In This Review
The Misunderstood Economy: What Counts and How to Count It

The Misunderstood Economy: What Counts and How to Count It

By Robert Eisner

Harvard Business School Press, 1994, 213 pp.

Eisner has written a primer on several significant areas of recent macroeconomic debate in the United States, notably public sector deficits, the alleged inadequacy of reserves of the Social Security system and the shortfall in private savings, along with other issues. He argues persuasively that public concern over these issues has been misguided because of a failure to understand the precise meaning of widely used statistics (e.g., GNP). By applying two concepts from economics, opportunity cost and aggregation (or its opposite, the fallacy of composition), Eisner argues that the American economy is much stronger than portrayed and that debates on lesser issues have drawn attention away from the primary ones, such as how to employ Americans productively and how to assure the future through both tangible and intangible investments.

Chapter 4 will be of special interest to readers of Foreign Affairs. There Eisner argues that, relative to other countries, the United States has not been performing so badly, that U.S. net indebtedness to the rest of the world has been greatly exaggerated, that foreign trade generally enhances U.S. welfare even when it involves the loss of particular jobs (he maintains that they are offset by the creation of other jobs, a task for overall fiscal and monetary policy), and that powerful corrective mechanisms are available should the U.S. trade deficit become a serious problem.