When measuring the economy, numbers are no longer good enough

Many of the yardsticks we use to assess economic performance today are outdated relics of the past, which is why GDP is a useless barometer for Britain

Our world has changed, but the way we measure it hasn’t (Getty)

A quick Google search indicates that the origin of the phrase “what gets measured gets done” is unclear. Nonetheless, there’s plenty of evidence suggesting that there’s truth in it. It’s why we’re obsessed with setting measurable professional goals for ourselves, why corporations issue public targets and growth forecasts, and it’s one of the central reasons why gender pay gap reporting legislation was introduced in the UK back in 2017, forcing every company employing at least 250 people to divulge the difference in average male salary and average female salary. Statistics create accountability and – ideally – help us build a realistic roadmap for progress success.

Especially in the world of politics, measurable metrics – GDP growth and unemployment, for example – have through the ages become important campaigning tools and scorecards both for those striving for power and for those seeking to cement it. Look no further than Donald Trump’s repeated claims of presiding over the “best economy in history”.

Even brushing aside the question of accuracy or arguments you might make about his predecessor’s role in fuelling this momentum, there’s a much more fundamental reason why the 45th president of the United States’ claims should be treated with a pinch (truckload?) of salt. Many of the yardsticks we use to assess economic performance today are outdated relics of the past that paint an unrealistic picture of the present. Our world has changed, but the way we measure it hasn’t. That’s leading to a false understanding of what we’re really up against.

Let’s start with gross domestic product, or GDP – perhaps the most popular barometer of the economic health of an individual country. In a nutshell, GDP encapsulates the output, income and spending of a nation. That’s all fine and well if your economy is built on – and therefore fuelled by – factories producing tangible things, but the 21st century looks different.

The UK economy, for one, is a services economy. The services industry accounts for around 80 per cent of revenues generated. The services sector provides roughly that proportion of jobs. But GDP doesn’t adequately account for the intangible assets linked to the services economy – insights, networks, brand value and intellectual property, to name just a few examples. The growing importance of technologies and networks adds another even more complex layer to the equation.

More widely, environmentalists have for many years criticised the fact that GDP treats the exploitation of the earth as something that creates economic value. Should it not be considered a cost? And what about physical and mental wellbeing? What about plain old happiness? Do we attribute no value to that?

Former US attorney general Robert Kennedy is widely quoted as having said of GDP that it counts cigarette advertising and jails but doesn’t take into account “the beauty of our poetry or the strength of our marriages”. I wonder what Trump would say about that.

Another popular gauge of economic health is the unemployment rate. In mid-July, the Office for National Statistics reported that in the three months to the end of May the UK jobless rate was steady at 3.8 per cent – its lowest level since the mid-1970s. In the US the picture is similar. But there’s a huge subset of society that is unseen by these numbers.

Washington DC-based think tank the Brookings Institution a few years ago published research showing that around 7 million American men aged between 25 and 54 are not working, not looking for work and not caring for children or elderly relatives. Most are too old to be in school and too young to have retired. The Institution found that the proportion amounts to 12 per cent of all men in those prime working ages, and doesn’t even count the 2 million who are looking for work, and therefore are registered as unemployed.

Too often, we measure things the way we’ve done in the past because revising our methodology would be arduous and time-intensive. What we’re not acknowledging is that by sticking to our old habits we’re generating information that simply doesn’t reflect reality. And that is perhaps the real waste of time.

So when Donald Trump, Boris Johnson or any other politician of your choice takes the podium to cheer a roaring economy and a historic low jobless rate, consider the limiting factors and probably not-so-hidden agenda. Numbers famously don’t lie but neither do they always tell the full truth.