Download Gross Domestic Expenditures

ECO 285
GDP – Myths, Fables, Distortions
& assorted hocus pocus
Dr. Dennis Foster – Spring 2014
Required additional reading:
• Should we believe the GDP?
• Mises wiki on GDP and problems
• Higgs and Real GDPP
• Rothbard’s Private Product Remaining
• Counting what counts: GDP redefined
• Beyond GDP – Enlarged GDP &FAQs
• Skousen – Gross Domestic Expenditures
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 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 measures market prices?
• No – government valued at cost!!
– Air force orders $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.
– Rent for owner-occupied homes; free checking.
– Employer provided health care.
– Accounts for 15% of calculated GDP (BEA)
• No – many “expenditures” are derived via
hedonic adjustments.
– Computers are better, so price out qualities.
– Mises: 35% of GDP is not transaction based.
• FT: other revisions adding 3% to GDP!!
– R&D, art, music, et al. now in Investment!
GDP measures economic activity?
• Well … no.
• 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).
• Real GDP is derived from nominal less inflation.
GDP measures our well-being?
• 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 + (Im-Ex)?
• What of the advantages of advanced tech?
If not GDP, then what?
• MEW and ISEW:
Measure of Economic Welfare and Index of
Sustainable Economic Welfare
• Quality of Development Index
• Enlarged GDP – National Welfare Index
• Private Product Remaining
• Gross Domestic Private Production
• GDP2 – GDP5
• Gross Domestic Expenditures
Gross Domestic Expenditures - Skousen
Gross Domestic Private Product - Higgs
Skousen – Gross Domestic Expenditures
Beyond GDP – National Welfare Index
Rothbard – Private Product Remaining
The MEW (Nordhaus/Tobin) and ISEW (Daly/Cobb)
The Quality of Development Index
Can we make GDP unnecessary?
• Yes, we can!
• Problem – data collection rife with problems of
what is collected and what it means.
• Problem compounded – government policy is
premised on the collection of this data.
• Solution:
1.
2.
3.
4.
Make simple rules.
Enforce property rights.
Eliminate economic policies.
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.”
ECO 285
GDP – Myths, Fables, Distortions
& assorted hocus pocus
Dr. Dennis Foster – Spring 2014