How Gross Output Enhances Measurement of the Economy

Dollar sign $ in a bubble

“We’re finally back to 1934 — a breakthrough in national accounting.”

–Stephen Landefeld, director, Bureau of Economic Analysis (BEA)

On Tuesday, I drove from New York City to Washington, D.C., to attend a special workshop presented by the Bureau of Economic Analysis, the government agency that produces the quarterly gross domestic product (GDP) statistics. This three-hour meeting was all about the new Gross Output data that will be released every quarter starting Friday, April 25.

BEA director Steve Landefeld opened the session explaining why the new Gross Output (GO) offers a “unique perspective” on the production side of the economy, or what they call “the make” economy.

GDP measures the “use” economy — the value of all finished goods and services produced and sold in the economy in one year. Currently, GDP is approximately $17 trillion.

GO measures the “make” economy — the value of all stages of production of goods and services — both finished and unfinished. Currently, GO is approximately $30 trillion, nearly double the U.S. GDP.

Why is GO just as important as GDP? As I explained in the meeting, it’s like publicly traded companies reporting both revenues/sales and profits/earnings. Both are vital to understanding how the company is doing.

The same is true in the economy. GDP measures the value of the final goods and services, but you also want to know how much business spent in making these final products and services. GO does that.

I wrote a major article on this subject for Forbes magazine recently. The article is called “Beyond GDP: Get Ready for a New Way to Measure the Economy.” I encourage you to read.

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Triple Play!

In his introductory remarks, Mr. Landefeld referred to Simon Kuznet’s first attempt to measure GDP, or “national income,” as he called it in his 1934 seminal work, “National Income, 1929-1932,” published by National Bureau of Economic Analysis.

He noted that Kuznet referred to the “triple accounting” back then:

–First, a measure of “all commodities produced and all the direct services rendered during the year at their market value” (what we call Gross Output, or GO);

–Second, the net product of the national economy during the year (what we call Gross Domestic Product, or GDP); and

–Third, income received by workers, landlords and financial institutions in compensation for their contribution to the national product (what we call Gross Domestic Income, or GDI).

Now, finally starting Friday, April 25, the federal government (BEA) is going to release these three statistics at the same time — 80 years after Simon Kuznet first suggested it.

You Blew It! Bill Gates on Inequality under Capitalism

“Capitalism over time will create more inequality.” — Bill Gates

Arthur Brooks, president of the American Enterprise Institute (AEI), today hosted Bill Gates, the founder of Microsoft and the world’s wealthiest man. Gates made sense in most cases, for example, blaming the socialistic government of India for most of its troubles and preferring a tax credit on wages rather than a minimum wage to improve workers’ lots. But he endorsed the Common Core in education, which creates standardized testing in schools rather than stimulating creative thinking and desire for knowledge.

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He also claimed the capitalism causes more inequality, when, in fact, it has produced less inequality. As Andrew Carnegie once stated, “Capitalism is about turning luxuries into necessities.” Whether it be the automobile, the television, the smartphone or the personal computer — something Bill Gates knows something about with his breakthrough “Windows” software — capitalism has benefited the poor as much as the rich, if not more so.

In case you missed it, I encourage you to read my e-letter from last week about why the number of public companies is shrinking. I also invite you to comment in the space provided below.

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