Today we are delving into the “dismal” science of economics. When I took Economics 110 in college, my professor was not dismal at all. His lectures were very engaging. So much so that I thought I could really get into this economics stuff, until I tried to do the homework, which bore no relation whatsoever to anything he had discussed in class. Fortunately for you, I will not be assigning homework. So with that worry gone, hopefully we’ll all survive to the end of the episode.

Calculating the GDP

GDP is a mysterious number on which politicians soar or sink, businesses thrive or tumble, and folks like you and me pay our bills or go bankrupt. Despite being considerably more important than the rules of football or the relationship status of your favorite celebrity, I’d venture to say that many among us know only a couple of things about the GDP: (1) up is good and down is bad and (2) that the initials stand for Gross Domestic Product (which sounds like a cooking experiment gone wrong, but turns out to be considerably more mathematical).

It has been said that war is the mother of invention, and that’s definitely the case for GDP. In 1665, William Petty undertook a systematic accounting of Britain’s total assets in order to prove it could afford a war (Coyle, 8). He proved it, they went to war with the Netherlands, and they lost.

In 1695, Charles Davenant extended the ways and means of analyzing national income and output, in An Essay upon the Ways and Means of Supplying the War, by which he meant the Nine Years’ War with France. Which Britain lost.

In 1746 an anonymous author wrote an appeal to revise the tax system and very specifically defined the national income as the whole of what everyone in the country received from land, trade, arts, manufactures, and any kind of labor, while annual expense was they whole that they spend or consume. The author then went on to give a very detailed account of the national income, tallying up to a total of 73.5 million pounds for England and Scotland together, followed by an explanation of how a new tax system would raise 8.7 million pounds while simultaneously lowering taxes for the poor and middle-income earners with more than three children. The definition of national income and its role in policy making was noteworthy for the time. No one had ever thought of making these calculations in exactly that way before, but I also mention it because whenever something is published anonymously, to paraphrase Virginia Woolf, “Anonymous is [often] a woman.” Have I got any proof? Nope, none at all, but regardless of the author’s gender, you may ask what the crown needed those 8.7 million pounds for, and of course, the answer is a war. In this case, the War of Austrian Succession, which, by the way, everybody lost. In 1746, the crown was also pursuing a war against its own people, it being the year in which the last pitched battle on British soil was fought at Culloden, in which the Scottish clans and highland life were crushed so badly that the memory is still a scar on the Scottish psyche. In other words, some British won, in a manner of speaking, and the rest of them lost.

With this kind of track record, it is a wonder the Brits still thought it was a good idea to finance any wars at all, and indeed Adam Smith, the father of modern economics, agreed. His Wealth of Nations was published in 1776, and in it he proposed that Britain just let those pestilential American colonies go. Britain would then save itself the expense of dominating them, while at the same time be able to establish free trade with them, to the benefit of both. George III disagreed, obviously, but the point for today is that Smith also attempted to calculate the national income. But he very specifically did not use Madame Anonymous’s definition of national income. He intentionally excluded certain types of labor. Shoemakers counted and millers counted and farmers counted. All of them produce a physical product that can be priced and valued. Servants did not count because they do not create anything. They are a cost on their employers, and therefore part of the national expense, not the national income.

Where Are the Women in GDP?

Why does any of this matter on a podcast about women’s history? Well, because by that definition a whole lot of women’s work is left out. Shoemakers, millers, and farmers at that time period very largely tended to be men. Women tended to be housekeepers, governesses, laundresses, midwives, hairdressers, maids, etc. All service-oriented jobs. And here I’m just talking about the paid labor. We haven’t even gotten to the amount of unpaid labor women did and do in their own homes. To be sure this is not universal. There were certainly many men in service-oriented jobs, like butlers, footmen, chauffeurs. And some women were lacemakers, basketmakers, dressmakers, and the other jobs that did produce a physical product. But the proportions were different. The percentage of women working in the so-called “unproductive” labor market was higher than that of men, which it still is today.

There is certainly nothing wrong with having a statistic about the physical assets of a country. I’m sure that is a very useful number to have in a lot of situations, but we certainly want to be clear about what we mean when we say National Income. Adam Smith’s definition of the National Income left out quite a lot, and that definition was not overturned for another 100 years.

At this point I am wondering, wasn’t anyone besides the British trying to finance a war? Where are the non-British economists keeping detailed records and fancy calculations? Well, yes to the war part, but less so to the detailed calculations. One reason is that you’ve got to have the mathematical expertise to do it. We tend to think of ancient civilizations as being really good at math because they did things like calculate the circumference of the earth, write the Pythagorean theorem, and build bridges that met in the middle. So it’s kind of hard to remember that they did all this without graphing calculators, the concept of zero, or even Arabic numerals. Some day you should try doing some long division by hand using only Roman numerals. It’s tricky. And you can’t calculate GDP without it.

Elementary math skills aside, you also can’t calculate the GDP without accurate records. Record-keeping throughout history has been spotty at best, with some times and locations writing down every last detail and others being blissfully unconcerned about the troubles of future history PhD candidates. Using what records there are, however, the economic historian Angus Maddison and his successors have pulled together an incredible survey of historical data on national GDP covering the whole world back to, I kid you not, the year 1. It lets you know that when you invent your time machine and go back to 730, Iraq is the place to be for decadent consumption with a GDP per capita of $1,466, the best in the world, at least among countries for whom we have statistics at all. By 1500, Italy is the place to be for the ultimate in consumption, where GDP per capita was an eye-popping $2,703. Whereas by 1776, the Netherlands is rocking it with $4,431 per person. And by 1945, head to the US for $16,478 per person. None of this is in any way surprising if you remember your history books about these time periods. If you bear in mind that these numbers are adjusted to make comparisons easy, it may also make you feel somewhat better about your current salary.

But what may not be clear from the numbers I’ve just listed is that these are the high points: the big winners of their time periods. Most of the countries are chugging along at roughly the same amount for century after untold century. Angus Maddison wrote “Economic growth was much slower before the 19^th century and therefore seemed irrelevant or uninteresting” (Coyle, 11). Which is a good part of the reason that people of the time didn’t collect better stats and run these calculations. Growing wasn’t a thing the economy did. It just was. And why would you bother to calculate something that you don’t expect to change? The science of economics was developed in the 18^th and 19^th centuries precisely because the economy was starting to grow, especially in Britain.

A Stunning Reversal

At least, it more or less grew in Britain and the US until it suddenly didn’t. The Great Depression came as a shock to government officials, who then turned to economists for an explanation and more importantly, a cure. Britain chose Colin Clark for that job. Across the pond, FDR chose Simon Kuznets for that job, and his first report in 1934 showed that between 1929 and 1932, America’s national income had been cut in half. He was meticulous in collecting the data, assessing the biases, and dealing with the omissions. His report was widely publicized and the existence of such a well-known and well-respected set of data was a huge help in getting a national response to happen at all.

And what definition of national income was Kuznets using? Well, not Adam Smith’s. Alfred Marshall had already brought service jobs into the equation, based on the market rate for their services. But Kuznets thought his job was to promote the welfare of the nation, not just the production. Kuznets wanted to calculate a number that would subtract out all the elements that were a disservice to the nation, rather than a service, based on his own definition of enlightened social philosophy, which when he got down to specifics meant cutting out the expenses on armaments, most advertising, and financial and speculative activities. The majority of the service-oriented workers (like teachers) would have counted. And in a blessed display of enlightenment, he also wanted to include the value of the unpaid domestic labor done at home by stay-at-home moms and other caregivers, who also contribute greatly to the nation’s welfare. Admittedly, he hadn’t fully worked out exactly how to do that, but it was a good thought.

Unfortunately for Kuznets, the world was heading into war again by the end of the 30s, and welfare is not the purpose of war. On the contrary, the paramount concern was the amount available for the government to spend on armaments. The debate was bitter and Kuznets lost. The defense budget was in. Caregivers were out. The GNP or Gross National Product was first published in 1942. Government spending became a major force to be reckoned with and was counted as adding to the economy, rather than detracting from it.

And they weren’t alone. Britain, Holland, Germany, and the Soviet Union were all coming to the same conclusions and for the same reason. War, among all its other faults, is terribly expensive.

Yet Again, Where Are the Women?

Since then our favorite national income statistic as taken a few turns, most notably in its transformation from GNP to GDP, the difference being mainly that GNP includes income generated overseas while GDP does not. Kuznets continued to argue that unpaid housework should be included, and finally left the Commerce Department in the late 1940s over their refusal to do so. And they still refuse.

The main argument against including it is that it would be hard to measure. This is undoubtedly true. But to complain about the difficulty of measuring its value is to ignore the enormous complexity that GDP already includes. The classic example is that for most of history if you wanted to have light at night, you lit a candle. Candles were expensive for ordinary people, and they provide flickering light that doesn’t travel very far, so in reality you mostly went to bed when it was dark unless you were rich. Since the invention of the lightbulb and public investment into electricity grids, light has become so cheap that we regularly forget to turn it off, while simultaneously becoming so bright and steady that we can do pretty much anything at pretty much any hour of the day. Cost has dropped dramatically at the same time that quality has improved dramatically. Does GDP account for innovation like this? Yes, it does. It became necessary to calculate this way in the 1990s, not because of light bulbs, but because of computers which have rapidly undergone the same drop in price corresponding with soaring performance.

GDP also manages to estimate the cost of public services, for which there is no market value. And more recently many countries even include the “unofficial” economy, by which we mean prostitution and drugs. In case you’re wondering, the value of prostitution is calculated using police estimates and forecasted using projections on changes in the male population (Coyle, 110). And of ever more increasing concern in GDP estimates is figuring out how to account for the huge value added by companies that provide their services absolutely free such as Google, Facebook, podcasters, and the like.

The fact is that what to include and exclude from the GDP is arbitrary, and more than one economist has admitted the fact (Coyle, 108). Or perhaps not exactly arbitrary. The economist Diane Coyle wrote, “[Housework] can be measured by surveys, like many other economic statistics, but generally official statistical agencies have never bothered—perhaps because it has been carried out mainly by women and seen as unimportant” (Coyle, 111).

It is worth investigating that assumption, that it is and has been carried out mainly by women. And here again all those untold generations before us have been remarkably inconsiderate by not leaving detailed spreadsheets for us. But based on such statistics as we have for past and present, the answer is yes. For example, in India on average men spend 51.8 minutes of every day on unpaid work. Women spend 351.9. Danish men are much busier with 186.1 minutes, but Danish men still top them with 242.8. In the UK, it’s 140.1 vs. 248.6. In the US it is 145.0 vs. 241.0 minutes per day on unpaid labor. All these statistics come from the OECD and I have a link to their very interesting tables on the website. The McKinsey Global Institute tracks similar statistics across more countries, and no country in the world has equality on this issue, though Uganda comes the closest at a ratio of 0.85, so good job Uganda for leading the way toward a solid B grade.

So what would it look like if we put a price tag on the value of unpaid domestic labor? I am no economist and will refrain from any macroeconomic predictions about the overall GDP, but I learn from Investopedia, that in the few years that I was a stay-at-home mom, I should have been making $178,201 per year as round-the-clock chef, housecleaner, launderer, chauffeur, and childminder. Those are the tasks Investopedia mentioned. I would add educator, therapist, business manager, and event planner to the list, which would drive the salary still higher, and if anyone wants to send me that amount for taking care of my own family, I would be most happy to accept. But it is true that any estimate could hardly represent the wild fluctuations between households. To take just one example, keeping my mother’s house as clean as she does would cost a pretty penny. Keeping my house as clean as I do? Well, let’s just say that would cost less. 

When you consider that many women who are also working full time jobs outside the home still do much, most, or all of these same jobs in addition, well, that’s a lot of uncounted work, and it’s all the more strange when you realize that if you hire someone for any or all of this work, then suddenly it is a worthy contribution to the national economy. But you may ask, how much does it matter if this labor is included in the official economic statistics?

Well, certainly it matters to politicians, who rise and fall along with the GDP. It matters to interest rates and hiring projections and the policies that affect them. It matters as some countries try to convince others to either loan them money or give aid. But GDP has been increasingly criticized on multiple grounds that were well outside the scope of Adam Smith’s concepts. One is the environmental angle, concerned that our obsession over GDP always focuses on short-term gains at any cost to the world in which we live, quite possibly to the long-term detriment of our economy.

The other objection is that what we produce is not nearly as important as how we feel.  Are we any happier when GDP is high?  Well in a crude sense, yes.  People are generally not happy when they are unemployed.  People are definitely not happy when they are hungry.  It is nonetheless true that GDP is very limited as a measurement of happiness.  Money is all very well, but what about health, education, freedom, equity, and all that?

Both objections have prompted all sorts of other numbers, including entire dashboards that take all these other factors into account, ranking countries high in one area and lower in others. The Human Development Index is one commonly used, but there are many others as well. For comparison’s sake, the United States leads the world if you’re looking at GDP. But we’re beaten out by Norway and 15 other countries according to the HDI.

Despite objections, the GDP has not lost its appeal in political rhetoric. It is older, better known, superficially easier to calculate, and certainly easier to condense into a sound byte than a full dashboard of more nuanced statistics. And as such, it’s likely to continue as the number that supposedly tells us how well we are doing.

Selected Sources

In addition to the links listed above, one of many sources for this week was Diane Coyle’s GDP: A brief but affectionate history. I personally always appreciate brief. This one had a few sections that made my gray cells wobble into jelly, but overall it was very readable for a non-economist.