The Trap.

• Author: Ikle, Fred C.

Sir James Goldsmith wastes no words to get to the heart of the matter. "I do not accept," he declares on the first page of The Trap, "that economic growth is the principle measure of the success of nations." At first blush, this may sound banal. Who in his right mind would accept economic growth as the principle measure of the success of nations? But upon a moment's reflection, we realize that nowadays nearly everyone does so, and without hesitation.

Worse yet, the most widely used yardstick to measure a nation's economic growth and hence its "success" -- the Gross National Product -- is deeply flawed. As James Goldsmith reminds us, GNP accounts only for activities that give rise to monetary transactions, hence a shift of activities from the informal economy into the monetized, official economy will register as economic growth. For example, when a farmer stops growing a variety of crops to feed his family and shifts to a single crop to be sold on the marketplace, he might produce and receive less value; yet, the GNP is inevitably increased. Moreover, GNP measures activity, not well-being. "If the crime rate increases," notes Goldsmith, "GNP grows as more police join the force and prisons are built."

"Old hat!" any self-respecting member of the economics profession will respond: these details about the GNP are taught in sophomore economics. What sophomores are likely to be taught, however, is merely that GNP, like most economic measures, has some inaccuracies. (Paul Samuelson's perennial textbook, Economics, treats the exclusion of non-monetarized production from the GNP in a brief aside, as one of those inevitable inaccuracies of economic data.) Even though GNP can be totally misleading (not just a trifle inaccurate) as a means of gauging a nation's growth in wealth and well-being, it is being used to this end by politicians, foreign aid officials, journalists, editors, investment managers, indeed by nearly everyone.

James Goldsmith's warning against excessive reliance on GNP estimates blends well into his gravamen against today's conventional wisdom on economic policy -- his charge against GATT that made The Trap a bestseller in France and England. The arguments on behalf of free trade have a venerable ancestry that traces to David Hume, Adam Smith, and David Ricardo. The division of labor, in Adam Smith's words, increases "opulence," though "the power of exchanging that gives occasion to the division of labor" is limited by "the extent of...