Gross Output and Gross Domestic Product Show State of Economy

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

“For forecasting, the new measure [Gross Output] may be more helpful than the GDP measure, because it provides information of goods in process.”
— David Colander (Middlebury College)

Gross Output (GO), a broader measure of U.S. economic activity published by the Bureau of Economic Analysis, advanced to nearly $30.9 trillion in the second quarter of 2014, a 4.8% jump in real terms (annualized).

Gross Output is a measure of sales or receipts of all industries throughout the production process, including business-to-business transactions.

GO advanced slightly faster than Gross Domestic Product (GDP), which measures the value of final goods and services only. GDP rose 4.6% in real terms to $17,328.2 billion in the second quarter.

The GO data demonstrates that the economy recovered sharply from the slowdown in the first quarter. I first introduced Gross Output as a macroeconomic tool in my work “The Structure of Production” (New York University Press, 1990). Now, the Bureau of Economic Analysis publishes GO on a quarterly basis in its “GDP by Industry” data.

Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and demonstrates that business spending is booming and is more significant than consumer spending. By using GO data, we see that consumer spending is actually less than 40% of economic activity, not the 70% figure that is reported by the media.

My studies show that during downturns, GO tends to fall faster than GDP, while during expansions, GO rises faster than GDP. In addition, GDP leaves out a big part of the economy, business-to-business transactions in the production of intermediate inputs. According to my calculations, business intermediate expenditures (IE) jumped an annualized rate of 20% to $21.4 trillion in the second quarter. That’s good news for the economy and the stock market.

Economics Journal Publishes First Academic Article on GO

I am happy to announce that the first professional economics journal has published an article on Gross Output.

I consider the publishing of a quarterly GO the greatest triumph in supply-side Austrian macroeconomics since Freidrich Hayek won the Nobel Prize 40 years ago.

The commentary is by the respected economist David Colander (Middlebury College), who, despite the headline, is largely positive about GO. Read his article and my response.

Austrian economists now are seeking to measure GO (or my own broader Gross Domestic Expenditures) in other countries, such as the United Kingdom and Argentina.

You Blew It! Bad Laws Lead to Bad Cops

Yesterday, I was at a special TEDx event in Sing Sing Correctional Facility in New York (where my wife and I teach) when I heard the news that a New York City grand jury declined to indict a policeman in the death of an unarmed black man who was being arrested for dealing in untaxed “black market” cigarettes. The victim, Eric Garner, a 43-year old man who was overweight and suffered from asthma, died after the police officer held the man in what appeared to be a chokehold.

Based on the evidence, including a video of the arrest by several policemen, the grand jury decision is an outrage. An indictment is not a guilty verdict, just a decision to go to trial. Besides, arresting people involved in the black-market sale of cigarettes or drugs is a sham and should not be enforced.

Was Eric Garner robbing a store or attacking innocent citizens? No. Police arrested him for selling untaxed cigarettes. He lost his life over the alleged sale of 75-cent loose cigarettes, also known as “loosies.”

Garner chose to participate in the booming underground cigarette market as a smuggler. Since 2009, he had been arrested eight times for selling loosies, which are popular among people who can’t afford a full pack because of the excessive taxes. The impetus for this tragedy likely took root in 2010 when the New York State Legislature passed a law to charge taxes of $5.85 for the sale of a pack of 20 cigarettes.

In January 2014, tough new penalties for selling untaxed cigarettes took effect in New York City. In July, emboldened by the new law, the city’s highest-ranking uniformed cop, Philip Banks, issued an order to crack down on “loosie” sales days before Garner died.

Having taught at a maximum security prison, I can tell you that there’s a lot of abuse and racism in the criminal justice system. Today’s police are often abusive, and prosecuting attorneys are putting a lot of innocent people in jail due to excessive laws on illegal drugs and cigarettes. We are filling our prisons with people who were involved in drug-related crimes.

At FreedomFest last July, we had Radley Balko, author of “The Rise of the Warrior Cop,” speak to us about the dangers of the new aggressive police departments. At next year’s conference, we have Cheryl K. Chumley on her book, “Police State USA: How Orwell’s Nightmare is Becoming our Reality.” Come join us:

In case you missed it, I encourage you to read my e-letter column from last week about an Austrian economics conference I attended in Argentina. I also invite you to comment in the space provided below.

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Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

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