GDP – Myths, Fables, Distortions & assorted hocus pocus Dr. Dennis Foster

GDP measures the value of output? Market value of all final goods and services produced in an economy in a quarter, or year. Market value of all final goods and services produced in an economy in a quarter, or year. Market value is not the same as our value. – Value to the consumer > market price. – Value to the seller < market price. GDP is only measuring $ exchanged in the market between buyers and sellers. GDP is only measuring $ exchanged in the market between buyers and sellers.

GDP measures market prices? No – government valued at cost!! No – government valued at cost!! – Air force orders $7600 coffee makers.$7600 coffee makers – Or, we could buy some insulated bottles. – Possible for value to exceed cost. – Likely that value is below cost. – Higgs: If we’re willing to pay to do without, the value is, in fact, negative! – Rothbard: Because the expenditures are based on coercion (taxes), none of it should be included.

Except for G, GDP measures prices? No – many “expenditures” are imputed. No – many “expenditures” are imputed. – Rent for owner-occupied homes; free checking. – Employer provided health care. – Accounts for 15% of calculated GDP (BEA)BEA No – many “expenditures” are derived via hedonic adjustments. No – many “expenditures” are derived via hedonic adjustments. hedonic – Computers are better, so price out qualities. – Mises: 35% of GDP is not transaction based. FT: other revisions adding 3% to GDP!! FT: other revisions adding 3% to GDP!! FT – R&D, art, music, et al. now in Investment!Investment

GDP measures economic activity? Well … no. Well … no. Non-market activity is excluded: Non-market activity is excluded: – Household production. – The underground economy. – Illegal production. – Leisure. It only attempts to measure final goods, not all of our economic production (e.g., GDE). [Presumably we are measuring “Real GDP” and not “nominal GDP.”]

GDP measures our well-being? No, although it is used as a proxy. No, although it is used as a proxy. No accounting for wasted spending. No accounting for environmental damage. – Really, the BP oilspill helped our economy? Leisure again. Measures output, not consumption – How about C + G ? Or, just C ? What of the advantages of advanced tech?

If not GDP, then what? Gross Domestic Expenditures Gross Domestic Expenditures Gross Domestic Private Production Gross Domestic Private Production Private Product Remaining Private Product Remaining MEW and ISEW: Measure of Economic Welfare and Index of Sustainable Economic Welfare MEW and ISEW: Measure of Economic Welfare and Index of Sustainable Economic Welfare MEW and ISEW MEW and ISEW GDP2 – GDP5 GDP2 – GDP5 Enlarged GDP – National Welfare Index Enlarged GDP – National Welfare Index Quality of Development Index Quality of Development Index Quality of Development Index Quality of Development Index

Skousen – Gross Domestic Expenditures

Gross Domestic Expenditures - Skousen

Gross Domestic Private Product - Higgs

Rothbard – Private Product Remaining Gross Product [GNP or GDP] = sum of all incomes Gross Private Product Gov’t. incomes Gov’t. spending* * Or, taxes, if higher. Private Product Remaining Depreciation [Net] Private Product Remaining -=-= -=-= -=-= Batemarco: PPR/employ 

The MEW (Nordhaus/Tobin) and ISEW (Daly/Cobb)

Beyond GDP – National Welfare Index

The Quality of Development Index

Policy Reform: [D]oes assume that governments introduce effective policies to direct and shape the path of economic growth, thereby achieving ambitious goals in the areas of poverty reduction, climate change, ecosystem preservation, water supply adequacy, and pollution control. Great Transition: The emergence of more equitable social arrangements and effectual institutions for global governance provide the social and environmental gains achieved through technological improvement and government policy … while more modest lifestyles reduce the growth found in the [other] scenarios.

Can we make GDP unnecessary? Yes, we can! Yes, we can! Problem Problem – data collection rife with problems of what is collected and what it means. Problem compounded Problem compounded – government policy is premised on the collection of this data. One Hypothetical Solution: One Hypothetical Solution: 1.Make simple rules. 2.Enforce property rights. 3.Eliminate economic policies. 4.Stop collecting “official” data. “The purpose of government is to enable the people of a nation to live in safety and happiness. Government exists for the interests of the governed, not for the governors.”

GDP – Myths, Fables, Distortions & assorted hocus pocus Dr. Dennis Foster