“Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy and politics.”
–Steve Forbes, Forbes magazine (April 14, 2014 issue)
The editors of the Wall Street Journal gave me the lead editorial in the April 23 edition: “At Last, a Better Economic Measure.” You can read it here. The editors don’t let the author see the headline but they captured the concept perfectly with their headline. 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 (over 50%, compared to less than 40% for consumer spending).
GDP Leaves out B-to-B Transactions
After my Wall Street Journal article came out, I was at a dinner party and a venture capitalist who does deals mainly in China came up to me and said, “I read your article in the Journal and couldn’t believe that B-to-B [business-to-business transaction] is left out of GDP. Unbelievable.”
Basically, Gross Output includes B-to-B; GDP doesn’t. The data demonstrates that business spending/investment (B-to-B) is much larger than consumer spending, and that business spending, more than consumption, drives the economy.
Too often economists dismiss B-to-B as nothing more than “double counting.” What a slight to the business community. They don’t seem to understand that gross savings/investment capital is necessary to fund B-to-B and move products down the supply chain to the final user. You can’t run a business on value added only. Double counting (B-to-B) should count, and the new quarterly Gross Output is an attempt to measure just that.
Finally, I see GO as a triumph in Hayekian macro (measuring stages of production)… you could even see GO vs GDP as the next debate between Hayek and Keynes, since GDP is in a way a Keynesian concept (final effective demand) while GO is a Hayekian concept (all stages of production).