069: Diane Coyle on GDP, Its Shortcomings and Alternative Measures

Diane Coyle is Professor of Economics at the University of Manchester and runs the consultancy Enlightenment Economics.

Diane is Vice-Chair of the BBC Trust and was a member of the Migration Advisory Committee and a member of the Competition Commission. She is also a visiting research associate at the University of Oxford’s Smith School of Enterprise and the Environment. 

Diane specialises in competition analysis and the economics of new technologies and globalisation.

Diane is the author of several books, including GDP: A Brief But Affectionate History, The Economics of Enough, The Soulful Science, Sex, Drugs and Economics and Paradoxes of Prosperity.

She was previously Economics Editor of The Independent and before that worked at the Treasury and in the private sector as an economist.

Diane has a PhD from Harvard and was awarded the OBE in January 2009.

Using happiness is an excuse for inactivity – Diane Coyle

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Influencers:

Peter Sinclair (University of Birmingham) and Ben Friedman (Harvard).

Economists:

In this interview, Diane mentions: Adam Smith, John Stuart Mill, Sir Charles Bean, Daron Acemoglu, Thomas Piketty, John McMillan, Tim Harford, Peter Sinclair (University of Birmingham) and Ben Friedman (Harvard).

Economics:

In this interview, Diane mentions: GDP, budget deficit, fiscal policy, monetary policy, interest rates, growth, employment, unemployment, Human Development Index, Gross National Happiness Index, happiness, hysteresis, inequality, financial markets, derivatives and leverage.

In this episode you will learn:

• what is GDP and how it is measured.

• the complications with understanding the meaning of GDP.

• the historical origins of GDP and why it is used to measure our economy.

• the complications in measuring GDP.

• how GDP data is still collected in such an ‘old-fashioned’ way and the new methods to collecting data.

• about the uncertainty and margin of error in GDP statistics.

• why it is wrong to make fiscal policy, monetary policy and interest rate decisions on GDP statistics.

• what proxy variables were used to measure economic activity before GDP was introduced.

• why we should re-think the meaning of the economy.

• why GDP today doesn’t work in its present form and if there is an alternative.

• how countries can use GDP and GNP measures to portray different economic conditions.

• the difference between GDP and GNP.

• the concerning use of ‘administrative statistics’ by countries to falsify economic growth.

• whether it’s correct to include illegal drug activity and prostitution in measuring GDP.

• why measuring happiness and well-being should be of little importance when measuring GDP.

• why Diane is sceptical about the Happiness Index.

• the reason why economics was coined by Thomas Carlyle as the the ‘dismal science’.

• who is to blame for the financial crisis of 2007/2008.

• about the UK’s over-reliance on the financial sector and its role in measuring GDP.

• about the uncertainty that would exist if the UK withdrew from the EU.

• the policy factors required to create a sustainable society and a stable government.

It’s just so easy now to download data from the internet and run through statistical packages and get some results. And I think a lot of professional economists are guilty of not rethinking about their data enough – Diane Coyle

The way we measure GDP now is really closely linked to Keynesian macroeconomic theory and a very famous definition he gave of  what total output in the economy is, that it’s consumer spending, government spending, investment spending and the balance of payments – Diane Coyle

Resources:

• The Enlightenment Economist
• Doomsday Book  – Earliest recording of economic activity.
• Time to ditch GDP as a measure of economic well-being by Diane Coyle 
• The Review of Economics and Statistics

Favorite Internet Resource:

• Twitter

If you pick the right people to follow it acts as a brilliant editor of all the interesting information that you might want to know and it’s like having a personalised newspaper – Diane Coyle

Books:

• GDP: A Brief But Affectionate History by Diane Coyle
• The Soulful Science: What Economists Really Do and Why It Matters by Diane Coyle
• The Economics of Enough: How to Run the Economy as If the Future Matters by Diane Coyle
• Sex, Drugs and Economics: An Unconventional Introduction to Economics by Diane Coyle
• Paradoxes of Prosperity: Why the New Capitalism Benefits All by Diane Coyle
• Reinventing the Bazaar: A natural History of Markets by John McMillan
• The Undercover Economist by Tim Harford
• The Undercover Economist Strikes Back: How to Run or Ruin an Economy by Tim Harford

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