Seems like the measure of GDP has been around for a long time, right? In some ways, yes. But as a measure taken seriously by nations which is utilized in quite similar fashion, mid 20th century was somewhat of a starting point. Also, it was a time when manufacturing and output of goods was once much more central, according to Zachary Karabell at the Atlantic. Not everyone is enthusiastic about measuring the gradual shift from manufactured product to services (Karabell cited plenty who weren't!), but without such accounting, much about the present economy would not be readily apparent...specifically, three percent gets added now in the U.S. this summer, with adjustments going all the way back to 1929.
From passive to active, from the incapacitating restraints of yesterday's balance sheets to an economic momentum just waiting to be loosed: that's what the 21st century especially needs. Upcoming changes in the measurement of GDP are encouraging, in that more knowledge and skills based activities will be taken into account as actual components, and not just costs, of production. Particularly interesting for me are the elements of creative and innovative work, as they push product forward into territory which provides further elements of economic activity. Yes, it is uncharted in a sense, and yet not just any creative activity will do. What will most likely get measured represents the pinnacle of achievement in this regard: that which anyone recognizes as leaving the world just a bit different, be it the album which sells quite well, the research and development project which not only explores an idea but manifests it fully. Much of creativity, or R & D for that matter, is certainly not such a sure thing.
Why does this development, gradual though it may be, come up against such resistance? There is actually good reason to be cautious of the murky waters here, for already there is much confusion as to what gets measured in an economy on an ongoing basis, and why. For all the limitations of measuring primarily from the specific product, it is still an understandable process for anyone who observes it: the product clearly has additional economic meaning in that it is completely separate from our time. Whereas we have tried to signify the "meaning" of our time in recent decades by ongoing contractual arrangements. Those contracts have arbitrarily attempted to hijack all the significance of our work efforts, and yet, such arrangements aren't even measured in nominal targeting terms! As a consequence, those who believe in balance sheet recessions and the long term pain they supposedly imply, fail to see the dynamism inherent in the GDP measure itself.
Much of the rationale behind a decades long effort to keep economies from "overheating" has more to do with preventing asset "bubble" formation in the mistaken belief this is where most "additional" money from the economy shows up. In other words the daily, ongoing economic flow which nominal targeting would seek to stabilize, is not always taken into account. What's more, resulting shortfalls are not well understood whenever the NGDP level isn't considered. I must admit it is mind boggling to me that some on the left do not see this vital link for employment factors. There is a tremendous amount of monetary flow of which fiscal policy is simply an inadequate tool, to address aggregate efforts in this regard.
While there is not a lot of time (yet) to talk about five patterns of economic activity which particularly intrigue me (maybe some "philosophy" later on, after more important things are tended to!) it is worth noting the new GDP measure attempts to account for creativity in many areas including research and development - the next step up from the building discipline - as best as possible. Recall:
maintenance - building - creating - healing - understanding
First I'll point out how these interrelate to one another, and then it may be easier to think about what is being tentatively added to GDP measure in some of its most obvious societal aspects. Maintenance tends to everything (reclaimed from history, and new) that has already been built at some point in the past. The building discipline "pays" for other aspects of all these activities through new product formation (and employment data in all areas follow the actual product measure closely). Creating "steps up" the building process to include "new" and additional elements, healing reconciles various aspects of the ongoing processes, and, understanding is an achievable point when the process does not get broken by war and dissolution. Of course there's plenty of money to be had in breaking things up, so sometimes the creative point is as far as a society gets, in an aggregate sense!
However, in terms of ongoing additions to GDP, optimistic voices as to the importance of human skill and effort are slowly gaining. This aspect of measurement also neatly mirrors the thinking of the Market Monetarists, who already see the time aspect of individual economic participation as the primary anchor for economic stability. Before wrapping up this post, I want to briefly return to something the Atlantic article mentioned about Simon Kuznets, who was most responsible for formation of national accounts in the 1930s which provided data for GDP. Kuznets was disturbed that "domestic work, volunteer work and transactions in cash" were invisible in GDP. Certainly there is more that needs to be accounted for than is presently possible, and I hope to post more on this in the near future.
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