibly enough, that the way we handle government is ad hoc and arbitrarily rules out the possibility that government could actually add value (we explicitly assume that the value of government output is equal to what we pay for it, no more, no less).
That’s all well and good, but what bothers me is the over-the-top way in which Daly motivates his critique. Here’s the opening line:
Today’s polarized debates about the role of government often boil down to a single issue: the size of government compared with the size of the overall economy, as measured in gross domestic product.
Really? Are we following the same debates? Because although I’ve certainly seen reference to the size of government (and in fact, we see examples of these claims as far back as the early 1930s), they do not seem to me to be a dominant mode of debate at the present juncture. To be fair to Daly, I have not done a systematic content analysis of contemporary ‘debates about the role of government’, but I would be shocked if even a small percentage of these debates (5%?) explicitly or implicitly referenced the size of government as measured in the national accounts. And far fewer “boil down to a single issue” in those terms. Think, for example, of the recent Hobby Lobby case, and other debates around the Affordable Care Act. This debate is about ‘the role of the government’, but it’s not about the ‘size’ of the government but about its intrusiveness: can the government mandate that private companies provide certain kinds of care to their workers? Think also of the NSA wiretapping scandals. Again, the proper role of the government is at the center of the debate, but not the government’s size as a percentage of GDP.
Daly’s op-ed makes a number of sensible points about what we miss if we focus our debate on the productivity of government on the national accounts (though I’m not sure I agree that the fix is to change how we measure GDP as opposed to, say, coming up with alternative measurements of government productivity and restricting our analysis of GDP to where such a number makes the most sense – GDP is built on a bedrock of “market epistemology”**, and I doubt it will ever move far from that principle). But there’s no need to tee those claims up with an overblown one about the centrality of GDP to contemporary political debates about the role of the government.*** GDP is important because of its diffuse implications for how we think about the world, as well as some more narrow technical uses (such as the World Bank’s categorization of “least developed” countries, see, e.g, Jerven’s work) – but it’s not quite so woven into technical systems as, say, inflation statistics, which directly determine wage increases and social security benefits. And so I get that it’s a bit tougher to talk about why getting GDP ‘right’ is so important. But maybe that means we should be having a different debate, about what the right ways to measure and think about the productivity of government are, rather than a narrow technical one about GDP. Somehow I doubt that the Tea Party is going to stop complaining about the Affordable Care Act if the government’s share of GDP goes down a point.
* H/T to Beth Berman for sending this piece along.
** I define market epistemology as the belief that markets provide the best or only definitive information about economic value. Market epistemology shapes debates about the production boundary and in turn the boundary of the economy – that is, it shapes what we decide to count and how we decide to count it, especially for difficult cases like unpaid housework, government output, and owner-occupied housing. See, e.g., chapter 4 of the dissertation I should be writing instead of this blog post!
*** At this point, I’d also like to fully embrace the irony of using a single editorial as a case to motivate a more general argument about the perils of motivating a general argument about discourse from a handful of cases. I can dig up more if you’d really like, I read this stuff for a living.