Austrian school economist Mark Skousen has labored mightily for a quarter of a century to persuade the Bureau of Economic Analysis (BEA) to publish a better measure of economic activity in the United States, and beginning in April, the BEA will start publishing the country’s Gross Output — the GO. Said Skousen:
Starting [in] 1990, I have made the case that we needed a new statistic beyond GDP that measures spending throughout the entire production process, not just final output.
GO is a move in that direction — a personal triumph 25 years in the making.
Ever since the establishment of the international monetary system at the Bretton Woods Conference in 1944, the Gross Domestic Product (GDP) has informed and driven monetary policy, often with unintended and unhappy consequences. By misreading economic activity, interventionist politicians and economists have implemented policies that have later turned out to be too little too late or, more recently, way too much. The GO, on the other hand, measures intermediate economic activity at all stages of production, from raw materials to the retail outlet. As Skousen explained:
While GDP is a good measure of national economic performance, it has a major flaw: in limiting itself to final output, GDP largely ignores or downplays the “make” economy — that is, the supply chain and intermediate stages of production needed to produce all those finished goods and services.
This narrow focus of GDP has created much mischief in the media, government policy and boardroom decision-making….
Since consumer spending [under GDP analysis] represents 70% or more of GDP … the media naively concludes that any slowdown in retail sales or government stimulus is necessarily bad for the economy….
In short, by focusing only on final output, GDP underestimates the money spent and economic activity generated at earlier stages in the production process….
Using GO as a more comprehensive measure of economic activity, spending by consumers turns out to represent around 40% of total year sales, not 70% as commonly reported.
Spending by business … is substantially bigger, representing over 50% of economic activity.
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