The Commerce Department's most significant accomplishment of the century wasn't issuing millions of patents, running 10 national censuses or learning to track hurricanes, according to Secretary William Daley. It was learning how to keep track of what is happening in the American economy: the groundbreaking work that produced the number known as the gross domestic product, or GDP.
Daley touted the importance of this measure of the value of the goods and services produced in the country--more than $9 trillion at last count--at an awards ceremony yesterday. Federal Reserve Board Chairman Alan Greenspan, who is a well-known consumer of economic numbers, and Martin Baily, chairman of the president's Council of Economic Advisers, added their praise for the GDP.
The quarterly and annual changes in inflation-adjusted GDP are the standard measures of how fast the economy is growing. A department news release claimed the key economic measure "helped the country win World War II."
Without such statistics, Greenspan and Baily "could not do their jobs as well as they do," Daley said. "Without the big picture the GDP gives us, they would not have the information they need to figure out what's going on in our economy and take appropriate action."
Greenspan praised the department officials who compile the figures. "They treat it as a living document, recognizing that the economy is continuously changing," he said. He also noted there has never been a charge that the GDP number was ever influenced by political considerations.
Daley and Robert J. Shapiro, the department's undersecretary for economic affairs, described the origin of the national income and product accounts, which include the GDP. In the midst of the Great Depression, economist Simon Kuznets of Commerce's Division of Economic Research headed a project that produced the first accounting of what was going on in the entire economy.
It was a collaboration with the National Bureau of Economic Research and led to an NBER publication titled "National Income, 1929-1935." It must have made dismal reading given that the nation's unemployment rate soared to 25 percent in 1933, banks failed right and left, and the value of all types of assets plummeted during that period. The largest recorded drop in the GDP, 13 percent, was in 1932.
That first assessment of the national economy, which focused on income rather than production of goods and services, was expanded under the pressure of World War II production needs to aid in wartime planning. In 1942, the department produced the first annual estimate of the gross national product. A few years ago that became the gross domestic product so as to focus on production in this country. The GNP number, which includes income on U.S.-owned assets abroad, is still available.
Meanwhile, a Harvard University professor, Wassily Leontief, developed what he called input-output analysis, which greatly aided in developing the "national income and product" concept. Essentially what Leontief did was to begin measurement of the items each industry buys from and sells to every other industry.
Later both Kuznets and Leontief won the Nobel Prize in economics for their work.
Curiously, the Commerce officials said nothing yesterday about an even earlier effort by the department to obtain information about the economy's performance, an attempt that set the stage for the work of the 1930s and 1940s. That work was inspired by Herbert Hoover.
When he became commerce secretary in 1921, Hoover was appalled by the fact that virtually no national statistics were available. The Justice Department interpreted the Sherman Antitrust Act so strictly that they regarded any attempt to gather comprehensive information from individual firms about their production as an illegal act. Trade associations, for instance, were not allowed to pull together figures for their members.
Early in his tenure, Hoover convened a conference to try to find a way to thwart his Harding administration colleagues at Justice. One result was a working group to continue the effort to obtain more data. It was the precursor of the National Bureau of Economic Research, which helped Kuznets a decade later. Today, as a result of its research on business cycles, it is by consensus the arbiter of when recessions begin and end.
In his comments yesterday, Shapiro quoted from the textbook "Economics," jointly written by Nobel laureate Paul Samuelson and William Nordhaus of Yale University:
"GDP and the rest of the national income accounts . . . are truly among the great inventions of the 20th century. . . . Without measures of economic aggregates like GDP, policymakers would be adrift in a sea of unorganized data. The GDP and related data are like the beacons that help policymakers steer the economy toward the key economic objectives."