Beruflich Dokumente
Kultur Dokumente
Editors
Francis Quinn
Index
Francesco de Leo
Joachim Faber
Julia Taeschner
Terence Tse
2015
Chapter 8
If we look back at ancient Egypt, Kisch makes us notice that life after death
was measured by the opulence obtained during terrestrial life and the size and
heights of monuments and pyramids; signs of eternal presence beyond time.
An obscure world blended with mythology, theology and the unknown is an
attempt by a civilization to tame time, beyond worldly life.
Every time we look back at history, regardless of our own lens of interpretation,
there is more than just stories of winners and losers and there is more to
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Measurements have been part of our journey since its very inception and,
as societies became more complex, they have also aspired to more complex
instruments of measurement: for example, spatial measurements, which
involved the establishment of common civic behavior (measurement of weight,
length, size, width, distance etc.) led to measurements of an aggregate
the owner of the property, all the way to commerce treaties, rules, and tariffs,
which have populated the literature on trade for the last couple of centuries.
Constructivism and positivism, winning champions of social sciences through
case if we think of the tension between the English metric systems, which can
be considered the inception of a shared common language.
Every time we check the distance to the next exit on the freeway, we are using
a unit of measure that dates back many centuries. It is the pride of human
civilizations. What civilizations have achieved over time is a cunning ability
Cupchik, Gerald, Constructivist Realism: An Ontology That Encompasses Positivist and Constructivist
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The years that changed the modern world
We could wander around this topic in so many different directions, but, as
writing allows us to take some literary permission, for the sake of the argument
in this chapter, we decided to move our attention to the years that characterized
an important phase of our modern history, at least from the perspective of
the Western cultural heritage. While common spatial and temporal systems
were becoming the societal norm, it is within the foundations of economic
thought that some of these insights became even clearer in their application
and moved the idea of measurement to its next phase.
Looking at the years between 1920 and 1930 in the United States, we are
(the world’s oldest stock exchange was introduced by the Dutch in the 1400)
were being replaced by institutionalized organs (stock markets), where several
possible investors could chip into the life of a socio-economic community
through publicly listed companies.65 It is the beginning of that institutional
These are the years where a new consciousness on consumption was being
crafted and when the foundations of the classic economic thinking, (income,
production, import, export, debt, government, etc.) started to muscle into
everyday life, providing Americans with the possibilities of participating in a
new project, bringing the hard labor of the working class under the auspices of
better lives, better conditions, better access. It is the beginning of capitalism,
as we know it, catalyzed by a middle class that became the driving force of
the economy.
But let’s contextualize those years to better understand the underpinnings that
led to the following events. In 1929, America was trying to recover from the
international arena was also pressing. The U.S. was still a relatively modest
economy with an increasing manufacturing capacity and a growing working
class, but most of its population was still concentrated outside of the big cities.
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Grounded around the node of the family, society was slowly converging into a
new socio-economic paradigm: urbanization (Davis, 2004).66
Many workers were busy with jobs at the local factories and progress also
brings a new set of expectations, which is well impersonated by the language
of economics (perception of affordability, dormant demand, supply of new
products, the rise of sales and marketing, etc.). American families were
hopeful about the future and as such they spent some of their disposable
income on some of those products, or , which were gaining
traction among consumers, allowing for the supply chain to emancipate from
simple to more sophisticated items, given the increased demand for new
products. Electric appliances and automobiles were the big drivers of the
economy in those days, supporting a myriad of companies that were busy with
the manufacturing of those products, and an uncontested sense of euphoria
surrounded the commercial transactions in those times.
During the latter half of the 1920s, steel production, building construction, retail
turnover, number of automobiles registered, even railway receipts advanced
months of 1928.67 This clearly set an unprecedented record. Iron and steel
money to buy more stocks. By August 1929, brokers were routinely lending
small investors more than two-thirds of the face value of the stocks they were
buying. An estimate of the time talks about lending over $8.5 billion, more than
the entire amount of currency circulating in the U.S. at the time.69
The rising share prices encouraged more people to invest; people hoped the
share prices would never drop. Speculation thus fueled further stock market
increases and created an economic bubble.68
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1961.
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Figure 14: The Dow Jones Industrial Average, 1928–1930
forever change the economic geography of the country. This, among many
other factors, was one of the aggravating causes of pressure and stress on
Towards the end of the last quarter of 1929, other important economic
barometers were also slowing, or even falling, including car sales, house
sales, and steel production. The falling commodity prices and slowing
stock market plummeted. Galbraith points out that by the end of September,
the market was down 10% from the peak (the “Babson Break”).
on October 24th and 28th and culminated on the 29th (“Black Tuesday”). It
was the beginning of America’s 10-year Great Depression, which would reach
the global scene shortly thereafter.
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GDP as a response to the Great Depression
At the time of the 1929 collapse, we could not necessarily talk about a global
economy. Such a concept was not necessarily part of the common imagination
or the political discourse. There were countries and diplomacy and we had a
sense of an international community, but countries were still the main unit of
measure for everything. The crisis in the U.S. trickled down to other parts of
Europe, making it de facto
history has witnessed. This is also when our story begins.
completed the report in late 1933, which was subsequently published by the
U.S. Congress in 1934.
his warning
was completely overridden by subsequent
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events and the limited understanding of the new index. It was 1942 when
the Department of Commerce began using a methodology that differed
that the activities of the government are an intermediate service and should
Gross domestic product is the measurement of the total value of all goods and
services produced in an economy.
GDP = C + I + G + (X – M)
Gross:
Means that GDP measures production within a country
Exports and imports measure the country’s engagement in
foreign trade and activity.
So, in a nutshell, GDP is the sum of all the constituents of the formula, which
determine an aggregate measurement of the state of a country’s productivity.
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to produce future output. Government spending: Goods and services purchased by the government.
Exports: Income from selling goods and services abroad. Imports: Purchases of foreign goods and
services
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Zooming into this formula, problems within the GDP appear evident. The
gross domestic product can be measured regardless of the state of health of
a country. Since production is the element captured at the aggregate level,
whether this production is occurring as an offset to a public good cannot be
assessed. Expenditure does not necessarily come in color. It is an accounting
consideration at the very best. But this expenditure does not necessarily
reveal the qualitative or sustainability of the cost incurred. It just mentions its
manifestation, but not necessarily the impact.
then those decisions may be distorted and may lead to wrong solutions.
Choices between promoting GDP and allowing equal opportunity may come
across as part of a dichotomy but they do not need to once social inclusion
is appropriately included in the measurement of economic performance. As
a result, we may draw favorable conclusions regarding policies that support
economic growth, rather than policies on social inclusion, but by doing this
we are building an unnecessary confrontation between dimensions of our life,
which do not need to be the object of a trade-off.
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https://smartasset.com/insights/the-economics-of-the-american-prison-system
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recovered, as we can elicit from an article published by the New York Times.72
Do you see where the problem resides? GDP does what it was designed to do.
The statistical analysis behind GDP is correct in its computation. There are no
doubts about it. Whereas the measurement process is imperfect, if we need
to apply it to multiple lenses, searching for a kind of measurement, which
is relevant to qualify the experience of life, beyond established boundaries.
Its formula and its intent are not necessarily ill conceived, but simply put:
GDP does not measure those phenomena that are relevant to the social
advancement. It is a partial indicator, rather than an absolute one.
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regarded. After all, it is nothing more than a sum of indicators. But as asserted
earlier in this chapter, GDP per se does not pose a problem. We need to be
“historically savvy” and understand the unintended consequences that are
derived from this unit of measure. Let’s go in order.
describe the impact of an incremental system into our lives. If the success of
a country is related to the sum of few factors, then why should the success
of an individual not follow the same methodology? This is why we think the
devil hides in the details. As we have tried to quantify economic activity as a
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The consequence of this behavior is a societal disenfranchisement from norms
this basis and the results have become clear over the years.
The link between GDP and short term thinking is an inevitable co-relation and
There are several explanations to this; one of the most common is generally
stretched between two unconnected values: greed over natural resources
and satisfaction of the population needs. In fact, in many economic activities,
the natural resources and consequently threaten the durability of the activity
itself. And this comes at a price; the same type of price that a country would
be willing to pay to increase its GDP, even if the economic activities are not
While we do not argue for any intentionality behind this relationship, the
repercussions of a numerically driven macroeconomic methodology like GDP
recipe for development. This is a fact and we should recognize the enormous
contribution that an organized methodology like GDP has enacted upon what
used to be a disorganized attempt to progress. But the world has changed
and with the rise of the emerging economies, a new geography has been
outlined, now very different from the time Kuznets had thought of the Gross
Domestic Product. Our challenges today are unprecedented in many ways.
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Climate change and environmental disasters have reached historical peaks
just in the last few years. A bloody wave of international terrorism has
tightened our systems and destroyed our perception of safety, bringing a
whole new dimension of fear to our existence. The galloping inequality across
social fabrics has reached new unfortunate records and continues to provide
concerning instances of unbalance, when distance between social classes
our societies as fragmented and frugal in many ways. The 21st century world is
very distant from the 20th century world of 1929 and the degree of complexity
has risen exponentially.75
We must move beyond GDP and GDP per capita and make societal and
environmental dimensions integral to holistic evaluation of our progress. The
paradoxes of yesterday, when society and environment could not be captured
and computed by the GDP formula, must become constituents of a new
awareness of how economic activity prospers, if society and its environment
are to be nurtured.
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Stiglitz, Joseph, Amartya Sen and Jean-Paul Fitoussi. “The Measurement of Economic Performance:
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same political agenda, side by side as economic, social and environmental
concerns become constituents of a decent life for all.
There is more to share about this new Index and how it is structured, but that
will be for another work, another time
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