GDP: The World's Most Powerful Formula and Why it Must Now Change

by Ehsan Masood

'[A] tale of cloak and dagger intrigue, intense rivalries and political machinations you’d expect in a spy thriller.’ Engineering & Technology

Gross Domestic Product is failing. For decades it has rewarded environmental destruction and obscured inequality. Its formula can be—and has been—gamed to the detriment of developing countries.

In this powerfully argued book, now updated with a new chapter, science writer Ehsan Masood shows how GDP fell from the path envisaged by its architects, and how its long-term misapplication has kept large parts of the world in poverty, while helping accelerate global warming and biodiversity loss.

As the world rebuilds after the coronavirus pandemic and the accompanying global recession, our need for a more sustainable and inclusive measure of economic growth has never been greater. Change must come if we are to break the cycle. With clarity and passion, Masood shows how we can update GDP for a better future.

[previously published as The Great Invention in North America]

Genres: Economics, Nonfiction, Politics, Audiobook

236 pages, Kindle Edition

Published March 4, 2021

Reviews

[GIANNA · Rating 4 out of 5]

Interesting. Going in I thought I would read something different than I did.

The text mainly speaks how the GDP formula is not an appropriate indicator of a prosperous nation as it is oversimplified (one number cannot express quality of life) and since it doesn't reflect the environmental factors of global warming.

The first reason is mainly due to politicans not being able to juggle between more parameters and therefore to target just one number thorough public spending seems the easiest resort option for being re-elected. The second reason seems very interesting and it is one that is 80% discussed throughout the book, with efforts such as Human Development Index (which is partialy used today) and even Bhutan's Gross National Happiness being mentioned. The argument how we should include natural resources in efforts to surpress global warming seem definitely worth of further thought, it's just that here it kind of sounded very weak.

Maybe it was the fact that the author stated just events that happened where a certain individual tried to replace GDP with another indicator dedicated to mainly environmental resources - and failed (didn't even come close). At the end, the author concludes that these people should have made indexes that replace GDP, but that are more catered to the natural resources, but these indexes need to cater to richer nations (their result needs to stay at the top).
I don't know how much I agree with this. I guess this is the lesson from the history of all the failed attempts to replace GDP with something that reflects quality of life. In my opinion, going easy on richer nations as for the index to succeed doesn't sit well with me. Maybe it is the smart thing to do, but the controversy of how these nations actually have a shitty approach to quality of life and just look at the number that will get them to be re-elected is tremendously important. Nations that care for higher incomes, life expectancy, healthcare and protection of natural resources should have their efforts appreciated and highlighted.

[WiseB · Rating 4 out of 5]

The book revealed the other different models that have challenged to replace or supplement the GDP model used to calculate the GDP index adopted by world countries to measure the monetary value of goods and services produced in a country. There have been concerns that missing components in deriving the GDP index like life expectancy, education, citizen happiness, environmental indicator etc have to be taken into account. The alternative models proposed include the Human Development Index; Gross National Happiness; and the inclusion of "natural capital" valuation to the GDP calculation. History of these alternatives was covered in the book in sufficient detail with references.

The author has put forward in the last chapter "Epilogue" his view of how the GDP index calculation can be changed ... by including those science research spending, which will boost economic growth, as a kind of investment in the GDP formula. This at least will cover the environmental and natural capital aspect in the index calculation. Masood also admits any revision to the index will need to face political considerations like the interests of the economically powerful national states like US and China, plus founder countries of OECD, the organization that maintains the GDP definition. Any change cannot lead to GDP ranking demotion of these countries.

[Susana · Rating 4 out of 5]

Un interesante recorrido por los orígenes del indicador utilizado para medir "la riqueza de las naciones" y, a la vez, una crítica a sus alcances y sentido de continuar aplicándolo en la actualidad. Aún cuando presenta algunas alternativas de medición, que incluyan elementos diferentes a los que caracterizan a las economías desarrolladas o de países del primer mundo, pareciera que todavía falta mucho terreno por recorrer para lograr un acuerdo en torno a los elementos a medir para comparar la economía y desarrollo relativo de distintos países, incluyendo variables que vayan más allá de lo económico, incursionando en el bienestar de la población.

Creo que vale la pena explorar un poco más el tema, como discusión de fondo sobre lo que queremos lograr en los países en pro de la población en el siglo XXI.

[Henry Gee · Rating 5 out of 5]

The astute reader will note that this is very similar to Masood’s book The Great Invention, which I have reviewed separately. And the astute reader would be correct: the latter book was published in 2016, whereas the new edition takes us up to the COVID-19 pandemic. Much of the content is the same, although there is a completely new chapter on a strain of Marxist macroeconomics in Harvard that Masood unearthed when on a writing fellowship in the United States. For much of the rest I refer you to my earlier effusion. There is one thing, however, that I forgot to discuss. That was the effort by Robert Costanza and colleagues to put a value on all those things the Earth provides us for free, in a now notorious paper, concerning the publication of which I was not entirely unadjacent, during my day job (by day I’m with the Submerged Log Company: if that counts as a disclaimer, I’ll throw in another – the author is a colleague at the same outfit). It seems to me – and this is not entirely my view, as the book makes clear – that one can no longer measure the world’s economy in terms of a metric that measures production and consumption; is expressed as a percentage (and therefore accrues in a compound way); and does so in a world whose resources are demonstrably finite. It’s time, Masood argues, that we found some other means of measuring economic health. That time must be now. There are signs that the global economy has been essentially static for the past twenty years. The reasons given are changes in the mechanics of supply chains, and increased protectionism. But I think there might be a deeper reason: that we’ve essentially run out of resources. People have been warning about this since the 1960s (as Masood amply documents). Seems not many people are listening.

[Pavan Singh · Rating 4 out of 5]

I highly recommend reading this book to learn about why GDP is a crude formula for measuring economic growth and we need to come up with better metrics

This book chronicles the history of how GDP came about, as an accurate measure of yearly national economic activity was not being collected. GDP is a recent phenolic as it itwas during the devastation of the Great Depression that Simon Kuznets was appointed to gather the data

The author demonstrates how a simple economic formula allows business leaders, investors and policymakers, whether elected or bureaucrats, to determine how the economy is doing, but so many other important aspects of life are not included in the single number of GDP

Throughout the book, the history of initiatives to develop alternative measures of economic activity are described. GDP does not take into account environmental devastation and an increase in GDP does not necessarily mean economic growth is inclusive for all citizens

Living through a pandemic, intense inequality, social upheaval and the coming spectre of climate change, we must change our national accounting standards for economic growth. It is imperative we build a more sustainable and inclusive society if we are to survive.

[Purvish Shah · Rating 5 out of 5]

I'm surprised how very few people have rated this book and how low it has been rated.

GDP as a formula rules every smallest action and I believe it is time we all be aware and educate ourselves the economics of the world, and not leave it to the economists. Ehsan's wonderful book captures the drawbacks and I believe should result in a global movement, not just from economists but commons to fight for what we all truly value!

The book has inspired me to pursue economics as a career and potentially work on changing the GDP

[Grant · Rating 4 out of 5]

Covering the history and formation of GDP as an economic measuring tool whilst analysing it's faults and limits, Masood lays out some pretty simple steps to making GDP actually reveal a more accurate snapshot of a country's economy.

[Matija Ziberna · Rating 3 out of 5]

Not much essence, more of a brief overview why GDP doesn't show the full picture and how it influenced the development of HDIndex. It's also has a compelling argument why these measurements will stay as they are as long as the most powerful nations are ranking at the top.