Gross Domestic Product
12
April 2010
GDP and Beyond
Measuring Economic Progress and Sustainability
By J. Steven Landefeld, Brent R. Moulton, Joel D. Platt, and Shaunda M. Villones
T
HE United States provides some of the most highly developed sets of gross domestic product (GDP) accounts in the world. These accounts—which are collectively known as the national income and product accounts (NIPAs) or national accounts—have been regularly updated over the years and have well served researchers, the business community, and poli cymakers alike. However, since their inception in the 1930s, the economy has continuously evolved, and is sues have been raised about the scope and structure of the national accounts (Bureau of Foreign and Domes tic Commerce and National Bureau of Economic Re search 1934). Simon Kuznets (1941), one of the early architects of the accounts, recognized the limitations of focusing on market activities and excluding household production and a broad range of other nonmarket ac tivities and assets that have productive value or yield satisfaction. Further, the need to better understand the sources of economic growth in the postwar era led to the development (much of it by academic researchers) of various supplemental series, such as the contribu tions of investments in human capital and natural re sources to economic growth. More recently, concerns have been raised about the adequacy of the national accounts in capturing the dif ferential impact of the current recession across house holds, industries, and regions of the country. Concerns have also been raised about the failure of the national accounts to highlight and provide adequate warning about the imbalances that developed in housing and fi nancial markets. This article explores each of these issues and relates them to the need for expanded or supplementary mea sures for the national accounts, highlighting what such estimates might reveal relative to the conventional sta tistics presented by GDP
April 2010
GDP and Beyond
Measuring Economic Progress and Sustainability
By J. Steven Landefeld, Brent R. Moulton, Joel D. Platt, and Shaunda M. Villones
T
HE United States provides some of the most highly developed sets of gross domestic product (GDP) accounts in the world. These accounts—which are collectively known as the national income and product accounts (NIPAs) or national accounts—have been regularly updated over the years and have well served researchers, the business community, and poli cymakers alike. However, since their inception in the 1930s, the economy has continuously evolved, and is sues have been raised about the scope and structure of the national accounts (Bureau of Foreign and Domes tic Commerce and National Bureau of Economic Re search 1934). Simon Kuznets (1941), one of the early architects of the accounts, recognized the limitations of focusing on market activities and excluding household production and a broad range of other nonmarket ac tivities and assets that have productive value or yield satisfaction. Further, the need to better understand the sources of economic growth in the postwar era led to the development (much of it by academic researchers) of various supplemental series, such as the contribu tions of investments in human capital and natural re sources to economic growth. More recently, concerns have been raised about the adequacy of the national accounts in capturing the dif ferential impact of the current recession across house holds, industries, and regions of the country. Concerns have also been raised about the failure of the national accounts to highlight and provide adequate warning about the imbalances that developed in housing and fi nancial markets. This article explores each of these issues and relates them to the need for expanded or supplementary mea sures for the national accounts, highlighting what such estimates might reveal relative to the conventional sta tistics presented by GDP
References: Abraham, Katherine G., and Christopher Mackie, eds. 2005. Beyond the Market: Designing Nonmarket Ac counts for the United States. Washington DC: National Academy Press. Aizcorbe, Ana M., Bonnie A. Retus, and Shelly Smith. 2008. “Toward a Health Care Satellite Account.” SURVEY OF CURRENT BUSINESS 88 (May): 24–30. Aten, Bettina H. 2006. “Interarea Price Levels: An Experimental Methodology.” Monthly Labor Review 126 (September): 47–61. Aten, Bettina H., and Roger J. D’Souza. 2008. “Re gional Price Parities: Comparing Price Level Differ ences Across Geographic Areas.” SURVEY OF CURRENT BUSINESS 88 (November): 64–69. Blank, Rebecca M., and Mark H. Greenburg. 2008. Improving the Measurement of Poverty. Discussion pa per 2008–17. Washington, DC: The Hamilton Project, The Brookings Institution (December); www.brook ings.edu/papers/2008. Bureau of Foreign and Domestic Commerce and National Bureau of Economic Research. 1934. National Income, 1929–32. Report to Congress. Washington, DC: U.S. Government Printing Office. Census Bureau. 1989. A Marketer’s Guide to Discre tionary Income. Washington, DC: U.S. Government Printing Office. Citro, Constance F., and Robert T. Michael, eds. 1995. Measuring Poverty: A New Approach. Washing ton, DC: National Academies Press. Coy, Peter. 2009. “What Good Are Economists Anyway?” BusinessWeek (April 27); www.business week.com. Fang, Bingsong, Xiaoli Han, Sumiye Okubo, and Ann M. Lawson. 2000. “U.S. Transportation Satellite Accounts for 1996.” SURVEY OF CURRENT BUSINESS 80 (May): 14–23. Franco, Lynn. 2007. The Marketer’s Guide to Discre tionary Income. New York: The Conference Board Re search Center. Jorgenson, Dale W., J. Steven Landefeld, and Will iam D. Nordhaus, eds. 2006. A New Architecture for the U.S. National Accounts. Chicago: University of Chicago Press. Krueger, Alan B., Daniel Kahneman, David Sch kade, Norbert Schwarz, and Arthur A. Stone. 2009. “National Time Accounting: The Currency of Life.” In Measuring the Subjective Well-Being of Nations: Na tional Accounts of Time Use and Well-Being, ed. Alan B. Krueger, 113–123. Chicago: University of Chicago Press for NBER. Kuznets, Simon. 1941. National Income and Its Composition, 1919–1938. New York: NBER. April 2010 SURVEY OF CURRENT BUSINESS 25 Kuznets, Simon, assisted by Elizabeth Jenks. 1953. Shares of Upper Income Groups in Income and Savings. New York: NBER. Landefeld, J. Steven, and Carol S. Carson. 1994a. “Accounting for Mineral Resources: Issues and BEA’s Initial Estimates.” SURVEY OF CURRENT BUSINESS 74 (April): 50–72. Landefeld, J. Steven, and Carol S. Carson. 1994b. “Integrated Economic and Environmental Satellite Accounts,” SURVEY OF CURRENT BUSINESS 74 (April): 33–49. Landefeld, J. Steven, and Stephanie H. McCulla. 2000. “Accounting for Nonmarket Household Produc tion Within a National Accounts Framework.” Review of Income and Wealth 46, no. 3 (September): 289–307. Landefeld, J. Steven, and Shaunda Villones. 2009. “National Time Accounting and National Economic Accounting.” In Measuring the Subjective Well-Being of Nations: National Accounts of Time Use and Well-Being, ed. Alan B. Krueger, 113–123. Chicago: University of Chicago Press for NBER. Landefeld, J. Steven, Barbara M. Fraumeni, and Cindy M. Vojetch. 2009. “Accounting for Household Production: A Prototype Satellite Account Using the American Time Use Survey.” Review of Income and Wealth 52, no. 2 (June): 205–255. Lowe, Jeffrey H. 2009. “An Ownership-Based Framework of the U.S. Current Account, 1998–2007.” SURVEY OF CURRENT BUSINESS 89 (January): 62–64. Nordhaus, William D., and Edward C. Kokkelen berg, eds. 1999. Nature’s Numbers: Expanding the Na tional Economic Accounts to Include the Environment. Washington, DC: National Academy Press. Nordhaus, William D., and James Tobin. 1973. “Is Growth Obsolete?” In The Measurement of Economic and Social Performance, ed. Milton Moss, 509–534. New York: Columbia University Press. Office of Business Economics, U.S. Department of Commerce. 1953. “Income Distribution in the United States by Size, 1944–1950.” SURVEY OF CURRENT BUSINESS 33 (supplement). Okubo, Sumiye, Carol A. Robbins, Carol E. Moylan, Brian K. Sliker, Laura I. Shultz, and Lisa S. Mataloni. 2006. “BEA’s 2006 Research and Development Satellite Account.” SURVEY OF CURRENT BUSINESS 86 (December): 14–27. Palumbo, Michael G., and Jonathan A. Parker. 2009. “The Integrated Financial and Real System of National Accounts for the United States: Does It Presage the Fi nancial Crisis?” American Economic Review 99 (Febru ary): 80–86. Piketty, Thomas, and Emmanuel Saez. 2007. “In come and Wage Inequality in the United States, 1913–2002.” In Top Incomes Over the Twentieth Cen tury: A Contrast Between European and English-Speak ing Countries, eds. Anthony B. Atkinson and Thomas Piketty, 141–226. Oxford: Oxford University Press. Ta bles and figures updated to 2007 at elsa.berkeley.edu/ ~saez. Refining Progress. 2007. Genuine Progress Indica tor; www.rprogress.org. Stiglitz, Joseph E. 2009. “GDP Fetishism.” The Econ omists’ Voice (September); www.bepress.com. Stiglitz, Joseph E., Amartya Sen, and Jean-Paul Fi toussi. 2009. Report by the Commission on the Measure ment of Economic Performance and Social Progress; www.stiglitz-sen-fitoussi.fr/en/index.htm. United Nations, Commission of the European Communities, International Monetary Fund, Organi sation for Economic Co-operation and Development, and World Bank. 1993. System of National Accounts, 1993. New York: United Nations. “What Went Wrong With Economics.” 2009. The Economist. (July 16). The World Bank. 2009. World Development Indica tors, 2009. Washington, DC: The World Bank.