KevinDonovan

InfrastructureStudies

TermPaperA“Vulgar”Measure:GDPasInfrastructure

Splashedacrossheadlineseveryfewmonths,calleduponinmajorpolicyspeeches,andeagerlyanticipatedbymarkets,grossdomesticproduct(GDP)iswidelyconsideredtheprimaryindicatorofnationaleconomicwelfare.FromitsmodestinceptioninthedepthsoftheGreatDepression,GDPhasgrowninsophisticationandscopetobecalled“oneofthegreatestachievementsofthe20

century.”

Belowitswidespreadacceptance,though,isaspectrumofconcernsabouttherolethatthiseconomicindicatorhastakenoninmodernsociety;notably,inthefaceofenvironmentallyunsustainablegrowth,theomissionofenvironmentalaccounting–so‐calledGreenGDP–isparticularlytroubling.ThispapercriticallyexaminestheresilienceofGDPasaninfrastructureandthefailureofGreenGDPtogainofficialacceptancewithintheparadigmofnationaleconomicaccounting.

TheDevelopmentofGrossDomesticProduct

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“OnereadswithdismayofPresidentsHooverandthenRooseveltdesigningpoliciestocombattheGreatDepressionofthe1930’sonthebasisofsuchsketchydataasstock priceindices,freightcarloadings,andincompleteindicesofindustrialproduction.”–RichardT.Froyen

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Grossdomesticproductisthecombinedmarketvalueofallfinalgoodsandservicesproducedbylaborandpropertyinagivenregion.Thiscanbecomputedinthreemanners,butthemostcommonisthe“expenditureapproach”wherepersonalconsumption(C),privateinvestment(I),governmentspending(G),andnetexports

(X–M)areaddedsuchthatGDP=C+I+G+X–M.

Theresultisthemeasureofalleconomicoutputinagivenregionfortheperiodunderscrutiny.In2008,theUnitedStateshadaGDPof$14.6trillion.

Inmostcountries,thisfigureisreleasedeverythreemonths,andintheU.S.A.,wheretheBureauofEconomicAnalysis(BEA)istaskedwithitsproduction,itisbutone,albeittheprimary,indicatorincludedintheNationalIncomeandProductAccount(NIPA).ThisprocessofdatacollectionandprocessingisinternationallystandardizedintheUnitedNations’

SystemsofNational Accounts

,butasalludedtointheaboveepigraphbyProfessorFroyen,suchasourceofeconomicstatisticsdidnotalwaysexist.Thegenesisislargelyaresultoftheworkofoneman,SimonKuznets,andthedemandsofaneraofeconomictransformation.KuznetswasborninRussiain1901beforeimmigratingtotheUnitedStatestostudyunderWesleyC.MitchellatColumbiaUniversity.Mitchell,whowasaprominentcriticofthedisconnectbetweeneconomictheoryandreality,foundinKuznetsbothastudentandapartnerindevelopingastudyofeconomicsfirmlygroundedinaggregatestatisticalaccounts.Kuznets’sfirstmajorprojectwastheestimationofthenationalincomeoftheUnitedStatesfrom1929to1932.

Whatstartedasanacademicexercise,though,wasquicklyseizeduponbythegovernment.Atthetime,thegovernmentlackedanythingresemblingcomprehensivedataonthestateoftheeconomy,soalthoughJohnMaynardKeynes’sbreakthroughworkjustifiedgovernmentinterventionduringaneconomicturndown,officialsinWashington,D.C.lackedinformationabouttheeconomybeyond“fragmentaryindicatorssuchasfreight‐carloadings,steelproduction,and

thegyrationsoftheNewYorkStockExchange.”

NotuntilSenatorRobertLaFolletteintroducedaresolutionin1932orderingtheDepartmentofCommercetodevelopaccountsofnationalincomedidsuchdatabegintobeofficiallyandsystematicallygathered.Asaresultofthislegislation,Kuznetswashiredbythegovernmentandspent“thenext14yearscreatingasystemofnationalaccountsthat,withconstantrefinementsandadditions,westillusetoday.”

Whatbeganasincomeaccounting–arguablythemostrelevantindicatorduringtheGreatDepression’swidespreadunemployment–soonbecamemeasuresofoutput,muchliketoday’sGDPfigure.ThechangecameaboutduringWWIIwhenKuznets,withothereconomists,joinedtheBureauofPlanningandStatisticsoftheWarProductionBoardtodeterminetheUnitedStates’productivecapacityandconstraints.

InordertofullymobilizethecountrytofighttheAxispowers,policymakersneededtoknowhowmanytanks,guns,andothersuppliestheycouldprovide.ObserversatthetimebelievedexpertslikeKuznetshadbeenessentialtotheAlliedvictory.Kuznets’smentor,Mitchell,remarkedwhilecomparingtheera’stwogreatwarsthatonly“thosewhohadapersonalshareintheeconomicmobilizationforWorldWarIcouldrealizeinhowmanywaysandhowmuchestimatesofnationalincomecovering20yearsandclassifiedinseveralwaysfacilitatedtheWorldWarIIeffort.”

KuznetsandthegreateconomistPaulSamuelsonputitmoresimply,callingWWII“aneconomist’swar.”Theprofessionwassolaudedthatin1946CongressestablishedtheCouncilofEconomicAdvisers,leadingtoeconomistsbeingofficiallyconsideredexpertsonpublicpolicy.