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The Regrets of Simon Kuznets

Simon Kuznets wasn’t a bad guy. Kuznets was a brilliant guy who overlooked the potential ramifications of his grand economic tool if it were in the hands of those who’d mishandle it. When his invention was used without the supplemental measures he recommended and began to cause public suffering, I imagine he feared to suffer a similar, if less severe fate as J. Robert Oppenheimer. The devastation of nuclear weapons is obvious. The devastation ultimately possible as a result of slavish devotion to the GNP Kuznets created may not be as obvious at the moment, but could well be, in the future. In any case, Kuznets later came to protest improper use of his own invention.

Kuznets was a renowned economist commissioned by the US Congress to devise a way to measure America’s national income. This was in the mid-1930s during the Great Depression (Raworth 2017) and Kuznets stepped in to create a tool that would help. He invented a calculation called the Gross National Product, or GNP, and it provided great assistance at the time. It enabled leaders to put a dollar value of America’s national income and product output and compare these with other years.

President Roosevelt used it to monitor the US economy during the Great Depression so that his New Deal policies would be most effective. While preparing for the Second World War, its data was essential to helping the country shift from an industrial economy to a military one, while sustaining enough growth on the home front to keep overall output moving forward. By the end of the 1950’s the overriding policy objective in industrial countries had become output growth. The US and Soviet Union even competed to prove whose economic ideology — the free market versus central planning — could produce more objects for sales and consumption. Growth became the cure for problems in areas from national security to poverty. Conveniently, it allowed politicians to avoid the idea of redistribution of wealth.

President Franklin Delano Roosevelt,

Archival Photo from Alamy (F14H8W Charles Phelps Cushing)

Toward the end of the 20th century the GNP was renamed the GDP (Gross Domestic Product), which differed only in that it ceased to include income generated worldwide by US citizens and focused on profits within national borders (Raworth 2017). Insistence on output growth managed to grow even faster than manufacturing facilities could churn out products for sale.

Simon Kuznets had nothing to do with how the GDP ended up being used. He just invented it in the first place. Unlike the Keurig inventor, Kuznets actually knew the limitations of what he’d created and made recommendations to avoid future problems. It wasn’t designed to indicate how consumption or income were distributed between households. It needed a complementing tool that measured stocks as well as flows so income generation wouldn’t be the only source of data regarding the health of the national economy.

The GDP reached the height of its popularity in the 1960s, by which point Simon Kuznets had become one of its most outspoken opponents. He had warned from the very beginning that “the welfare of a nation can scarcely be inferred from a measure of national income.” In spite of his protestational efforts, economists and politicians quietly dismissed his warnings and went on with business as usual. The GDP is the foundation for consumer culture today. It’s a sad end for the tale of poor Simon Kuznets, but that’s what happened.

Simon Kuznets, Archival photo from Alamy (P4HJ79)

Raworth, K. (2017). Doughnut economics : Seven Ways to Think Like a 21st Century Economist. Chelsea Green Publishing.

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