Washington policymakers recently gained access to new tools to aid them in measuring U.S. economic growth that they would be well advised to use.
Possibly the biggest change is that the Bureau of Economic Analysis last month began the quarterly release of Gross Output (GO), an economic measure to track total output that should serve as a compliment to the traditional Gross Domestic Product (GDP) that focuses on final output. The key advantage of the GO measure is that it provides a better reflection of the overall state of the economy, including business spending, than GDP offers by itself.
As a measure of total production, GO was valued at more than $30 trillion at the end of 2013 to nearly double the size of GDP. A longtime champion of using GO is Mark Skousen, PhD, a free-market economist who first advocated the expanded use of the statistic in his 1990 book, “The Structure of Production,” which he described as an underground bible for supply-side economics and Austrian macroeconomics.
The first quarterly use by the U.S. Department of Commerce’s Bureau of Economic Analysis occurred on April 25 when the U.S. government revealed that fourth-quarter 2013 GO grew at a rate of only 1.1 percent, smaller than GDP of 2.6 percent. The discrepancy shows the value of including the GO statistic among the economic measures released by the federal government to indicate economic growth rather than relying on just one of them. Before last month, the Bureau of Economic Analysis only released GO statistics annually and two or three years late, Dr. Skousen wrote in an April 22 op-ed published by The Wall Street Journal.
Historically, GO has deviated from GDP at key times during the history of the U.S. economy. In 2008-2009, for example, nominal GO fell by 8 percent, before recovering faster than GDP during the rebound, Dr. Skousen discovered.
The use of a second measure of economic production that is more comprehensive than GDP alone should be adopted by lawmakers, policymakers and forecasters alike to gain an enhanced understanding of what is happening with the U.S. economy at a particular time.
“GO is a huge step forward for the world,” wrote Steve Forbes, chairman and editor-in-chief of Forbes Media and a former U.S. Republican presidential candidate, in the April 14 issue of Forbes magazine.
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