I happened to be reading (as you do) an essay by Thomas Schelling in an out-of-print 1958 NBER volume, [amazon_link id=”B0006D9M14″ target=”_blank” ]A Critique of the United States Income and Product Accounts[/amazon_link]. It’s a very thought-provoking challenge to the very idea that the double (or in fact quadruple) entry system is appropriate for aggregate economic measurement. He argues that they are an elegant theoretical construct but few of the numbers have any practical interest. He suggests the drive for consistency can be counter-productive: “There is no need to impose consistency on our tables if, in fact, businessmen evaluate a significant magnitude wrongly, or just differently from the economist; both estimates are of economic significance.”

Schelling also writes: “The fact is that the real accounts do not balance, only money accounts do. I think this point is insufficiently appreciated. …[W]hat we call “real” magnitudes are not completely real; only the money magnitudes are real. The “real” ones are hypothetical.” Real values don’t follow the rules of accounting, he emphasises.

This brought to mind the illustrations in Andre Vanoli’s [amazon_link id=”1586034693″ target=”_blank” ]A History of National Accounting[/amazon_link] (another out-of-print volume – is this a theme?) of the simplified social accounting matrices set out by Richard Stone in his work in the early days of modern national accounting. Increasingly large, they have only a small proportion of cells with anything in them. The actual numbers don’t matter; the point is the logical relations between them. As Schelling says in his essay, they might just as well be asterisks or emoticons (well, he doesn’t say emoticons but they would do fine). It’s ironic that what appears to be the area of economics closest to the coal face of actual data – national accounting – is no less saturated with theoretical (‘hypothetical’) constructs than any other area of economics.

The famous Punch cartoon of the Phillips Machine still has bite

HT [amazon_link id=”0141187123″ target=”_blank” ]Susan Sontag[/amazon_link] for the title of this post

This is possibly stretching the definition of ‘book’, but at 259 pages, the Bean Review of Economic Statistics certainly has the heft to be classed as one. Either way, it’s worth a post here. This is not only because it covers one of my favourite subjects, [amazon_link id=”0691169853″ target=”_blank” ]GDP[/amazon_link], but also because it signals a milestone in economic thinking.

Professor Charles Bean launching his report

Since the 2009 report of the Sen-Stiglitz-Fitoussi Commission (summed up in the book [amazon_link id=”B00E32LW1C” target=”_blank” ]Mismeasuring Our Lives: Why GDP Doesn’t Add Up[/amazon_link]) there has been some policy traction for the ‘Beyond GDP’ agenda, not least because it builds on a long-standing set of critiques from environmentalists and researchers on well-being. Indeed, this week’s Economist argues for including unpaid ‘home production’ in GDP, something debated in the 1940s and campaigned for by feminist economists ever since.

The Bean Review is to my mind more radical because it questions the ‘GDP’ part. It contains considerable detail (and kindly citing some of my work) on the multiple ways conventional national income accounting is more and more a mismatch for the structure of the economy – looking at intangibles, the gap between market output and consumer surplus, the production boundary, the consequences of digitisation and lack of business model invariance of the statistics, and more.

[amazon_image id=”B00E32LW1C” link=”true” target=”_blank” size=”medium” ]Mismeasuring Our Lives: Why GDP Doesn’t Add Up by Stiglitz, Joseph E., Sen, Amartya, Fitoussi, Jean-Paul published by New Press, The (2010)[/amazon_image]

There is a great deal of interest in the question of economic measurement now. The additional challenge to the existing statistics from the digital sector has helped with policy traction – although it does mean the GDP question is seen largely through the prism of whether mismeasurement ‘explains’ the productivity slowdown – as in this new paper by Byrne, Fernald and Reinsdorf, Does the US have a productivity slowdown or a measurement problem? These are not mutually exclusive in the way the title suggests. There’s an embarrassment of possible causes of the productivity slowdown, ranging from demographic trends to under-investment related to the crisis, and it isn’t sensible to consider that measurement issues predominate.

More interesting than how much of current measured productivity growth is due to mismeasurement is the deeper question of whether the national accounts definitions remain the best way to conceptualise a largely service-based, increasingly intangible, increasingly customized and globalized economy, while failing to measure systematically non-market activities when the production boundary is blurring, and ignoring entirely the depletion of capital in the form of infrastructure or natural capital. (That’s a rhetorical question.) The Bean Review essentially poses the same question and indicates firmly that the UK and the ONS should take the lead in the debate. I’m a stats geek of sorts, but to me that seems very exciting. As Mario Pisani of the Review team tweeted: