The post Science Envy/ in 'Stumbling and Mumbling' led via Brian Appleyard to 'United States Senate Committee on Commerce, Science and Transportation' hearings on
Rethinking the Gross Domestic Product as a Measurement of National Strength in March, 2008. It has interesting testimonies, particularly by Robert Frank and Jonathan Rowe.
Rowe's GDP Testimony describes the origins of the concept of GDP and some of the later developments in US. Here are some excerpts:
"“The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.”
That’s what the man who invented the GDP – its predecessor, more precisely – told Congress regarding the use of his invention. Yet Congress has done exactly what Kuznets urged it not to do. Congress and everybody else.
How exactly that came about is another long story. It began with the gradual seep of the new accounts into the political arena. In his 1936 re-election campaign, Franklin Roosevelt noted that the economy – as defined by the national accounts – had increased under his watch. It was a number: who could resist?
Then came World War II, when the national accounts played a central role in the
mobilization effort. A bitter debate erupted in Washington over the nation’s
production goals. Corporate leaders insisted that the mobilization must come out of the existing level of production They didn’t want to be stuck with excess capacity when the war was over. Kuznets and others argued to the contrary that the U.S. had vast troves of untapped capacity; and they used the national accounts to prove it.
FDR sided with the “all-outers” as this group was called. They appealed to his belief in the energizing effects of challenges; Roosevelt took their high estimates
and made them even higher, the better to make his point. (The planners then had to shift gears argue the case for system limits, which the national accounts also helped them do.) Then the accounts helped to coordinate the war production so as to prevent bottlenecks and snafus. By 1944 war production alone had surpassed the nation’s entire output just ten years before.
It was as close as the nation ever has come to pure economic planning; and much reviled, it helped to win the war. Post-war surveys revealed that Germany had no such planning tool, and Hitler’s production program had been greatly hindered as a result. America had become the “arsenal of democracy” in part through a top-down approach made possible by the national accounts. A paper published by the Russell Sage Foundation called the use of these “one of the great technical triumphs in the history of the economics discipline.”
This was heady stuff, and it was just a start. As the war was winding down, the
accounts served again to guide the shift back to a peacetime basis without relapse into the dreaded Depression. Consumption was the key; the Cold War, with its Pentagon spending, was not yet in prospect. As war production diminished, shoppers would have to pick up the slack. The national accounts showed exactly how it could be done. As John Kenneth Galbraith put it in a series of articles for Fortune Magazine, “One good reason for expecting prosperity after the war is the fact that we can lay down its specifications.”
The new Keynesian economists such as Galbraith were now the Merlins of prosperity, and the national accounts were their magic wand. Consumption itself was taking on a heroic stature; the returning troops were handing off the mantle of national purpose to the shoppers who would replace them in keeping the industrial machinery in motion. (The heroic imagery persists in media accounts today, as when we read that consumers will provide the “engine” for recovery, or that they will “pull” the nation out of its recession.)"
Another discussion comparing GDP and GNP/I in Dissent.