“In the last 30 years, the reliability of empirical work and estimations has risen dramatically. Which is good. But few new important ideas have really been generated.” — Tyler Cowen (George Mason University)
Earlier this month, the American Economic Association (AEA) had its annual meeting in New Orleans. Normally, I go to the AEA meetings, but not this time. The AEA’s big wigs insisted that everyone wear masks and be vaccinated in the “Big Easy”. I guess they forgot that New Orleans is “The City That Care Forgot.” How ironic!
Most economists like me boycotted the conference in protest.
I saw that Harvard economists Larry Summers and Ken Rogoff spoke via Zoom. According to Bloomberg, they sang the blues about 2023.
Economics is indeed in trouble.
Those who did attend were treated to sessions on “Sexual Harassment in the Economics Profession,” “Gender Inequality in Schools,” “Diversity, Equity and Belonging,” “Race and Family Background” and “Slavery and Beyond.” Occasionally there were sessions on traditional economic issues, like monetary and fiscal policy, taxes and entrepreneurship.
Many of my economics friends tell me that feminists have taken over and imposed their “woke” philosophy on the profession. Over half of the AEA executive committee consists of feminist economists, and they were the ones who insisted on the mask/vaccine mandates and numerous sessions on gender and racial studies.
‘Has Economics Run Out of Big New Ideas?’
The Economist covered the AEA meetings and ran this headline in its report: “Has Economics Run Out of Big New Ideas?” It cited Tyler Cowen (see quote above), suggesting that the profession is suffering from new ideas.
Well, I have a big idea: Gross Output (GO), my discovery of the “top line” in national income accounting. Gross domestic product (GDP), the bottom line, isn’t enough. It turns out that GDP measures final output only and leaves out the entire supply chain. The supply chain is bigger than GDP itself. In 2022, GDP was nearly $26 trillion. The supply chain amounted to $32 trillion!
GO includes the supply chain — it measures spending at all stages of production. It hit nearly $58 trillion in 2022.
It is the missing piece of the macroeconomic puzzle, and it turns out to be a very big piece.
Over half the macroeconomic puzzle is missing!
How Valuable is GO?
As the broadest measure of the economy, GO can tell us a lot more than GDP. As Steve Forbes says, “GDP is the X-ray of the economy, but GO is the CAT-Scan.”
There are lots of advantages to GO, which the federal government (the Bureau of Economic Analyst) releases every quarter along with GDP.
First, it often tells a different story than GDP: In 2022, real GDP fell two quarters in a row, suggesting a recession; but real GO continues to grow, suggesting there was no recession. Click here to see my press release.
Second, GO demonstrates that business, not consumption, drives the economy. Business-to-business spending (B2B) is almost twice as big as consumer spending. It is simply not true that “consumer spending represents two-thirds of economic activity and drives the economy,” as is commonly reported in the media. In fact, it amounts to only about one-third of economic activity.
Here is the chart since 2005:
As the chart shows, business spending is not only bigger than consumer spending but more volatile. It is the business cycle!
As Larry Kudlow states, “Though not one in a thousand recognizes it, it is business, not consumers, that is the heart of the economy. When business produces profitably, they create income-paying jobs and thus consumers spend. Profitable firms also purchase new equipment because they need to modernize and update all their tools, structures, and software. Capital formation is the key to worker productivity and consumer prosperity.”
GO as a Leading Economic Indicator
Finally, GO does a good job of forecasting the next quarter’s GDP. Private economists such as David Ranson of HCWE Inc., and Jerry Bowyer of Bowyer Research use it to forecast economic growth.
GO is finally being recognized as the “top line” in national income accounting since the government started reporting it on a quarterly basis beginning in April 2014. It’s starting to appear in textbooks, the academic journals and the media (I’ve had three op-eds in the Wall Street Journal).
Steve Hanke, the top economist at Johns Hopkins University, recognizes the revolutionary nature of GO. He writes:
“Now, it’s official. With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure. How did this counter-revolution come about? There have been many counter-revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen’s book ‘The Structure of Production’, which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.”
Want to know more? Go to www.grossoutput.com. The fourth-quarter release of GO will be on March 30. Stay tuned!
Happy Birthday, Ben Franklin, Father of American Capitalism
Jan. 17 was Benjamin Franklin’s birthday. What is Ben Franklin reading? Perhaps “The Maxims of Wall Street.” He is quoted 18 times in the “Maxims,” such as this one: “An investment in knowledge pays the best interest.” So true!
Or how about “The Making of Modern Economics?” The hero of this book is Adam Smith, who is celebrating his 300th birthday this year (he was born on June 5, 1723). And Franklin was a big fan of Adam Smith’s “laissez-faire” philosophy in his book “The Wealth of Nations,” published in the same year Congress declared independence from Britain (1776). He read parts of Adam Smith’s manuscript and influenced the economist to defend the colonies against his own country of England. Franklin also wrote about the advantages of thrift, free trade and a growing population, themes readily apparent in “The Wealth of Nations.”
I just got in a new shipment of both “The Maxims of Wall Street” and “The Making of Modern Economics,” both available at a discount at www.skousenbooks.com. The Maxims cost $20 for the first copy, $10 for all additional copies. And “Making of Modern Economics” is only $35 postpaid if mailed inside the United States.
Also, I found a few extra copies of the first hardback edition of “The Making of Modern Economics” which was published on March 9, 2001. March 9 is also the publication date of “The Wealth of Nations.” And Adam Smith is the hero of my book! These are hardback editions that normally sell for $150 today. But I’ll sell the remaining 7 copies for only $49 each. Get your copies while they last at www.skousenbooks.com.
Good investing, AEIOU,
You Blew it!
Has Science Become Political Science?
I used to subscribe to Scientific American, the oldest magazine devoted to science and new scientific breakthroughs. I subscribed for over 30 years, loved the stories and the charts, and learned many new things. I especially liked Michael Shermer’s column. (He is our resident scientist at FreedomFest.)
Then I noticed under the new editor, Lauren Helmuth, more and more of the magazine became political science. It dropped Shermer’s column. It ran stories on social justice and the mass extinction of species. When it endorsed Joe Biden as president, that was a bridge too far. I gave up, canceled my subscription and moved on to other pure science magazines.
I just wished science magazines, especially one as venerable as Scientific American, would just stick with science and stop feeling it has to take sides on everything. Lately, it has endorsed Universal Basic Income to end poverty (it won’t), attached fossil fuels (needless to say, ScAM editors are global warming alarmists), and published articles on “The Racist Roots of Fighting Obesity,” “The Anti-Science Supreme Court is Hurting the Health of Americans” and an opinion piece that the “white” National Football League is exploiting “black bodies” for their entertainment. Seriously? Even Tony Dungy, a former NFL football player and coach (Tampa Bay and Indianapolis), wrote, “As a black man and former NFL player, I can say this article is absolutely ridiculous.” Amen.
The new owners, Springer Nature, a British-German publishing house, needs to fire the editors and get back to writing about science, not politics. For starters, I suggest Michael Shermer to replace Lauren Helmuth.