Making History: The Feds Adopt My Macro Model with New ‘GDP Plus’ Statistic
“Gross Output provides an important new perspective on the economy; and one that is closer to the way many businesses see themselves.”
— Steve Landefeld, director, Bureau of Economic Analysis, U.S. Department of Commerce
I’m getting great response to my Forbes.com article announcing a new supply-side “Austrian” macro statistic, Gross Output (GO), that the federal government will start releasing in spring 2014 at the same time it reports its quarterly gross domestic product (GDP) data.
A shortened version of the article will appear in the Dec. 16 issue of Forbes magazine (circulation almost 1 million).
I’ve been advocating this new national statistic since writing “The Structure of Production” (New York University Press), published in 1990. Now it’s finally happening. Steve Forbes calls it a “real breakthrough.” Steve Moore of the Wall Street Journal and Gene Epstein of Barron’s are looking into writing articles on GO. So is the Economist.
Bill Nordhaus (Sterling Professor of Economics, Yale University) wrote, “Congratulations on the article and the work. It has been a long slog to get the national accounts to introduce innovative measures, and Steve Landefeld has been a superstar in this respect… This will open up the potential for new insights into the behavior of the economy.”
GO goes a long way in providing the right balance in the production-consumption process that is missing in GDP data. As Steve Landefeld, the director of the Bureau of Economic Analysis (BEA), and co-editors Dale Jorgenson and Bill Nordhaus said: “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”
I think you’ll find the article’s chart comparing GO and GDP of interest, because you’ll see GO is consistently more volatile than GDP and a better measure of the business cycle.
The new Gross Output statistic is the missing part to the national accounts story. Adding GO to GDP and the other national accounting data, Gross Domestic Income (GDI) gives the full picture of the economy, just as it does in business.
Businesses must raise the capital expenditures necessary to pay for the supplies and factors of production (GO) to add value and produce the final product (GDP) and pay out income (GDI) in the form of wages/salaries/bonuses, rents, interest and profits for their efforts.
Now, the national accounts finally will be fully representing all three aspects of the economy — production, consumption and income — by releasing the data for all three every quarter. This is truly a remarkable and breakthrough feat and my life-long dream (since writing “Structure of Production” in 1990). It will be interesting to see how long it takes for economists and the media to pick up on it, and I am doing my best to promote it to my colleagues. I’ll be at the national economics meetings (such as the American Economic Association in January in Philadelphia) talking it up, and hopefully giving my lectures and papers on the subject to educate people.
I’m excited — this is a personal triumph nearly 25 years in the making. Most of the economics textbook writers are planning to include a section on GO in their next editions (McConnell, Parkin, Gwartney, Hubbard and Colander), and economic analysts are now starting to look at it. I just got an email from Roger Leroy Miller noting that he has added a section on Gross Output for his 18th edition of “Economics Today.”
I already include it in my own “Economic Logic” textbook (called Gross Domestic Expenditures (GDE), a more comprehensive measure of total spending in the economy). Discover more information through my textbook.
You Blew It! Has the New Pope Converted to Marxism?
“We can no longer trust in the unseen forces and the invisible hand of the market.” — Pope Francis, 2013
Many of my conservative friends accuse U.S. President Barack Obama of being a radical Marxist. Now you may want to add to that list Pope Francis. (What a contrast to the 1980s when Ronald Reagan and Pope John Paul II endorsed free-market capitalism!)
Recently, the pope wrote an epistle that sounds an awful lot like the old “Liberation Theology” adopted by Marxist Christians back in the 1970s. For example, he blames the growing inequality of income on capitalism and the invisible hand:
“While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation.”
I dare say that government and central bank policy are more responsible for this imbalance than market forces.
Finally, the Pope states:
“It is the responsibility of the State to safeguard and promote the common good of society.”
I agree. Unfortunately, the government is doing everything but promote the common good these days. ObamaCare is a classic example.
Ben Franklin said it best: “A virtuous and industrious people may be cheaply governed.”
In case you missed it, I encourage you to read my e-letter column about the folly of food stamps that appeared last week in Eagle Daily Investor. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.
Finally, my colleagues at Eagle have been working hard on re-designing the www.EagleDailyInvestor.com site. Go check out the new site now and come back every day for exclusive stories, market commentary and analysis you won’t find anywhere else!
Have a great week.
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