Forget GDP - There's a Better Way to Measure Our Growth

Mark Skousen
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Posted: Apr 26, 2014 12:01 AM
Forget GDP - There's a Better Way to Measure Our Growth

“Skousen is introducing a whole new species. This is one of the most important WSJ op-ed articles in years.”

– James Hagerbaumer, Economic Forecaster

The editors of the Wall Street Journal gave me top billing in yesterday’s op-ed page, “At Last, a Better Economic Measure.”

The editors don’t let the author see the headline, but they captured it perfectly. The graphic cartoon was also perfect — check it out.

Basically, I contend that Gross Output (GO) is better than gross domestic product (GDP) in measuring the economy. GO is an attempt to measure spending at all stages of production. It corrects the fallacy fostered by GDP that consumer spending drives the economy. Actually, business spending at all stages of production is larger than consumer spending when you use GO as the measure of economic activity (more than 50%, compared to less than 40% for consumer spending).

I think I’m on to something. In my original work, “The Structure of Production” (New York University Press, 1990, 2007 new introduction), I suggest we need to look at the economy from the point of view of:

  • Stages of production (Gross Output)… not just final output (GDP).
  • The structure of interest rates (yield curve)… not just the 10-year Treasury rate.
  • Relative price indexes… not just the Consumer Price Index (CPI).
  • The structure of employment… not just the unemployment rate.

In a way, this approach is neo-Austrian. As Steve Forbes wrote in response to my article, "Skousen's measure of the economy will have a profound and manifestly positive impact on economic policy and politics."

Right now, GO is growing faster than GDP, the yield curve is positive, price inflation is relatively flat right now (commodity prices and consumer prices are fairly stable)… employment is sluggish… Overall, with easy-money policies in place, I remain bullish on the stock market. Mining stocks are the most volatile, being the furthest away from final consumption, while consumer retail stocks are fairly stable.

I hope my model catches on. With the Bureau of Economic Analysis (BEA), part of the U.S. Department of Commerce, releasing quarterly GO statistics starting Friday, April 25, the new approach to macroeconomics may well catch on.

I’ll have a follow-up report about the BEA’s first quarterly Gross Output data.

You Blew It! Is High-Frequency Trading Really That Bad?

By Mark Skousen

Editor, Forecasts & Strategies

“High frequency trading is a weird sort of market burden.” — Michael Lewis, author of “Flash Boys.”

Michael Lewis, author of the bestselling “Liar’s Poker,” “MoneyBall” and “The Big Short,” is at it again with his latest book, “Flash Boys,” about some young equity traders who dislike being taken advantage of by conspiring high-frequency traders who “ping” the market.

High-frequency traders allegedly offer bids on stocks before the market opens, cancel the offers when they find out the bid prices from buyers, then resell them to real buyers at a slightly higher price. The Securities and Exchange Commission (SEC) is investigating them for insider trading and front-running.

Day traders and computer trading system have been vilified over the years, but studies actually show that since their advent, liquidity has increased, the spread between bid and ask prices has narrowed and the cost of trading has dropped, saving investors billions.

As a result, long-term investors who get out of their large positions to retire or invest in something else can do so without taking a bath. Any effort to curtail or over regulate high-frequency trading is bound to hurt investors in the long run.