The Invention of 'the economy '

If you had asked someone 100 years ago, " how the economy doing? " they should have to know what you were talking about. 

At the time, people were talking about things like banking panics and national wealth and trade. But, according to Zachary Karabell, this thing we call the economy - this thing we constantly measure with specific numbers - was really invented until the 20th century. 

" It was invented because of the great depression, " says Karabell, who has just written a book called The Leading Indicators. He said : 

It was invented because there was clearly a perception that he had something of really, really bad current but they don't really know what. You could see there were homeless people in the street, you could see there were the Okies Hat their farms from the Dust Bowl out of California by the tens of thousands, but there was no way of really striking. 

So the Government began to calculate on this unique and official national income called number. It is the precursor of of today produces gross domestic or GDP, and it basically the value of all goods and services produced in the country in one year. 

When it came out in the depression, this flawed statistic became a sensation overnight. A report on income subject to the national Congress became a bestseller... And very soon, you can't turn on the radio without hearing those numbers and what they are measuring. 

In the decades following, national revenue becomes the national product gross and possibly GDP - and he sweeps the world. " The first thing to that in the 1950s and 1960s if you are a new nation, it is you open a national airline, you create a national army and you start to measure GDP ", said Karabell. 

You have to calculate the GDP because if you want the help of the World Bank or the Organization of the United Nations, they will want to know : what is their help for the economy of your country? 

It is somewhere around this time, said Karabell, that people start to do too much of GDP. Rather than a limited economic measure, he became this gauge of cold war of which is better, which is to win. And so, perhaps, all this success led inevitably to a reaction violent. 

In one of the most famous moments of this reaction, Robert Kennedy listed the shortcomings of what was then called National Product gross. 

'National Product gross does not to the health of our children, the quality of their education, or the joy of their game', he said. " It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our officials. " 

GDP was never intended to measure the overall well-being and standard of living of a nation. " " So what says on the Tin : it measures the economy, " said Diane Coyle, an economist who has written a book entitled the GDP, a brief but affectionate history. " We should not do something that it has never been intended to do. » 

A problem with GDP : certain things that are clearly bad trace real GDP - as the damage of hurricane which cost a lot to fix. 

Even understand what it takes in GDP can be tricky. For example : If count you the black market, which means everything from baby sitters off-books mafia drug deals? The United States does not work. Other countries are doing. In the years 80 Italy started counting its black market and from one day to the next the Italian economy became bigger than the British economy. The Italians celebrated. They called him Il Sorpasso. 

Coyle says this kind of the thing points to a common misconception : 

We tend to think GDP as if it were a natural object. It is like a mountain, and we have to measure, methods that are better or worst and more or less accurate. But there's one thing to measure. And this is not only true for the economy : there is no natural entity called GDP in the universe. 

Perhaps the most important thing to remember about GDP is in other words, that it is not a thing. It is an idea. And this idea continues to change. Last year in the United States has refined the way it calculates GDP. And in an instant, the economy was more than 500 billion $.