Table Of Content7
1
0
2
e
n
u
J
4
1
1
5
:
0
1
t
a
]
o
g
e
i
D
n
a
S
,
a
i
n
r
o
f
i
l
a
C
f
o
y
t
i
s
r
e
v
i
n
U
[
y
b
d
e
d
a
o
l
n
w
o
D
The Financialization of GDP
7
1
0
2
e
n Gross domestic product (GDP) and other statistics based on national
u
J income accounting are ubiquitous but rarely understood today. GDP has
4
1 been criticized for many reasons, including not reflecting well- being, leaving
1
5 out the costs of environmental pollution, and not counting unpaid work,
:
0 but on purely economic terms it has been mostly accepted as an indicator of
1
t economic performance. In recent decades, however, GDP has diverged dra-
a
] matically from economic trends such as employment and median income.
o
g
e This book argues that GDP is flawed even as a narrow economic indicator,
i
D
and traces the problem to the way financial services are measured.
n
a The first part of the book is a political history of the practice of
S
national accounting from its beginning in the mid-s eventeenth century to
,
a
i the present day, and explores how such income estimates were constructed
n
r
o for political reasons. The Financialization of GDP presents the practice
f
i
l of estimating national income as a historically and political contingent
a
C
craft – driven by power and not only theory – culminating in the rise of
f
o
the financial sector and the concomitant inclusion of financial services
y
t in GDP in 1993. The second part of the book focuses on the treatment
i
s
er of financial services in national accounting and develops an adjusted
v
i measure of output (final gross domestic product, or FGDP), which treats
n
U
financial revenues as intermediate inputs (or costs) to the economy as a
[
y whole. The final part of the book explores the empirical and policy impli-
b
d cations of treating finance as an overall cost to the economy.
e
d This volume shows that the Great Moderation of volatility was a sta-
a
o tistical artefact; Okun’s Law (relating changes in output and unemploy-
l
n
w ment) never died, and even provides early signs for the Great Recession
o
D that analysts using standard GDP did not see. This book is of great
interest to those who study political economy and macroeconomics.
Jacob Assa is Economic Affairs Officer at the United Nations, New York.
Born and raised in Israel, Jacob attended Hunter College in New York, and
has been working at the United Nations since 1999. He received his mas-
ter’s and PhD degrees in economics at the New School for Social Research.
Routledge Advances in Heterodox Economics
Edited by Mark Setterfield
Trinity College, USA
and
Peter Kriesler
7 University of New South Wales
1
0
2
e
n
u
J Over the past two decades, the intellectual agendas of heterodox economists have taken
4 a decidedly pluralist turn. Leading thinkers have begun to move beyond the established
1
paradigms of Austrian, feminist, Institutional-e volutionary, Marxian, Post Keynesian,
1
5 radical, social, and Sraffian economics – opening up new lines of analysis, criticism, and
:
0 dialogue among dissenting schools of thought. This cross- fertilization of ideas is creating
1
a new generation of scholarship in which novel combinations of heterodox ideas are being
t
a
brought to bear on important contemporary and historical problems.
]
o Routledge Advances in Heterodox Economics aims to promote this new scholarship by
g
e publishing innovative books in heterodox economic theory, policy, philosophy, intellec-
i
D tual history, institutional history, and pedagogy. Syntheses or critical engagement of two
n or more heterodox traditions are especially encouraged.
a
For a full list of titles in this series, please visit www.routledge.com/ series/ RAHE
S
,
a
i 25. Advancing the Frontiers of Heterodox Economics
n
r Essays in honor of Frederic S. Lee
o
f Edited by Tae- Hee Jo and Zdravka Todorova
i
l
a
C 26. Marx, Veblen, and the Foundations of Heterodox Economics
f Essays in Honor of John F. Henry
o
Edited by Tae- Hee Jo and Frederick S. Lee
y
t
i 27. The Problem of Production
s
er A new theory of the firm
v
Per L. Bylund
i
n
U 28. A New Economic Theory of Public Support for the Arts
[
Evolution, Veblen and the predatory arts
y
b Arnaldo Barone
d
e 29. Varieties of Economic Inequality
d
a Edited by Sebastiano Fadda and Pasquale Tridico
o
l 30. Reclaiming Pluralism in Economics
n
w Edited by Jerry Courvisanos, Jamie Doughney and Alex Millmow
o
D 31. Policy Implications of Evolutionary and Institutional Economics
Edited by Claudius Gräbner, Torsten Heinrich and Henning Schwardt
32. The Financialization of GDP
Implications for economic theory and policy
Jacob Assa
The Financialization of GDP
Implications for economic
theory and policy
7
1
0
2
e
n
u Jacob Assa
J
4
1
1
5
:
0
1
t
a
]
o
g
e
i
D
n
a
S
,
a
i
n
r
o
f
i
l
a
C
f
o
y
t
i
s
r
e
v
i
n
U
[
y
b
d
e
d
a
o
l
n
w
o
D
First published 2017
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
7
1
© 2017 Jacob Assa
0
2
The right of Jacob Assa to be identified as author of this work has been asserted
e
n by him in accordance with sections 77 and 78 of the Copyright, Designs and
u
Patents Act 1988.
J
4
All rights reserved. No part of this book may be reprinted or reproduced or
1
utilised in any form or by any electronic, mechanical, or other means, now
1
5 known or hereafter invented, including photocopying and recording, or in
:
0 any information storage or retrieval system, without permission in writing
1 from the publishers.
t
a
The views expressed herein are those of the author and do not necessarily reflect
]
o the view of the United Nations.
g
e Trademark notice: Product or corporate names may be trademarks or registered
i
D trademarks, and are used only for identification and explanation without
n intent to infringe.
a
S British Library Cataloguing in Publication Data
a, A catalogue record for this book is available from the British Library
i
n
Library of Congress Cataloguing in Publication Data
r
o A catalog record has been requested for this book
f
i
al ISBN: 978- 1- 138- 99983- 1 (hbk)
C ISBN: 978- 1- 315- 65805- 6 (ebk)
f
o Typeset in Times New Roman
y by Out of House Publishing
t
i
s
r
e
v
i
n
U
[
y
b
d
e
d
a
o
l
n
w
o
D
7
1
0
2
e
n
u
J
4
1
1
5 To Shana
:
0
1
t
a
]
o
g
e
i
D
n
a
S
,
a
i
n
r
o
f
i
l
a
C
f
o
y
t
i
s
r
e
v
i
n
U
[
y
b
d
e
d
a
o
l
n
w
o
D
7
1
0
2
e
n
u
J
4
1
1
5
:
0
1
t
a
]
o
g
e
i
D
n
a
S
,
a
i
n This page intentionally left blank
r
o
f
i
l
a
C
f
o
y
t
i
s
r
e
v
i
n
U
[
y
b
d
e
d
a
o
l
n
w
o
D
Contents
7
1
0
2
e
n
u
J
4
1
1
5 List of figures viii
:
0 List of tables x
1
at Foreword xii
o] Preface xv
g Acknowledgments xvii
e
i
D
n
a Introduction: the economic problem with GDP 1
S
,
a
i
n 1 The ubiquity, importance, and uniqueness of
r
o
national accounting 6
f
i
l
a
C
2 National accounting as a historically and politically
f
o
y contingent art 11
t
i
s
r
e 3 Policy- based evidence: a political history of national accounts 21
v
i
n
U
4 The financialization of GDP 40
[
y
b
d 5 GDP on FIRE: financialization, stagnation, and
e
d
leakages from aggregate demand 71
a
o
l
n
w 6 The distributional impacts of FGDP 95
o
D
7 Conclusion 105
References 108
Index 113
Figures
7
1
0
2
e
n
u
J
4
1
1
5 2.1 Three sub- literatures on national accounting,
:
0
1 their gap, and the proposed contribution to the literature 11
at 4.1 Percentage shares of total value added and total
]
o employment for various industries in the United
g
e States, 1987– 2009 48
i
D
4.2 A schematic comparison of FGDP, GDP, and GO 55
n
a 4.3 Levels of GDP, non- financial GDP, narrow-
S
, measured GDP, and usable GDP, in billions
a
i
n of 1985 dollars 58
r
o
4.4A Reconciliation of the three approaches to GDP 69
f
i
al 5.1 Quarterly growth rates of GDP vs. FGDP with
C
f NBER recessions shaded 74
o
5.2 Growth rates of GDP vs. FGDP, three- quarter
y
t
si moving average with NBER recessions shaded 74
r
e 5.3 Indices of GDP and FGDP, 1987 = 100 with
v
ni NBER recessions shaded 77
U
5.4 Forecasts of employment based on ARMAX,
[
y
using quarterly observations, 1987– 1994 80
b
d 5.5 Forecasts of employment based on ARMAX,
e
d
using annual observations, 1970– 1994 83
a
o
l 5.6 Indices of GDP, non- financial GDP, narrow-
n
w measured GDP, final GDP, and employment,
o
D 1987– 2011 86
5.7 Indices of GDP, non- financial GDP, narrow-
measured GDP, usable GDP, and employment,
1970– 2009 87
5.8 Changes in GDP, FGDP, and employment
1987– 2011 88
Figures ix
5.9 Indices of quarterly velocity of money (M1)
calculated using GDP and FGDP 91
5.10 Indices of quarterly velocity of money (M2)
calculated using GDP and FGDP 92
5.11 Indices of quarterly velocity of money (MZM)
calculated using GDP and FGDP 93
7
1 6.1 Distribution of GDP by expenditure, % of total 95
0
2 6.2 Distribution of FGDP by expenditure, % of total 96
e
n 6.3 Distribution of GDP by income, % of total 98
u
J 6.4 Distribution of FGDP by income, % of total 98
4
1 6.5 A comparison of the wage and profit shares of
1
5 GDP and FGDP 99
:
0
6.6 Proportion of the wage share to the profit share
1
t using GDP and FGDP 101
a
o] 6.7 Ratios of wage share to the profit share using GDP
g
e and FGDP, and household debt service payments 101
i
D
6.8 Indices of per capita GDP, per capita FGDP, and
n
a median household income, 1987– 2010 103
S
,
a
i
n
r
o
f
i
l
a
C
f
o
y
t
i
s
r
e
v
i
n
U
[
y
b
d
e
d
a
o
l
n
w
o
D
