David Pilling is a widely traveled reporter for the Financial Times, with a raucous bee in his bonnet over the statistical idiocies of “Gross Domestic Product,” or GDP—the prime economic measuring rod for all countries, advanced and aspiring alike.
Single-number economic scoring systems are a recent invention. The great economist Simon Kuznets created the National Accounts system in the United States and actually collected the raw data, although not before John Maynard Keynes won a battle to count everything that was not actually criminal. Faced with the grossly overpriced American health-care market, Kuznets would have argued that the excess should be subtracted from the GDP totals, using Medicare prices or some other proxy as a reasonable measure of value. Still, Keynes was probably right. Think of the screaming of the gun lobby if their favorite weapons were officially priced at less than zero.
The counting conventions lead to some odd results. Take the spouse who stays home to care for the house and kids. Most countries count that as zero contribution to the economy. But a careful recent analysis suggests that counting domestic work would add 26 percent to American GDP.
Or consider banking. Not long ago, commercial bankers were heavily regulated to protect the payments system, making sure each party was properly paid, and that fraudulent transactions were kept to a minimum. A couple of decades ago, however, bankers gradually discovered that they could amass stupendous amounts of money by selling their assets to each other and marking up the price each time. In Great Britain, for example, about 97 percent of all bank transactions were with other banks, while only about 3 percent were actually funding value-added business investment. For a few years, banking was the world’s most profitable industry, before it was exposed as a house of cards. Ironically, it is still among the world’s most profitable industries because the world’s governments bought hundreds of billions of those bad loans to forestall an economic collapse. So the same banks, with the help of the Trump administration, may well do it all over again should the house of cards collapse once more.