While prepping for yesterday’s Principles of Macroeconomics discussion of GDP, I listened again to Diane Coyle’s EconTalk episode in which she and Russ Roberts discussed the history and development of GDP. Toward the end, they discuss a philosophical question: is it “hubris” to think we can measure and control an economic system?

I tell students that GDP is imperfect, but that imperfect isn’t the same thing as useless or misleading. There’s a lot that GDP leaves out and a lot it likely measures incorrectly, but it’s sufficiently highly correlated with the things we’d really like to measure that it’s quite literally good enough for government work.

Russ asked an interesting question at about the 42 minute mark: should we really be collecting and publishing GDP data (he notes that this is a heretical view among economists)? From an Austrian perspective, are we indulging what Hayek called “The Fatal Conceit” by trying to measure and control the aggregate economy? Does it “lead to a false sense of control”?

I think there are two ways to look at this. First, there’s a radical change that Deirdre McCloskey emphasizes in her “Bourgeois Era” series. The idea that a society is a project for improvement is one of modernity’s major contributions. Schumpeter pointed out that the “capitalist achievement” is not more silk stockings for the Queen of England but more and more stockings for progressively lower levels of effort for factory girls. The achievement of the capitalist era is that we actually care about the factory girls rather than the Queen of England. Hence, the idea of trying to measure national income for something other than our ability to tax and fight wars is pretty marvelous.

Second, there is Russ’s provocative invocation of the Austrian approach. By collecting and reporting statistics on aggregate economic activity, are we implicitly endorsing the idea that societies can and should be measured and controlled? In the absence of data on things like GDP, how would we make the kinds of comparisons economists and policymakers want to make? How would we make public policy?