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On 2nd December, The Henry Jackson Society hosted ‘GDP: A Brief But Affectionate History’ featuring Professor Diane Coyle, Professor of Economics, University of Manchester.
Professor Coyle opened by explaining how GDP is defined, and highlighting the recent changes in GDP measurement, such as the inclusion of prostitution and drug dealing statistics when calculating GDP. She mentioned how seriously the Bank of England takes uncertainty, with even a 0.2% change in GDP growth making headlines. Therefore, if growth is 1-3% of GDP it would create an enormous amount of uncertainty.
The professor also criticised the reliance on economic growth as a progress measurement, arguing the way in which progression is measured is important, and that thus far, all the habitual statistics for progression measurement have been brought into question.
Professor Coyle then moved on to discuss the origins of GDP, and how the concept was introduced following the Great Depression that took place in the 1930s. She noted that in this period, governments had no idea about important figures such as unemployment, and that the Depression era had called for a need to look at all the aggregates that make up an economy. The professor also compared John Maynard Keynes argument for the inclusion of government expenditure with Kuznets’s welfare based approach, which excluded much of government activity, such as defence spending and advertising, as these do not benefit consumers.
The professor also explained how complex the calculation of GDP is, with the Basket of Goods being updated every year in the USA. She made the case that when calculating GDP, you have to factor in that certain items are more important to developing countries than developed ones, using the example of ‘Home Production’. She also pointed out that GDP goes up when a natural disaster occurs due to construction work, but it does not take into account the buildings that have been destroyed.
The professor closed her talk by focusing on economic welfare. She argued that economic welfare is much less reliable than we might think, as it does not take into account factors such as CO2 emissions. One suggestion the professor made was that we should have a dashboard of indicators which are important to economic welfare. Finally, she argued that freedom is an essential element of both human wellbeing and economic growth.