THERE’S MUCH RUIN IN A NATION: MODERN MONETARY THEORY

By Mark Skousen
Chapman University
Mskousen@chapman.edu

“Today, as in the past, a sound money system is the condition of man’s freedom and the key to his future.”

 — Jacques Rueff[1]

Three heterodox economists William Mitchell and Martin Watts (both University of Newscastle, Australia), and L. Randall Wray (Bard College, New York) — hereafter referred to as MWW — have written a textbook entitled Macroeconomics, co-published this year by Macmillan International and Red Globe Press.  They promise a “comprehensive, university level study course in Macroeconomics from a Modern Monetary theory (MMT) perspective…grounded in real world institutions…and starts by putting the currency-issuing government at the forefront.”[2]

Having analyzed economics textbooks in my career, I found it a valuable exercise to determine what this textbook includes and what it ignores in making the case for MMT.[3]

In the introduction, they acknowledge that MMT grew out of the financial crisis of 2008 and the “cult of austerity” accompanying it.  They criticize the “neo-classical” economists for failing to “see it coming,” and wrongly predicting that inflation would accelerate after the monetary crisis due to quantitative easing.  MMT “rejects the main precepts of the orthodox neoclassical approach to macroeconomics” (13) and the self-interested “invisible hand” in microeconomics (6).

Thus, MWW see the need for a new Weltanschauung based on the heterodox theories of Marx, Veblen and Keynes.  They endorse the United Nations Universal Declaration of Human Rights, including the right to work and protection against unemployment, equal pay for equal work, and a minimum standard of living (9-11).

At times the authors appear nihilistic:  “…there is no single ‘right’ way to do economics….…the responsible social scientist is not seeking to establish whether the theoretical model is true, because that is an impossible task given there is no way of knowing what the truth is anyway” (3, 8).  And, they assert, “there is no scientific basis for the claim that ‘free markets’ are best” (pp. 3, 9).

 

“There are no financial constraints”

Despite this caveat, their conclusions are dogmatic:  “The most important conclusion reached by MMT is that the issuer of a currency faces no financial constraints.  Put simply, a country that issues its own currency can never run out and can never become insolvent in its own currency.  It can make all payments as they come due.  For this reason, it makes no sense to compare a sovereign government’s finances with those of a household or firm” (14).

For MWW, the budget and debt constraints that operate for an individual and household do not apply to the government.  They reject Adam Smith’s refrain, “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”[4]  To the contrary, “the household budget analogy is false” (124) because unlike households and businesses, government has the power to tax and to print money (318).

They reject the “cult of austerity” (14).  Now that advanced countries are no longer constrained by the gold standard or fixed exchange rates, “currency-issuing governments such as those of Australia, Britain, Japan and the USA can never run out of money…for most governments, there is no default risk on government debt” (14, 15).

Furthermore, if a nation operates with a sovereign currency and avoids incurring debt in foreign currencies (a big if), “the national government can always afford to purchase anything…” (16).

 

The Principal Policy Goal:  Full Employment

To what purpose should the government run deficits and monetary inflation?  Fiscal policy should aim for full employment of labor and resources and guarantee everyone a job, either in the private or public sector.  They call it a Job Guarantee (JG) program.  In chapter 19, MWW “elaborate on why full employment should be the key macroeconomic policy goal” (291).  Not controlling inflation, not economic growth, not maximizing freedom.  But job guarantees for all, the “right to work” at a “living wage” (292, 295, 302).

Figure 1 below illustrates the classic Keynesian case of increasing aggregate demand (AD) to achieve full employment.

MODERN MONETARY THEORY

If there is chronic unemployment, “the government [can] always put them to productive use…to hire them to perform useful work in the public interest” (16), involving “direct job creation by government” (295).

But there’s more.  “There is no financial constraints to stop a currency-issuing government providing first class healthcare and/or pensions in the future” (127).

“An MMT frame considers the $x in the fiscal papers to be of little interest” (130).

They don’t mention it, but how about using government revenues to finance military adventures abroad?  At the beginning of World War II, ten million unemployed were suddenly employed as soldiers in the US armed forces.

Does this fiscal nirvana sound dangerous and irresponsible?  Is there method to their madness?

In a 5-page section on “mainstream fallacies,” they list eight myths of political economy, including a denial that fiscal deficits cause crowding out of private investments, higher taxes, inflation, or big government, or the need for a balanced budget rule or a “rainy day” fund (124-128).  They go out of their way to belittle any government leaders who speak out against “living beyond our means”… “spending like a drunken sailor”… “welfare dependency”… “burdening our grandchildren with the public debt”… or “national bankruptcy” (124).

 

Three Ways to Pay for Government Spending

There are three ways to finance a new government program.  MWW put it in the form of an equation:

G +iB = T + ΔB + ΔM

where

G = government spending
iB = interest payments on public debt
T = tax revenue
ΔB = new borrowing selling government bonds
ΔM = new base money creation

The most burdensome and politically unpopular method is direct taxation (T).  For them, the best policy is to “spend first, tax later” (323).  They ask, “Why not just eliminate taxes altogether?”  MWW reject that suggestion because it makes it more difficult for the government to borrow money without the threat of taxation (323), and progressive taxation helps reduce inequality (324).  Ideally, according to MWW, taxes should be “countercyclical,” increasing during an expansion and falling during a recession (323).

 

Deficits and the National Debt: “We Owe It Ourselves?”

The second way to finance government is to borrow the funds to pay for the program (ΔB).  It postpones the pain of paying directly through taxation.  But there is a price to pay down the road — the government has to pay back the principal to the bond holders and it has to pay interest, usually every six months (iB).

MMT proponents claim that government deficits are self-financing because sovereign nations can issue more debt, raise taxes, or print money.  Moreover, government borrowing is also an asset in the form of government bonds held by investors.  “The government’s deficit is always mirrored by an equivalent surplus in another part of the economy,” states Stephanie Kelton, economist at Stony Brook University.[5]

This statement is, in essence, the old “we owe it ourselves” argument.  Robert Shiller calls it a “half truth.”  He states, “The claim would have been accurate only in an extreme, theoretical case:  if everyone had identical bond holds and paid identical taxes to cover the interest and principal that were paying themselves.  But we are never going to be in that situation in the real world.”[6]

Libertarian economist Murray Rothbard debunked the “we owe it ourselves” argument:  “The crucial question is: Who is the ‘we’ and who are the ‘ourselves’?”  The bondholders (who tend to be wealthy individuals and institutions) are not the same as the taxpayers (who tend to be middle class.”  “For we might just as well say that taxes are unimportant for the same reason.”[7]

 

National Bankruptcy: False Fear?

Advanced economies have been able to borrow huge amounts of money, more than most economists thought possible.

MWW claim, “The government can consistently spend more than its revenue because it creates the currency” (15).  Technically bankruptcy is impossible.  “Treasury cheques never ‘bounce” due to insufficient funds” (327).

There is some truth to their statement.  American conservatives have cried wolf time and time again about the dangers of deficit spending, that it will lead to national bankruptcy.  I’ve heard it all my life, even now that the US federal debt is now over $21 trillion.

Murray Rothbard set the record straight when he debunked this myth about the national debt.  He wrote:  “Many opponents of public borrowing…have greatly exaggerated the dangers of the public debt and have raised persistent alarms about imminent ‘bankruptcy.’  It is obvious that the government cannot become ‘insolvent’ like private individuals–for it can always obtain money by coercion…by increasing the tax and/or inflation in society.”[8]

 

Japan as an Example?

MWW point to Japan as an example of a nation where a country can engage in persistent fiscal deficits (pushing the national debt to an astonishing 235% of GDP) without igniting a sharp rise in interest rates or higher unemployment (27-31).  Interesting that the authors ignore the fact that accompanying these massive deficits is Japanese’s anemic economic growth rate since 1992 (an average real 0.9% a year) when they started to run massive unproductive federal deficits.

You can also look at the United States in this regard.  It is extraordinary that in a world where the largest economy in the world can run deficits of $1 trillion or more a year during times of full employment and strong economic growth and see interest rates continue to decline to historical lows.  I don’t know a single economist who predicted it.

 

Surprise, Surprise!  Governments Run Budget Surpluses!

The authors are also correct when they say, “Government deficits are normal, surpluses are atypical” (130).  The Keynesians used to favor a countercyclical “balanced budget” policy over time, running deficits during recessions and surpluses during boom times.  But as Milton Friedman commented, “Unfortunately, the balance wheel is unbalanced.”[9]

But there are quite a few robust fully-employed economies that are running budget surpluses in an apparent reject of MMT, including:

Country Surplus (% of GDP)
Macau 25.20%
Qatar 16.10%
Norway 9.10%
United Arab Emirates 5.00%
Singapore 1.30%
Denmark 1.30%
South Korea 0.90%
Hong Kong 0.80%
Sweden 0.30%

Source:  https://www.worldatlas.com/articles/countries-with-the-top-budget-surplus.html

The third way is the easy way out but also potentially more dangerous in destabilizing the economy — printing money.

 

How to Deal with the Threat of Inflation

MWW are opposed to “inflation targeting” because it imposes a high price of persistent high unemployment in order to keep price inflation in check (297-98, 315).  Instead, they propose an “employment buffer” policy, so that when private demand for labor declines, the federal government increases its job guarantees, and when private demand for labor increases, the government reduces its available job offers.  “This targeted approach to sustaining full employment is a powerful stabilizing force for aggregate demand, output, and prices” (302).

 

MWW introduce the “buffer employment ratio” (BER), defined as:

 BER = JGE/E,

 where

 JGE = Job Guarantee employment (by the government)

E = Total employment in the economy.

Thus, “BER rises when the JG pool expands and falls when the JG pool contracts” (304).

Why does this “buffer employment” policy control inflation?  When inflation threatens, MWW advocate tightening fiscal and monetary policy “to reduce the level of private sector demand.  Labour is then transferred from the inflating private sector to the fixed wage JG sector and the BER rises.  This will eventually ease the inflationary pressures arising from the wage-price conflict” (304).

Thus, full employment is achieved at all times while price inflation is held in check.

But will it work?  There are several potential problems.  First, how will labor productivity be affected in a managed economy where unemployment is virtually outlawed?  What incentives are there for workers to be efficient when they know they will be hired by the government if they are laid off by the private sector?

Second, wouldn’t workers in the private sector use the JG to demand higher wages?  MWW claim, “That would be unlikely,” because “the JG lowers the cost of hiring for firms because the JG workers do not experience the dislocation of unemployment and retain most, if not all, of their general and specific skills” (304).  Really?  Who’s to say the shifting from the private sector to public sector employment doesn’t involve dislocations and loss of skills?  And how easy would it be to shift back from public to private employment when the economy recovers?

Third, MWW assume that inflation is cost-push (wage pressure) rather than demand-driven, a dubious assumption in a managed economy that promises guaranteed employment, a living wage, full medical and retirement benefits.

A sharp rise in BER during a severe recession could create enormous burden on the public sector, as JG soar.  How would the government pay for all these JG?  Tax, borrow, print?

Finally, can inflation be stopped once it starts?  Studies show that once inflation gets started, it’s almost impossible to stop without causing a recession.

 

Fear of Runaway Inflation

MWW are well aware of the critics who fear MMT might lead to “creeping inflation” and ultimately “hyperinflation” (342).

“We acknowledge that the in the absence of appropriate oversight, a government can maintain an excessive rate of expenditure which leads to rising inflation.  But we show that the two popular examples of hyperinflation — the Weimar Republic and Zimbabwe — were the result of increasing aggregate supply constraints rather than being driving by excessive fiscal deficits” (333).

According to MWW, Germany’s inflation problem in the early 1920s was caused by excessive demands of the Treaty of Versailles that could not possibly be paid for out of domestic taxation or exports.  And Zimbabwe’s collapse was due to state mismanagement of the commercial farms, which were confiscated by Mugabe’s ruthless regime and turned over to rebels who had “no background in running commercial agriculture” (345).

Still, there’s reason to be concerned that countries adopting MMT might mismanage the economy in other ways.  In response to a severe recession, the government would dramatically increase their JG program, which in turn might result in unproductive “make work” public projects.  The central bank would be pressured into printing more money even as the real economy shrinks.

Sebastian Edwards of the Hoover Institution did an in-depth study of four Latin American countries (Chile, Peru, Argentina, Venezuela) that had adopted varying aspects of MMT (financing large fiscal deficits and “job guarantee” programs through monetary expansion).  He concluded:  “The four experiments ended up badly, with runaway inflation, huge currency devaluations, and precipitous real wage declines.”[10]

 

No Chapter on Economic Growth 

One of the surprising sins of omission in MWW’s Macroeconomics textbook is a chapter on growth theory.  I don’t know a single other textbook that ignores the importance of economic growth these days.  For years, the Keynesian influence after World War II was so strong that the focus in textbooks was on full employment and taming the business cycle based on Keynes’s “General Theory” of unemployed resources and aggregate demand failure.  Economic growth theory was a “special case” relegated to the back chapters.

Harvard professor Greg Mankiw created a counterrevolution in the early 1990s by putting the growth chapter up front in his Macroeconomics (Worth Publishers, 1994), and relegating Keynes’s theories to the back pages as a “special” case.[11]

Now MWW want to go back to the good old days of Paul Samuelson “paradox of thrift” and Abba Lerner “functional finance“ theory of “crude” Keynesianism.

 

Real-World Alternatives to MMT

MWW contend that their textbook Macroeconomics is “grounded in real-world institutions,” yet I was surprised by their failure to cite real-world economies that have achieved strong economic growth and full employment without inflation using more classical economic principles.

Countries can achieve full employment and higher economic growth without inflation by encouraging greater productivity on the supply side, by cutting taxes and regulations, privatizing government-owned businesses and services, and championing saving, capital investment, technology and entrepreneurship.

Figure 2 demonstrates how the supply-side stimulus (AS) can achieve full employment with less inflation.

MODERN MONETARY THEORY

Note the difference between the Keynesian AD policy (figure 1 above) differs from the Supply-Side AS policy (figure 2 above) — the Keynesian deficit spending model increases output and inflation, while the Supply-Side productive model increases out and reduces inflation.

Here are several case studies that adopted the Supply Side Model (not discussed in MWW’s textbook):

Sweden:  In 1992, Sweden suffered a real estate banking crisis, credit crunch, and monetary crisis.  In response, the government guaranteed bank deposits and ran significant deficits.  After the crisis abated, they engaged in a series of reforms to reduce the size of a bloated welfare state by privatizing various government programs; converting their state pension to a defined-contribution plan; adopting school choice in education; cutting corporate and other taxes; and overall reduced the size of government while maintaining its generous welfare system.  Today Sweden has a modest budget surplus.  The average real economic growth in PPP (Purchasing Power Parity) terms in nearly 3% a year.  Price inflation is low.  The unemployment rate is 6.7%, largely due to a generous immigration policy.  Sweden’s Economic Freedom Index has risen to #19 most free in the world.

Canada:  In 1994-95, Canada suffered from an oversized government, resulting in a budget deficit and currency crisis, with Moody’s downgrading Canadian debt.  The Liberal and Conservative parties agreed to severe budget cuts and federal layoffs, despite strong opposition by Keynesian economists.  Two years later, the budget was balanced, and the Canadian dollar made a strong recovery.  Then Canada adopted a series of supply-side tax cuts.  Today the corporate tax rate is only 15%.  The size of government has been reduced, economic growth is over 3% a year, inflation is less than 2% a year, but the unemployment is relatively high at 6.7%.  The budget did fall into deficit during the 2008 financial crisis, but none of the top five banks suffered serious losses.  Canadian budget has improved since then, although the Canadian dollar is weak.  Today Canada (#8) is ahead of the United States (#12) in the Economic Freedom Index.

Singapore:  Economic growth has averaged 3.5% in the past five years, inflation is less than 1%, and unemployment rate is 2%.  Singapore has accumulated substantial budget surpluses ($17.9 billion over the past three years), although it will run a deficit this year.  Singapore has the world’s best medical care system, a combination of health saving accounts (Medisave) and universal coverage of catastrophic illnesses (healthcare represents only 4.5% of GDP).  They have a flat maximum tax rate of 22% for individuals and 17% for businesses.  Singapore has a free-trade zone.  Though it is not a democracy, it is ranked #2 in the world’s Economic Freedom Index.

Chile:  Since Gen. Pinochet stepped down as dictator and Chile adopted democracy in 1990, Chile’s economy continues to do well.  Real economic growth is 2.2% over the past five years, and inflation is at a low 2.2% a year.  The unemployment rate is 7%, largely due to the slump in copper and commodity prices.  After running a surplus budget in 2011-12, the deficit returned but is a manageable 2.5% of GDP.  The maximum tax rate is 44% on individuals and 25% on businesses.  It is the highest rated country in Latin America in the Economic Freedom Index (#18 in the world).

These examples demonstrate that countries can achieve reasonable full employment, good economic growth, and low inflation without resorting to risky MMT policies.

 

Conclusion

There aren’t many cases where a broad range of economists, from Keynesian to Austrian, can agree on something, and MMT is one of them.  Vocal critics have included Paul Krugman, Robert Shiller, Kenneth Rogoff, Larry Summers, Steve Hanke and Robert Murphy.  All agree that MMT is a bad and even dangerous policy.

It seems that MMT advocates are determined to test the validity of Adam Smith famous refrain, “There is a great deal of ruin in a nation.”

I began with a quote from French economist Jacques Rueff.  I will end with his warning:  “No religion spread as fast as the belief in full employment, and in this roundabout way, allowed governments that had exhausted their tax and borrowing resources to resort to the phony delights of monetary inflation.”[12]


[1]   Jacques Rueff, The Age of Inflation (Regnery, 1964), translated by A. H. Meeus and F. G. Clarke, p. xiv.

[2]   William F. Mitchell, L. Randall Wray, and Martin J. Watts, Macroeconomics (Macmillan International and Red Globe Press, 2019), preface.

[3]   See Mark Skousen, Economics on Trial (Irwin Publishing, 1991), and my paper, “The Perseverance of Paul Samuelson’s Economics.” Journal of Economic Perspectives (1997), 11 (2): 137-152.  https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.11.2.137

[4]  Adam Smith, The Wealth of Nations (Glasgow Edition, 1982), Book IV Chapter II, pp. 456-7, paras. 11-12.

[5] Stephanie Kelton, “How We Think about the Deficit is Mostly Wrong,” New York Times, October 5, 2017.

[6] Robert J. Shiller, “Modern Monetary Theory Makes Sense, Up to a Point,” New York Times, March 2, 2019.  He concludes, “Though increased spending on infrastructure, education, social welfare and the environment may be wise, and rising deficits may make sense some of the time, we really cannot borrow ceaselessly without risking real harm.”

[7] Murray N. Rothbard, Man, Economy and State, 2nd ed. (Mises Institute, 2004 [1962]), p. 1027-1028.

[8]   Ibid., p. 1028.

[9]  Milton Friedman, Capitalism and Freedom (University of Chicago Press, 1962), p. 76.

[10] Sebastian Edwards, “Modern Monetary Theory: Cautionary Tales from Latin America,” Economics Working Paper 19106, Hoover Institution, April 25, 2019.  https://www.hoover.org/research/modern-monetary-theory-cautionary-tales-latin-america

[11]  See Mark Skousen, The Making of Modern Economics, 3rd ed. (Routledge, 2016), pp. 445-448.

[12]   J. Rueff, “La Fin de l’ere keynesienne”, in ´Oeuvres completes de Jacques Rueff, vol. 3, Politique ´economique I (Paris, 1979), 178. This article, originally a lecture delivered to the Mont Pelerin Society, appeared in ` Le Monde on 19 and 20–21 Feb. 1976.  See also https://dailyreckoning.com/homage-to-jacques-rueff/

Steve Forbes on the GO: I Make the Forbes 400 Richest Issue!

I’m mentioned on page 22 for my gross output (GO) model. (Sorry, I may be worth several million, but not several billion!)

Steve Forbes endorses my GO model, saying GO is a “far more comprehensive, realistic and enlightening picture than gross domestic product (GDP). It is like the difference between an X-ray and a CAT scan.” GO measures spending at all stages of production, including the all-important supply chain, and GDP only measures final output.

GO is a leading economic indicator. It has slowed considerably in 2019, suggesting a slowdown, not a recession.

Forbes

 

In his column, Forbes takes federal officials at the Bureau of Economic Analysis (BEA) to task for not releasing GO on a timely basis. He stated, “President Trump should immediately order the BEA to get off its duff and issue GO at the same time it does GDP.”

Indeed, I’m pleased to announce that Brian Moyer, the BEA director, informed me that the agency plans to release both GO and GDP at the same time by next September 2020… not unlike publicly traded companies issuing “top line” (sales) and “bottom line” (profits) reports every quarter. Economics finally has caught up to accounting and finance in the 21st century!

Steve Forbes’ column on GO is now available to read here.

For more information on GO, go to www.grossoutput.com.
Best wishes, AEIOU,
Presidential Fellow, Chapman University
www.mskousen.com

 

MY SCHEDULE AT FREEDOMFEST 2019

FreedomFest
by Mark Skousen
Editor, Forecasts & Strategies

 

Dear FreedomFest friends,

Welcome to another great FreedomFest, “the world’s largest gathering of free minds.”

Every FreedomFest, the first thing I do is get the printed program and circle all the breakout sessions I want to attend.  You should do the same.  You can get started now by going online to freedomfest2019.sched.com, and see the entire up-to-date program.  There are over 260 sessions to choose from, including my wife’s Anthem film festival.

Order the MP3 Recordings!  Since I can only attend about 10% of all the sessions, the first thing I do is buy the recordings of the entire conference — order forms can be found at the Registration Table.

Here are the sessions I have chosen to attend this year:

 

WEDNESDAY, JULY 17 — PRE-CONFERENCE EVENTS

12 – 12:50 pm. Champagne 1. “Meeting at High Noon:  The Insider Guide to This Year’s FreedomFest: Plus the Book the New Socialists Fear the Most.” 

This is an introduction to this year’s events, highlighting my favorite sessions. I will also talk about the incredible response to my full-page ad in The Economist (over 1 million subscribers), “The Making of Modern Economics: The Lives and Ideas of the Great Thinkers,” third ed. now published by Routledge.

1-1:50 pm. Bordeaux.  “My Favorite Western Actors: John Wayne, Clint Eastwood, Jimmy Stewart” by Marc Eliot, Hollywood #1 biography.  He has written full-length biographies of all three.  Glad to have Marc Eliot back.

I’m also interested in attending in Champagne 1 the session entitled “Building Zion: Mormons and the American West,” with BYU Professor Daniel Peterson, a regular at FreedomFest.  Prof. Peterson will speak of the Mormon pioneers settling of the West, their practice of polygamy and socialism (“United Orders”), their attitude toward the native Americans, and the Book of Mormon as American scripture.

2 – 2:50 pm.  Bordeaux.  “Confucius, Lao Tzu, and Lin Yutang:  What the West Can Learn from Eastern Philosophy.” I’ll be on a panel with Keli’i Akina, president of the Grassroot Institute Hawaii and Doug Casey.  Keli’i will claim that Confucius, considered the most influential Chinese philosopher in history, was actually a libertarian; Doug Casey will discuss “the first libertarian” Lao-Tzu and the father of Taoism; and I will make the argument that Lin Yutang, who lived in the East and the West, is the greatest Chinese philosopher of the 20th century.

3 – 3:50 pm.  Burgundy.  “Best of Western Lit: What We Can Learn Today from Dante’s Inferno,” by Daniele Struppa, president of Chapman University.  I’ll be introducing him.  Abandon hope, all ye who enter here!  He will make the case that we should still study Western civilization, and then explain how Dante is relevant to today.

 

WEDNESDAY — OPENING CEREMONIES AND COCKTAIL RECEPTION

4:45 – 7 pm.  Opening Ceremonies in Rivoli Main Ballroom.  Lots of fireworks with Wayne Root on “Go West, Young Capitalists (to Texas, Nevada, but Not California!)….My interview free-market environmentalists Terry Anderson and P. J. Hill on “Anarchy and the Long Arm of the Law: How Wild Was the Wild West?”….Leonore Skenazy on “The Free Range Life of Raising Children”…Hollywood’s #1 biographer Marc Eliot on “Why the Western Captured the Imagination of America”…Actor Kevin Sorbo on “The Liberty Life, Hollywood-Style”…Herman Cain on “A Life in Business and Politics”…and finally Elizabeth Ames interviews Cain and Stephen Moore on “What I would Have Done at the FED.”

We will then be escorted into the Exhibit Hall with a music performance by Mark Lee Gardner and Rex Rideout playing an upbeat version of “Ghost Riders in the Sky,” the #1 Western song of all time.

7-8 pm.  Gala Opening Cocktail Party in the Exhibit Hall. I look forward to greeting each other and the exhibitors, what John Mackey calls “The Trade Show for Liberty,” and join in the autograph sessions at the FreedomFest bookstore.  Here’s a chance to buy one or more American eagle silver dollars from our coin dealers…and see if you can solve my daily “white mates in two” chess problem.  Hopefully you will encounter our libertarian card magician, Peter Studebaker, and meet up with Western musicians Mark Lee Gardner and Rex Rideout.  What fun!

Be sure to have a photo taken in front of the historic Wells Fargo Stage Coach.  I’ll be there.

I’m always amazed at the buzz you feel entering the opening cocktail party as friends see old friends and make new ones.  There’s nothing like it.

As the late Nathaniel Brandon said at his first FreedomFest, “I feel an electricity here I haven’t felt in years.”

 

THURSDAY, JULY 18

We’re start the day’s session at 8 am with a welcome from our new MC Jason Stapleton.  I will make some general announcements about this year’s FreedomFest, including our “Wild West on Wall Street Summit,” and my wife Jo Ann will talk about this year’s selections in the Anthem film festival, which runs throughout the conference.

8:20 – 8:50 am.   Rivoli Main Ballroom.  Global Economic Summit with Veronique de Rugy (moderator), Peter Schiff, Magatte Wade, Olav Dirkmatt, and Barbara Kolm discussing Trump trade wars, Latin America’s turning socialist/Marxist, European nationalism, China’s future, and corruption in South Africa.

During the morning general sessions, we will also hear from our many financial sponsors.  One is Michael Sheppard of Treasurer Investments, who will announce a silent auction of a beautiful bronze American Eagle sculpture.  You can bid on it throughout the conference.

9:10 – 9:30 am.  Rivoli Ballroom.  Libertarian media personality John Stossel on “Calling Out the Politicians,” highlighting his encounters with the Powers That Be in Death Star (Washington DC).

9:50-10:00 am.  Rivoli ballroom.  I will interview Michael Lathigee, president of Investment Club of America, which specializes in investing in successful private business.  I’m an investor, and the Club has made a lot of money.

11 am – 12 noon.  Rivoli ballroom.  This is our big debate this year, “Conscious Capitalism vs Pure Greed,” between John Mackey, CEO of Whole Foods Market, and Kevin O’Leary, author of “The Cold Hard Truth” about business and investing.  I serve as the moderator.  Hold onto your hats!

Mr. O’Leary is so enthused about this debate that he did a 2 min promo for us.  Watch it here:  https://vimeo.com/344196186

12 noon – 1:00 pm.  Champagne 2. Special luncheon (ticket required) with Kevin O’Leary, who will speak on “The Inside Story of Shark Tank.”  Kevin tells me that people have a ton of questions about Shark Tank — he’s ready to reveal all, and said he’s willing to stay longer to answer people’s questions.  Limited seating!

1:10 -1:35 pm. Vendome A.  “How Not to Get Rich:  What You Can Learn from the Financial Misadventures of Mark Twain” by Alan Pell Crawford.  I listened to his audio book of the same name, and found it fascinating that the country’s most successful American author ended up broke because of speculative fever.  Join me, as you learn more about your mistakes than your winners.

1:10 – 2 pm.  Champagne 1.  “Investment Strategies that Really Work” with Mike Lathigee, president of Investment Club of America.  I’ll head over to this session after attending Crawford’s talk on Mark Twain.  Lathigee invests your money in successful businesses, and has a great track record.  Become a member!  I did, and am collecting monthly checks.

I’m also tempted to attend Randy Barnett’s interview with attorney Alan Dershowitz in the Rivoli ballroom (via Skype).  He’s my favorite celebrity lawyer.

2:10-3:00 pm.  Champagne 1.  “God or No God” Debate:  “The New Atheists:  Are They Right about God?”  Hyrum Lewis, BYU-Idaho professor and author of “There is a God: How to Respond to Atheism in the Last Days” will take on Michael Shermer, founding publisher of Skeptic magazine and prolific author.  Alex Green will moderate.  Can’t wait for this one!

3:10 – 4:00 pm. Vendome A.  “Investing in Private American Businesses:  Democratic Capitalism at its Best” with Vince Foster, chairman and founder, Main Street Capital.  Since its inception in 2007, Foster’s private equity fund has outperformed the stock market and even Warren Buffett.  He will reveal his secrets to his 98% success rate investing in private companies — unheard of!  This is my #1 stock recommendation (up 25% this year alone).  After his talk, we will have a meet and greet.  See you there!

4:30 – 6:30 pm.  Rivoli ballroom.  General sessions with Rich Lowry, editor of National Review; Kevin Williamson on his new book, “The Smallest Minority”; an all-women’s panel on “After Ayn Rand: The Power and Vision of Libertarian Women,” with Naomi Brockwell, Jennifer Grossman, Terry Kibbe, Stephanie Lips, and Jenny Beth Martin.  Moderated by Valerie Durham.  And “The Battle for the Hearts and Minds of Millennials:  Will Liberty or Socialism Win?” hosted by John Stossel.  He will be asking tough questions to the presidents of fourth youth organizations.

8:00-9:00 pm.  Champagne 2.  FreedomFest Square Dance & Show, with professional caller Vern Vernazzaro and the Mama Wranglers. Join us, whether single or couple.  This will be an unforgettable evening.  My wife and I have been looking forward to this square dance for months!

 

FRIDAY JULY 19

8:30 – 10:30 am.  Rivoli Ballroom, General Sessions.  Judge Douglas Ginsburg (President Reagan’s original choice for the Supreme Court) on “Constitution Day,” sponsored by Free to Choose; Pitch Tank, where the top 4 growing businesses will compete for the top prize — always fun to watch.  (John Mackey and Kevin Harrington, among others, will be the judges.)  We will also hear from some of our financial sponsors.

10:30 – 11 am.  Coffee break in the Exhibit Hall.  Autograph sessions at the FreedomFest bookstore, brose over 100 exhibitors.  Get a picture taken at the Wells Fargo Stage Coach.  C-SPAN will be doing interviews at their booth on Thursday and Friday.

11 – 11:50 am. Chablis.  “Billy the Kid and Jesse James: American Robin Hoods or Wild West Psychopaths?” with Mark Lee Gardner and Rex Rideout.  They will play some ballads of both outlaws.  Not to be missed!

Another tempting session is the big debate in the Rivoli ballroom on “Immigration:  Open Borders or Walls?” between Candace Owens and Wayne Allyn Root (for the wall), and Doug Casey and Rakesh Wadhwa (for open borders).  Rich Lowry of National Review will be the moderator of this angry debate.

12 – 1:00 pm. Versailles 2.  “Eating Meat is Neither Healthy or Ethical — Or is it?” Debate for a full hour or longer between John Mackey (Whole Foods Market) and Bruce Friedrich (The Good Food Institute) and Joel Salatin (outspoken Christian libertarian farmer from Virginia) and Jeff Riley (Fitness Innovations).  Alex Green will be the moderator.  Let the food fight begin — it will certainly build up an appetite for a late lunch.

Another tempting session is the debate in the Rivoli ballroom, “Trump’s Trade War:  Art of the Deal, or No Deal?” pitting Stephen Moore (defending Trump) against GMU Professor Don Boudreaux (pro free trade).  Richard Rahn as moderator.

There are a couple of other events you may want to consider:  The Anthem film festival panel, “Out of Our Minds: Do Patents Foster Innovation or Kill it?” with George Gilder, Jenny Beth Martin, Luke Livington, and Paul Wendee.  In Versailles 3.

I see that bestselling author Tom Clavin is doing a roundtable in the Exhibit Hall on his new book, “Wild Bill Hickok:  The True Story of the American Frontier’s First Gunfighter.” 

1:00-2:00 pm.  Lunch in Champagne 2 with Forbes economist John Tamny, “the Genius of Income Inequality,” sponsored by FreedomWorks.  (Get a free ticket at their booth 401).

2:10-2:35 pm.  I’ll back in the Vendome A financial seminar room for “Top Ten Stocks to Buy Now” with Hilary Kramer, Jim Woods, and yours truly.  Moderated by Roger Michalski, publisher of Eagle Financial Publications.  This session could pay for your trip to Vegas!

Afterwards, I’ll be attending the rest of the session in Versailles 2, “Progressive or Oppressive?  Balancing the History of Manifest Destiny” with historians Tom Clavin, Stephen R. C. Hicks, and John Prevas.  Gary Alexander, moderating.

3:10 – 4:00 pm. Champagne 1.  “3:10 to Yuma:  Hollywood and the Romantic Ideal of the Old West,” with Marc Eliot.  I’ll be introducing him, and will find out why Westerns were so popular, then died out.

Another tempting session in the Rivoli ballroom is “The Dirty Dozen of Federal Laws,” with John Stossel (moderator), Keli’i Akina, Anastasia Boden, and economist extraordinaire Sean Flynn.  I can think of several:  The Jones Act, Ethanol subsidies, federal civil asset forfeiture laws, the drug laws, Social Security and Medicare….It will be interesting what this group of experts come up with.

4:00 – 4:30 pm.  Exhibit hall break.

4:30 – 4:50 pm.  Rivoli ballroom.  “On the Other Side of Race:  A View for the Future,” with Candace Owens, the fiery black conservative.

4:50 – 6:05 pm. Rivoli ballroom.  The mock trial, our most popular event.  This year we are putting “The Second Amendment on Trial,” with prosecuting attorney Michael Shermer and defending attorney John Lott.  Plus star witnesses, and a jury of 12 from the audience.  And for the first time, I will serve as the Judge!  A very controversial subject.

6:05 – 6:50 pm. Rivoli ballroom.  “The Magic of Liberty,” with Penn Jillette of the famed magic act Penn & Teller, followed by Penn & talk show host Glenn Beck:  “An Odd Couple Talks Liberty” and Q&A from the audience.  Fun!

7:00 – 8:00 pm. Champagne 3.  Penn Jillette Reception (ticket required).  Great opportunity to meet Penn and have your picture taken with him.

Afterwards, Conversation Circle with Marc Eliot (on Woodstock 50 years ago), reception for comedian Evan Sayet, yoga with Lauren Williams, Anthem film festival, and karaoke!

 

SATURDAY, JULY 20

7:30 – 8:30 am.  Champagne 2.  Breakfast with the Skousens!  Jo Ann will be speaking on “Investing for Two: How Couples Can Successfully Manage Their Finances,” with my comments afterwards.  We gave this talk at the Las Vegas Money Show and it was very well received.  Hope to see you there.

8:30 – 10 am.  Rivoli Ballroom.  “Freedom v Socialism: Why America Has Always Been Great,” with talk show host and author Glenn Beck.  He will be followed by “Our Wild Ride in Washington,” a panel with Senator Mike Lee, Representatives Justin Amash and Thomas Massie.  Hosted by Matt Kibbe and Free the People (expect a lot of controversy).  We also have a panel on “War and Peace: What is it Good For?”, with top foreign policy experts assessing the dangers in the Middle East and other hot spots around the world.  Moderated by Zilvinas Silenas, the new president of FEE.

9:55 – 10:00 am.  Rivoli ballroom. After this panel, I will present the Leonard E. Read Book Award to Cato’s Christopher Preble for his excellent new book “Peace, War and Liberty.”  This is our annual book award to authors who promote liberty.  It suggests “Read This Book!”  Chris will sign books during the 10:30 coffee break.

10- 10:30 am. Rivoli ballroom.  Before the coffee break, we have one more panel, “How to Argue Against the Socialists of All Parties” sponsored by the Reason editors Matt Welch, Katherine Mangu-Ward, and Nick Gillespie.  Reason has its tradition “Reason Day” sessions on Saturday.

10:30 – 11:00 am. Coffee break in the Exhibit Hall.  Be sure to pick up a signed copy of Christopher Preble’s new book, winner of the Read Book Award.

11-11:50 am.  Versailles 2.  “Funding Libertarians on Campus:  Hostile Takeover or Academic Balance?” with Daniele Struppa (Chapman U.), Jim Gwartney (FSU), and Don Boudreaux (GMU).  Gary Alexander moderating.  Marxists are famous for taking over departments.  Should libertarians do the same?

You might also want to see Charles Murray and his wife Catherine Cox talk about their book “Apollo” in celebration of the 50th anniversary of the landing of the moon.  They are going to be interviewed by Ed Hudgins on the topic “The Final Frontier:  Moon Landing, Star Wars, and Space Exploration.”  The interview is via Skype satellite in the Rivoli ballroom.  Perfect for this occasion.

 

12:00 – 12:50 pm.  Rivoli ballroom.  Closing Panel with Senator Mike Lee, Congressman Justin Amash, Jennifer Grossman, John Fund, and Magatte Wade.  I’ll be moderating.  We will discuss what we have learned at this year’s conference, and we talk about what we can expect in the next year.  I will also announce theme for FreedomFest 2020, and our controversial celebrity speaker for next year.  We will announce the winner of the $1776 prize, or two free tickets, to next year’s FreedomFest, donated by Valaurum.  Treasure Investments will announce the high bidder in the silent auction for the beautiful Eagle sculpture.

12:50 – 1 pm.  Group photo in front of the Wells Fargo Stage Coach in the Exhibit Hall for all those who have a silver dollar.  Not to be missed!

1-2 pm.  Lunch – Kiosk open in the Exhibit Hall, or sign up for a hosted luncheon.

2:10 – 3:00 pm.  Versailles 2.  “The Wild in the Wild West was RIGHT!  The Case for Anarchy” with Jeff Berwick, Doug Casey, and Katherine Mangu-Ward.  I will be the moderator and will challenge these crazy anarchists.

3:10 – 4:00 pm.  Loire.  “Call of the Wild West: Jack London, Socialist or Rugged Individualist?”  I will be presenting my views of America’s most popular writer of Western fiction.  I’ve been a lifelong reader of his books and short stories.  What is the true meaning of his classic “Call of the Wild”?  The answer may surprise you.  I will also read you my favorite short story by Jack London.

4:10 – 5 pm.  Versailles 2.  One final “Showdown in the FreedomFest Corral:  Which is Better, Democratic Capitalism or Socialism?”  John Mackey will take on a hard-core Marxist professor, Barry Eidlin (McGill University in Montreal).  I will serve as moderator.

6:00 – 10:00 pm.  Rivoli ballroom.  Saturday evening reception and banquet (ticket required) with the Amish Outlaws rock n roll band and Loop Rawlins, the cowboy entertainer.  Dinner, desert, the Anthem film festival awards, and much more.  Musicians Mark Lee Gardner and Rex Rideout, as well as libertarian magician Peter Studebaker will be making the rounds during the cocktail reception.

 

After a long four day event, it feels great to get out on the dance floor.  See you there!

 

This is also my opportunity to thank everyone who has worked so hard and put in countless hours or work and creativity to make this year’s FreedomFest and Anthem Film Festival an incredible success — Valerie Durham, our conference director; Autumn Bennett, Norann Dillon, Nathan Williams, Harold Skousen, our registration team, and of course my wife Jo Ann. 

 

And see you next year!  Dates are July 13-16, 2020, at the Paris Resort, Las Vegas.  Details to be announced soon at www.freedomfest.com.

 

Yours for peace, prosperity and liberty, AEIOU,

Mark Skousen

Producer

 

If GDP Lags, Watch the Economy GO

‘Gross output’ reflects the full value of the supply chain, and it portends much faster growth.

Reprinted from THE WALL STREET JOURNAL.

 By Mark Skousen

The Bureau of Economic Analysis will release its preliminary first-quarter growth figure on Friday. According to the Atlanta Fed consensus tracker, economists are predicting gross domestic product to have risen at a meager 2% annual rate. But a powerful behind-the-scenes indicator suggests the real rate may turn out to be significantly higher.

“Gross output,” or GO, reflects the full value of the supply chain—the business-to-business spending that moves all goods and services toward the final retail market. Based on my work and research by David Ranson, chief economist at HCWE & Co., changes in the supply chain are a strong leading indicator of the next quarter’s GDP.

The supply chain, which the BEA calls “intermediate inputs,” took off in the fourth quarter of 2017, growing at a 7.5% annualized rate. That’s more than double the rate of real GDP growth and the fastest pace since before the Great Recession. Real GO, which includes both GDP and the supply chain, rose at a 4.7% rate. The growth was broad-based, with strong numbers in mining, manufacturing, utilities and construction. The fourth quarter 2017 GDP growth rate of 2.9% did not reflect the dramatic increases in intermediate outputs because GDP by definition measures only spending at the end of the economic chain.

The GO model is more in keeping with the Conference Board’s list of 10 leading economic indicators, which are linked to manufacturing and capital markets. For three quarters in a row in 2017, GO accelerated, probably due to the anticipated tax breaks and deregulatory environment. The boom in intermediate business activity should translate into higher economic growth soon, barring international instability, trade wars, or tighter-than-expected monetary policy.

As I noted in these pages in 2014, measuring gross output is a breakthrough in national income accounting. By reporting GO as well as GDP, the BEA has helped economists catch up with the accounting and finance professions. Public companies have long reported the top line (revenue) and the bottom line (profit) at the same time each quarter. For a national economy, GO corresponds to the top line (total activity) and GDP to the bottom line (final product). As the economists Dale Jorgenson, J. Steven Landefeld and William Nordhaus wrote in a 2006 book: “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

GO also dispels the popular Keynesian myth that consumer spending is the driver of economic growth. For example, the New York Times recently warned: “With personal consumption accounting for nearly 70 percent of all economic activity . . . the administration will be hard pressed to lift growth substantially if consumers remain cautious about opening their wallets.” But GDP is an incomplete measure of economic activity. It overlooks the value of all goods-in-process, which amounted to more than $14.7 trillion in 2017.

The broader-based GO highlights the reality that business spending is actually substantially larger than consumption. Consumption is 69% of GDP but just 39% of GO, while business spending is 17% of GDP but 52% of GO. This model therefore better recognizes the vital contributions of entrepreneurship, capital investment and innovative technology. As Larry Kudlow, the new director of the National Economic Council, wrote in 2006: “It is business, not consumers, that is the heart of the economy. When businesses produce profitably, they create income-producing jobs and thus consumers spend. Capital formation is the key to worker productivity and consumer prosperity.”

The first-quarter 2018 GO release won’t come until July 20, but BEA director Brian Moyer says the agency plans to release both GO and GDP at the same time within the next year or two. Hopefully by then the media will catch on to this advance in supply-side national accounting and leading indicator of robust economic performance.

This article appeared originally on wsj.com and in the April 24, 2018, print edition of the Wall Street Journal.


About the Author

Mark Skousen is a Presidential Fellow at Chapman University.  He introduced gross output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990).

GO Slow: New Leading Indicator Predicted Slowdown in GDP

by Mark Skousen
Presidential Fellow, Chapman University
Editor, Forecasts & Strategies

For the previous two quarters (Q2 and Q3, 2017) Gross Output, the new broader measure of the economy that includes the supply chain, was growing at a slower rate than GDP.  According to my research, that suggested a slowdown in GDP.

Today the Bureau of Economic Analysis released the advance estimate for Q4 2014 GDP.  After two consecutive quarters (Q2 & Q3) of 3%-plus growth in real terms, the GDP grew only 2.6% in Q4 — just as GO predicted.

For some time now, I’ve been arguing that gross output (GO), the top line in national income accounting, is a more accurate measure of total economic activity.  Because it includes business-to-business (B2B) transactions in the earlier stages of production, GO can anticipate changes in GDP (the bottom line) as much as 12 weeks in advance.

Since the first quarter of 2017, GO has been growing at slower rate than GDP.  In Q2, real GO rose at a tepid 1.7%, substantially less than 3.1% for GDP, and in Q3 2017, real GO accelerated at 2.7% growth rate, but still less than the 3.1% real GDP growth for the 3rd quarter.  I concluded in November, “Second quarter GO suggests potential slowdown in the economy, despite the currently rising GDP.”  Please reference the 2017 Q2 and 2017 Q3 press releases for more information.

The following chart provided by David Ranson, chief economist at HCWE & Co., shows the relationship between GO, II and GDP since the third quarter of 2016.

GO

Data: Quarterly seasonally-adjusted chain-type quantity indices of intermediate inputs, gross output and gross domestic product (Bureau of Economic Analysis).

 

As David Ranson comments:  “In this chart we compare the growth of gross output (GO) and intermediate output (II) with the growth of GDP over the past year (all in real terms). The chart begins with the third quarter of 2016 because, prior to that, all three variables were moving in close parallel. At that point a substantial divergence opened up, as the growth of intermediate output (and GO) raced ahead of GDP growth. That implied an acceleration in GDP growth which we have been experiencing. Now, just-released third-quarter figures for GO and II suggest that a re-convergence has begun: in the second and third quarters of 2017 growth in GO and II has fallen below the growth rate of GDP. That implies that GDP will stabilize and possibly decelerate later in 2018.”

 


For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”: http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”: http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say

David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economic Watch, July 24, 2017. HCWE, Inc. http://www.hcwe.com/guest/EW-0717.pdf

Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015:  http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

 

2ND QUARTER GROSS OUTPUT SHOWS SURPRISE SLOWDOWN IN ECONOMY

Washington, DC (Thursday, November 2, 2017): Gross output (GO), the top line of national accounting and a leading economic indicator, grew at a slower pace than GDP in the second quarter 2017, indicating a sudden slowdown in economic activity.  Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University, states, “My research shows that whenever GO grows slower than GDP, it suggests a potential decline in economic growth and if this trend persists, a recession could follow.  While GO grew at a slower pace, there is no still no evidence of a recession.”

Based on data released on Thursday, November 2, 2017 by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO (GO*) increased at an annualized rate of 2.9% in the second quarter of 2017, which is significantly lower than the previous quarter’s increase of 6.0%[1]. Nominal adjusted GO for the second quarter of 2017 grew at slower pace than the 4.0% nominal GDP growth and the 3.6% growth of the unadjusted GO reported by the BEA.

Real GDP, the bottom line of national income accounting, rose at an annualized rate of 3.1% in the second quarter 2017.  Real GO* generally grows at a higher rate than real GDP during an economic expansion.  However, in Q2 2017, real GO* grew at only 1.7%.

Skousen states, “By focusing solely on final spending and the end of the economic chain, GDP can sometimes be a misleading indicator of economic performance.  GO is a much better, more comprehensive view of total economic activity along the entire supply chain, and indicates a less positive outlook right now.”

In fact, according to a recent study by David Ranson, chief economist at HCWE & Co., GO anticipates changes in GDP by as much as 12 weeks in advance and thus serves as a new leading indicator: http://www.hcwe.com/guest/EW-0717.pdf

Skousen B2B Index Also Slows Dramatically

The Skousen B2B Index, a measure of business spending throughout the supply chain, increased at 2.6% in Q2, which is significantly less than the 8.1% growth rate from the previous quarter. This is the first slowdown after four consecutive quarters of strong B2B growth of 5% or more. In the second quarter, B2B transactions rose at an annual rate of 1.4% in real terms.

After four quarters of strong growth, the adjusted GO rose at slower pace, but still increased to reach $41.27 trillion. The current adjusted GO is more than double the size of GDP ($19.25 trillion), which measures final output only.

Supply Chain Activity Continues Increasing, But at a Slower Pace

Out of the 29 Industries and sectors defined within GO, 26 sectors rose compared to the previous quarter. The mining sector grew 8.3% in the second quarter 2017, the most of any sector, but this was relatively small compared to the 62.7% annualized growth in the first quarter 2017. Moreover, the mining sector accounts for just 1% share of total GO, which diminishes the impact of this small increase on the overall GO.  In contrast, the manufacturing sector is almost a fifth of total GO (18% share). Therefore, the 1.2% annualized growth of the manufacturing sector has a much greater impact on the total GO. With a 2.6% annualized growth rate, durable goods outpaced non-durable goods, which fell 0.2% compared to the previous quarter.

Another sector with an 18% share of GO is the finance, insurance, real estate, rental and leasing sector. In the second quarter, this sector grew at a 7.0% annualized rate in nominal terms, which is higher than the 6.7% increase in the first quarter 2017. The finance and insurance subsector, which accounts for 8% of total GO by itself, rose 11.1%.

Compared to the previous quarter, spending fell significantly in only two sectors. The largest drop of 4.8% is in the agriculture, forestry, fishing and hunting sector. The Construction sector was down 5.7%. The aforementioned non-durables sector and the accommodation and food services sector were virtually flat with no change to the previous quarter. These four sectors combined account for a 17% share of the total GO. Therefore, the negative performance of these few sectors had a noticeable impact on the overall GO growth.

The other surprise in 2nd quarter GO was the dramatic slowdown in wholesale and retail trade. Compared to Q1, total retail trade rose only 0.3% and the Wholesale trade actually fell a marginal 0.1%.

Total government spending (11% share of total GO) increased 2.9% in the second quarter. This growth rate is marginally lower than last quarter’s 3% growth rate. The federal government grew at an annualized rate of 2.2% in nominal terms and state and local government grew at a slightly higher rate of 3.2%.

GROSS OUTPUT

GO and GDP are “Top Line” and “Bottom Line” of National Accounting

Gross output (GO) and GDP are complementary statistics in national income accounting.  GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement.  In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government.  GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO has continued to grow faster than GDP (most of the time) is a positive sign.

Business Spending (B2B) Grows Slower Than Consumer Spending

We have also created a new business-to-business (B2B) index based on GO data.  It measures all the business spending in the supply chain and new private capital investment.  Nominal B2B activity increased 2.6% to $23.67 trillion.  Meanwhile, consumer spending rose to $13.3 trillion in the second quarter, which is equivalent to a 3.5% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 1.4% and consumer spending rose 2.5%.

GROSS OUTPUT

“B2B spending is a pretty good indicator of where the economy is headed, since it measures business spending along the entire supply chain,” stated Skousen.  “The fact that business activity has slowed down in the 2nd quarter is a bit surprising, given the pro-business legislation is that expected to become law soon.”

About GO and B2B Index

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy.  GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

Click here: Structure of Production on Amazon

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.

The BEA now defines GDP in terms of GO. GDP is defined as “valued added,” that is, “the value of the goods and services produced by the nation’s economy [GO] less the value of the goods and services used up in production (Intermediate Inputs or II].”  See definitions at https://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm

With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

Note: Ned Piplovic assisted in providing technical data for this release.

For More Information

The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the new website, www.grossoutput.com (still in development), as well as the following:

Mark Skousen, “GO Beyond GDP:  Introducing Gross Output as the Top Line in National Income Accounting,” presented as the 2017 Schumpeter Lecture in Stockholm, Sweden, sponsored by the Swedish Entrepreneurship Forum:  http://entreprenorskapsforum.se/wp-content/uploads/2017/10/PS_Skousen_web.pdf

Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”:

http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”:

http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say

David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economic Watch, July 24, 2017.  HCWE, Inc. http://www.hcwe.com/guest/EW-0717.pdf

Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015:  http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

# # #

[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2017 2nd quarter is $33.2 trillion.  By including gross sales at the wholesale and retail level, the adjusted GO is $41.27 trillion in Q2 2017.  Thus, the BEA omits $7.8 trillion in business-to-business (B2B) transactions in its GO statistics.  We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO.  See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

GROSS OUTPUT AND B2B INDEX ADVANCE SHARPLY AFTER ELECTION

Washington, DC (Friday, April 21, 2017): Gross output (GO), the top line of national income accounting, increased sharply and much faster than GDP in the fourth quarter 2016, indicating a robust economy for 2017. “Whenever GO grows faster than GDP, it’s a good sign of economic recovery,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University who has long championed GO as a vital macro statistic.

Moreover, the Skousen B2B Index, a measure of business spending throughout the supply chain, skyrocketed in the fourth quarter, indicating a sharp recovery in business activity following the November presidential election of Donald Trump. B2B transactions rose at an annual rate of 8.4% in the fourth quarter, 5.8% in real terms, the faster rate in years.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO (GO*) increased at an annualized rate of 6.2% in the fourth quarter of 2016, which is 30% higher than the growth rate in the previous quarter [1]. Nominal adj. GO for the entire year (2016) advanced 4.1%, or 2.4% in real terms, substantially faster than GDP.
Nominal GDP, the bottom line of national income accounting, rose at an annualized rate of 4.16% in the fourth quarter, slightly lower than the growth rate from the third quarter. For the entire year (2016), nominal GDP advanced 3.9% or 2.1% in real terms.

Adjusted GO reached $40.6 trillion and exceeded the $40 trillion mark for the first time ever. In the fourth quarter, the Adjusted GO was more than double the size of GDP ($18.87 trillion), which measures final output only.

It is not just that the total economy is showing signs of growth. Industries in the early stages of production, which tend to be leading economic indicators, expanded at a higher rate than the overall economy. While the early stages of production – agriculture, forestry, fishing, hunting, mining, construction and manufacturing – accounted for a 26% share of GO, those combined sectors contributed 35% of the growth in the fourth quarter.

Supply Chain Activity on the Increase

Supply chain activity among various sectors was mostly positive, with only a few declining sectors. After reversing two quarters of double-digit declines in the third quarter, the mining sector enjoyed a 30.2% annualized increase in the fourth quarter. Utilities were down 5.5% for the quarter. The construction sector grew at a much faster pace of 7.7% in the fourth quarter when compared to a 2.57% third quarter boost.

The manufacturing sector accounts for an 18% share of total Gross output. Therefore, the sector has a significant impact on the overall performance of GO. The fourth quarter manufacturing increase of 7.6% is more than double of previous quarter’s growth rate. Another sector with an 18% share of GO is the Finance, insurance, real estate, rental and leasing sector, which rose 3.9% in the fourth quarter.

Professional and business services sector made another positive contribution and increased 4.3% for the quarter. Health care and social sciences sector reversed its decline from the third quarter and returned to the positive side in the fourth quarter with a 9.3% increase. The Retail sector and the Wholesale sector extended their growth records from the previous period with 6.6% and 8.2% increases, respectively.

Total government spending (11% share of total GO) increased slightly (+2%). This increase was driven by the growth in Local government spending, which rose by 3.3% in the fourth quarter while federal spending declined 1%.

2016-Q4-GO_and_B2B_1

Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO continued to grow faster than GDP is a positive sign.

Business Spending (B2B) Grows Faster Than Consumer Spending

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 8.4% to $23.3 trillion. Meanwhile, consumer spending rose 5.5% to $13 trillion in the fourth quarter. In real terms, B2B activity was up 5.8% and consumer spending increased 3.4%.

2016-Q4-GO_and_B2B_2

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain,” stated Skousen. “There is no doubt that business activity has picked up in expectation of pro-business legislation in 2017.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”
Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

Click here: Structure of Production on Amazon
The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.

The BEA now defines GDP in terms of GO. GDP is defined as “the value of the goods and services produced by the nation’s economy [GO] less the value of the goods and services used up in production (Intermediate Inputs or II].” See definitions at https://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm

With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”
Note: Ned Piplovic assisted in providing technical data for this release.

For More Information

The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:
Mark Skousen, “At Last, a Better Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”:
http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/

Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”:
http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say

New: Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015: http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.
________________________________________
[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2016 4th quarter is $32.8 trillion. By including gross sales at the wholesale and retail level, the adjusted GO is $40.6 trillion in Q4 2016. Thus, the BEA omits $7.8 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

A Tribute to Richard Russell

SkousenRussellMauldin

Mark Skousen (left) and John Mauldin (right) present Richard Russell with a copy of “Fifty Years of Wall Street”

Richard Russell (1924-2015), legendary publisher of the Dow Theory Letters since 1958, passed away on Saturday, November 21 at the age of 91.  Due to heart disease, he stopped speaking at investment conferences, but continued to write his daily commentary into his nineties.  My friend Van Simmons and I visited him and his wife Faye at his home and gardens in La Jolla.  When Mohammed can’t come down from the mountain, you have to go up to the mountain.

In 2009, I arranged with John Maudin to put together a special “Fifty Years of Wall Street” book of his writings for his 50th anniversary celebration of his “Dow Theory Letters.”  The book also contained tributes from dozens of friends and fans over the years (see below).  It was the last time I saw him. His insights will be missed.  He was truly one of the founders of the newsletter business and one of the original gold bugs.  We will dedicate a room to him at next year’s FreedomFest.

He was famous for his technical system of the Dow theory that determined whether the stock market was in a bull market or a bear market, and his newsletter always had a box in each issue with either a bull or a bear in the box (his last issue had a “bear” in the box).  His most famous quote, “In a bear market, the winner is he who loses the least,” is one of my favorites and can be found in “The Maxims of Wall Street” (page 100).

Tributes to Richard Russell (2009)

Richard:  You are my hero. I stand amazed at your ability to see through the fog of the markets so clearly for over 50 years, to maintain a calm and steady demeanor in the times of turbulence and to hold the hands of your legions of followers. You are a comforting presence in times of stress and a true friend to all of us who consume your wisdom. Thank you for all you have meant to so many over the years. And I hope one day to match your record of writing in what will soon be seven different decades. And I look forward to reading you and remaining your friend as you start your eighth in another ten years! Truly, life and health to you and Faye. — John Mauldin

Hail, fellow schoolmate!  I have read and admired your work over more years than probably either of us can remember.  You are original, serious, fun, illuminating, fascinating, stubborn, realistic, pioneering, and honest.  That is only a partial list, but you will want to time left to read greetings from other admirers.  Long may you wave, because we all need you. — Peter Bernstein

I cannot get enough of Richard Russell. I began reading him as an intern after my sophomore year of college and became hooked. I would sit at my computer watching the clock until his letter was posted. His letter is unique as well as personal. Thank you for everything you do and keep it up. –Steven Aldridge

Thank you, Richard, for all of your hard work. Please keep writing as long as you wish. In the meantime, keep training your son to fill in some day in the very distant future. Again — thank you Richard! –J Harrison Beal

As a long-time subscriber, I have been fortunate enough to learn from your thoughts not only about the market, but life in general. I especially appreciate the picture you sent me standing in front of a model B25 plane. My wife also reads your letter and we wish you well. – Myron Berkson

Every time I contemplate a move in the market, I pause first to listen in my head to Richard’s warnings, advice and wisdom. I have never regretted decisions based on his influence. I have enjoyed just as much, his comments and anecdotes on non-financial matters, from politics to stories of the war. I am nearly as old as he is and I remain in awe of the effort I know it takes to talk to us every day. – Dr. Virginia Biddle

Dick, I remember visiting you in your apartment on Lexington Avenue in 1958 after your article in Barron’s. We had a nice chat and I was very impressed. I have been a reader of Dow Theory Letters ever since and it has greatly influenced my investment career and results. Thank you very much. -Gene Brody

What a legacy! You have literally saved people financially as well as brought wisdom and cheer to their lives. You are terrific! – David Cantwell

We have never met, but I’ve been an admirer and, to some extent, imitator for many years.  Before I begin writing, every morning, I read you to get the perspective of the “old timers” — people who really know what they are talking about.  After all these years, I still don’t really understand Dow Theory.  As you say, the market can do what it wants.  Even after you ‘put the bear in the box’ stocks can still go up!  To me, Richard Russell’s Dow Theory may not always work in theory, but works in practice.  Your long experience at trying to read the “language of the market,” has made you as fluent as anyone still alive.  I rely on you to translate for me…to help me understand what is going on.  I just hope you keep at it at least until I retire.  — Bill Bonner

When I was 10 years old, my Dad insisted that I start reading Dow Theory Letters. The year was 1970.  I didn’t understand a word of it except for the stories in the Notes and Quotes section that kept me reading. I owe Richard an immeasurable debt for the knowledge he has giving about life and the markets. Thank you from me, my family and all of the people we passed your letter to over the years.  Took a position in Gold in 2000 and am still riding the bull.  Wha Hoooo! – David Carpenter

I first subscribed to Dick’s letter in the 70’s, and even today I can remember his observations. More than observations– genuine wisdom. I’ve never seen him miss a major turn of the market. Dick, I truly have the utmost professional, and personal, respect for you, and what you’ve accomplished. – Doug Casey

Loyal reader for more than 20 years. Richard, you have kept me out of serious trouble in the market over the years. And tipped me early to salting away some gold. I could never thank you enough. – Eric Ether

Richard, YOU sparked my financial life and got me thinking about how the world REALLY turns.  I first discovered and subscribed to your letter in 1972, sold my house and bought gold and silver with the proceeds. Your advice strongly influenced my decision to buy silver at $1.72 per ounce and gold at $58.17 an ounce. You might remember that by 1974 you couldn’t give a house away in San Diego, wage and price controls, and 18 ½ percent interest rates.  Did you know what you were talking about back then? You bet you did!  And, Richard, you still have what it takes!  Congratulations for your unequaled perspicacity and longevity in this difficult business. May you continue to receive all that you rightfully deserve. –Robert Cederhal

I was passed to Russell’s Letter by Martin Zweig when he quit. Best thing he did for me! – Ralph Condit

My husband, who died of melanoma in 1979, introduced me to Dow Theory Letters in 1970.  I have been reading them since 1973. Richard Russell is like family to me. I reveled in each revelation of his life and character as he kept my financial mind stable and stimulated. I have not always done what he advised, but always took his advice under consideration. I love him. –Frederika Cornell

Thank you for the privilege to meet you in person, after having spent countless hours in the company of your thoughts. Thank you for making me aware of the wave and the idea as opposed to being knocked about by the ever-unpredictable gusts of air in the market. Thank you for the peace of mind that goes with contemplating value, rather than the anxiety of watching prices. Thank you for sharing wisdom rather than pushing a sales line. Thank you for the privilege to log on every evening at 11 pmin my home in Holland for a moment of refection and learning. Good Health and Good Luck. -Ton Coumans, Amsterdam, theNetherlands

The integrity, the experience, and the wisdom always shines through. - Adrian Day

Best interpreter of the Dow Theory who ever lived. Thanks for the money you have made for me including your 12/74 call of the end of the bear market. – Kenneth Dorking

First, I will be forever grateful to Julian Synder who quit publishing “International Moneyline” and got Richard Russell to take on his old subscribers! Richard Russell has saved my financial life, but more importantly than money, Richard has shared his personal life with me. What a wonderful, creative, and beautiful chronicle of this man’s experiences during his extraordinary lifetime. – George Finley

About eight years ago on a vacation in Italy, we came across an interesting looking cactus. I remembered Richard’s interest in cacti and so took a photograph and e-mailed it to him. He recognized the type of cactus right away and responded with the name of the type. I am a recently retired portfolio manager here in Canada and Richard’s “top-out parade” in 1999 or 2000 alerted me to the impending market correction and saved my clients a great deal of money. – Deborah Frosst-McInnes

Across the electronic divide there are mental bridges that connect us all. Your words have often facilitated that bridging. I have sometimes disagreed with you, but have always enjoyed your words and they have always been great value. You are significant mortar in this vast collection of human bricks. A mere thanks is not enough… – Douglas Graham

I have learned more from Richard Russell, than I did from the combined group of teachers I had in school. Since 1991, I have rarely missed a word he has written. Of course it has influenced my own thinking and writing. I am eternally grateful for the knowledge and pure entertainment of his work! It has been a true blessing in my life! – Craig Griffin

My grandfather, a WWII veteran, was an original subscriber in the 60’s until he passed away in 2003. My father has been a longtime subscriber and I started reading the Dow Theory Letters over his shoulder when I was working for him after college. I now have 3 kids and have been a subscriber for 10 years. My husband and I are probably the only ones in our circle of friends who read daily about the markets and most certainly the only ones who have owned physical gold since it was in the 200’s. Thank you Mr. Russell! - Nancy Grimes

Cactus Stamps, and his great call on the start of the stock bull market in 1974, and his other on the great gold bull market in 2001. -Robert Hall

Richard has been very influential in my life. He pointed out to me the critical link between sound money and liberty. There’s far more at stake here than just our bank accounts. - Michael Huebner

I am just one of his legions of fans. –Terry Hughes

Richard is the father I never had.  The shining light in a dark night.  May his work live on forever. – Edward Hummel

A subscriber since 1958.  Thanks for making several million dollars over a span of 51 years. We Love You. –Gordon Jenkins

I have followed Richard for 30 years. His consistency, perception, intuition, humor and humanity have been a daily privilege to experience. – Tyler Jenks

I’m 54 years old and have been reading Richard for about 10 years now. Richard has become my mentor and my adopted financial father figure – since my own dad (also a WWII vet and B17 tail gunner) did not teach me about markets and finance. Richard has also passed down some valuable life-lessons that I’ve tried to incorporate into my own life. I love his personal writing style and you really get the feeling he cares about his subscribers. Thanks Richard! - Chris Kokinakes

Have been a subscriber since 1980 to the Dow Theory Letters (except for one 6 month break in the late 80s). My dad was flight engineer/top gunner on B-25 Mitchel in WW2 and so I shared the war stories/comments with my dad (who told me to correct Mr. Russell that the B-25 engines were “Wright Radials” not “Pratt & Witneys”). Prior to receiving the daily DTL by email, I treasured each biweekly hard copy of the DTL and when it came in the mail I would carefully put it in my back pants pocket and save it to read in the most serene or exotic locale I was going to be at in the next couple days. I\’ve read the DTL from the bottom of the Grand Canyon to the top of the Swiss Alps, on planes, trains, helicopters and even a submarine! - Richard Lane

Read Richards letter every day he posts it. Bless his heart, may he live to be as old as he wishes. – James Langell

We’ve never met, but he’s almost a friend, after reading him for so many years. Not many could achieve this with subscribers.-Frederick Lehmann

You have been an inspiration and financial mentor for whom my family and I will be forever grateful. – Terrance Macho

Mr. Russell’s newsletter has made fortunes for me and my company, and his writing has always entertained and informed.  – Steve Mathews

When I started Deliberations in 1972, Richard often used my charts and quoted my work to help “put me on the map” as he did unselfishly for many new letters. I’m also a happy user of EDTA Chelation with great success in part due to his ongoing promotion of it. Haven’t seen him in many years, and relish this opportunity to say thank you to a great guy. – Ian McAvity

Was introduced to the remarkable market analysis of Richard Russell many years ago by Kennedy Gammage and his Richland Report. –Sherman McClellan

How I appreciate all the passion, wit, and brilliance of this wonderful man. –Ruth Neuman

For quite a few years now I’ve had the pleasure of reading your pieces, first bimonthly and then daily, and absorbing the wisdom contained in your writings. You have enriched my life beyond measure, and for reasons beyond financial enrichment, as valuable as your advice has been in that regard. For all of this I thank you so much! Warmest regards from a loyal and devoted reader. -David Nicoli

Richard’s unique perspective on the markets is greatly appreciated, but what makes him stand out head and shoulders above the crowd is his integrity and ability to be frank and forthright. –Leonard Oppenheim

I encountered Richard’s writings a few years ago and pretty much immediately signed up to subscribe. Not only does his writing combine experience with perspicacity, his work exudes a humanity that is humbling and inspiring. We are lucky indeed to have his voice at this as we confront the vicissitudes of fortune. Thank you for your great service. – Xavier Porterfield

He teaches difficult concepts with enviable lucidity — a great teacher. -Mike Roizen

He taught me the meaning of the word greenspan – Jeffrey Schwartz

I have enjoyed reading Dow Theory Letters since my early days as a young private banker in La Jolla. I was introduced to the letters by a client and, from them, fairly quickly came to realize that the housing market then was overbought. We sold our first home in 1990, after thirteen months of working nights and weekends on that house and after many tears from Mrs. Shinsky when the prospect of selling was raised. She fairly quickly concurred after viewing the supporting evidence (…what a blessing she is!). Because of that decision, we were able to remain on the sidelines until the market settled. We weathered a very difficult environment and remained flexible to other opportunities that have served our family well. We are forever grateful for the “pearls of wisdom” harvested from Mr. Russell’s letters. We pray for him to receive joy from the knowledge that his writings have given so much peace, and relief from anxiety, to those who have read them and acted upon them. – Stephen Shinsky

We first began reading the Dow Theory Letters in 1975.  So when we met Richard Russell at a conference in the Bahamas in 1978, when he was a speaker and we were attendees, we were honored to talk to the exceptional market writer we admired so much.  Over the last 30 years we’ve been proud to be his friend, and we will forever be grateful for his ongoing support.  Richard has always been our favorite writer and to this day we look forward to reading his daily thoughts.  We love Richard and wish him the best in health, wealth, happiness…well, in everything life has to offer for many years to come –MaryAnne and Pamela Aden

I have been reading Richard for around 2 years. He is as good as they get and has truly helped me protect myself and my Mother and Father. Dad is 82 and Mom is 72. Due to Richard, I was able to convince them to sell completely out of the stock market in April 08 and put them in cash and gold. I cannot imagine where I would be or worse yet, where they would be had we not made that move for them. They were heavy in Blue Chips and Berkshire. THANK YOU FOR ALL YOUR INSIGHT. I wait to ready your Latest Remark every day. - Christopher Snell

You always keep me looking at the big picture. I started out reading your analysis six years ago after I graduated from college.  Your confidence in yourself is contagious.  I become more confident in my trading with every letter you write. You’ve taught me to rely on myself and no one else; especially the government!  Thank you. -Dean Somes

I’ve been reading Richard’s The Dow Theory Letters for almost five years. Each day I eagerly look forward to reading Russell’s Remarks to better understand what the “language of the markets” is saying; his daily remarks provide me with much emotional and investing support in navigating through the troubled waters of investing, particularly today. I’ve enjoyed his many anecdotes about his WWII military service, his family, his views on politics and economics and what he has learned about life. I get a big kick about the way he deals with irate readers who don’t agree with his views on politics and religion. Richard, thanks for your service, your humor, your informative and entertaining writing, and your wisdom. May you live to be over 100, as I know you want to know how things will work out! -Ralph Spencer, Jr

I want to take this opportunity to thank you again for encouragement and support in helping me establish and grow my own business. Many of our current subscribers first heard about Decision Point from Richard Russell. My sincerest gratitude and best wishes. -Carl Swenlin

An “ALL-TIME CLASSIC” guy. Have read, enjoyed and profited from his investment advice for almost 40 years as a Smith Barney broker. –John Tevenan

My thanks to Richard for the endorsement that appears on the back cover of my book. -Albert Thomas

Long-time reader.  So long ago that I don’t know if his thoughts are mine or my thoughts are his. -Jon Vanderwood

12 years constant reading. –Tryon Williams

Richard, thanks to you and the Dow Theory Letters, our family is financially secure today. We listened and bought gold and silver too. There is no way we can ever repay you for what you have given us. Long life to you, Richard Russell! –Christine Wood

I worked for Richard’s CPA in 1978, and have been following him ever since. I have benefited from his advice, and enjoyed his non-financial comments as well. I am looking forward to seeing him again — the last time was when I visited him in the hospital after his heart surgery, many years ago! –Charlie La Nasa

Was not a regular reader of Richard’s, but am fully aware of his contribution to the investment community as well as San Diego. –Matthew Pavich

I remember your awesome call at the end of 1974 when everyone was scared to death…you called the bottom of the greatest stock market bear in history. People forget that the average stock on the NYSE was down 85%…this was masked by the Dow and S&P. There was blood in the streets. A few weeks before that Doug Casey and I both joke about how we sold out at the exact bottom since we were so new to the game.  You have been a great force for good in a world with plenty of wrongs. You are credit to your profession and you make us all very proud. — Ken Gerbino

There are few people on this earth from who I have learned as much as I have from Richard over the years – I should say over the decades. A friend brought his newsletter to my attention in October 1974. I still remember it well because Richard was calling a bottom in the stock market, which seemed outlandish at the time. But in fact time proved that it was a brilliant call, and just one of many made by Richard. I know of no one who has been as consistently right about the market as Richard. Please wish him well for me.  – James Turk

We enjoy your daily comments and wish you all the best.  My father served in the army in the pacific during WWII and I served 23 years in the Navy as a pilot.  Your stories of duty in the European area are excellent insights to the vast majority of younger individuals who know nothing of the sacrifices you and my dad made for this country.  Thank you for all you do and keep on working as long as you enjoy it.  –Angelo and Duke Brunelli

What an amazing record of accurate calls and solid advice Richard Russell has compiled for the past 50 years.  He has been an inspiration to every newsletter writer and publisher I know.  I’m delighted to join the legion of happy subscribers who are honoring him tonight. — W.W. “Chip” Wood

Richard Russell has the great distinction of being a legend in his own time for over 50 years.  He has provided consistently sage advice for his many loyal clients, avoiding the fads and the hype of the day and concentrating on helping his clients with the difficult task of building wealth slowly and surely over time.  Always level-headed, Richard imparts worldly wisdom and humanity to his readers in addition to his always thoughtful, disciplined and provocative investment advice. — Tony Boeckh, President, Boeckh Investments & Former Owner & Editor-in-Chief of The Bank Credit Analyst.

Richard, I started reading your reports I was a teenager over 35 years ago. I have much respect for what you’ve done for me as a young person learning the market in the 60’s when technical chart reading was considered at best voodoo. You have always been most gracious with your time whenever I phoned to get your perspective on market trends or chart reading. You have been an inspiration for many of my companies and helped me launch the Gold Report by providing me your insights into the markets and life. Your generosity was one of many influences for me to dedicate all profits from my winery Lookout Ridge to buying wheelchairs for needy individuals with mobility challenges world wide. — Gordon L Holmes  

Just Released – Fourth Edition of “The Maxims of Wall Street”

As J. Paul Getty, America’s first oil billionaire, said, “Sound stocks purchased when their stocks are low and held for the long pull are very likely to produce high profits through dividends and increases in value.”

That quotation and 800 others are included in my classic collection, “The Maxims of Wall Street.” I took some copies with me on my recent Politics & Your Portfolio cruise to New England, and one attendee, John O’Brien of Florida, bought a copy and read it on the ship. He came up to me and said, “There’s more education in this book than with four years of college!”

SkousenOBrienMaxims4

Mark Skousen looks on as subscriber John O’Brien of Florida reads “The Maxims of Wall Street” on the deck of Eagle’s/FreedomFest’s Crystal Symphony cruise (New England/Canada).   
“There’s more educational value in Maxims than with four years of college today,” he said. 

New Fourth Edition Arrives on Thursday — at Half Price!

The Maxims of Wall StreetI’m happy to announce that we have sold out of the third edition, and I’ve gone back to press with the new fourth edition. The new edition will arrive on Thursday! It mentions more than a dozen new quotations and authors, such as this one: “The stock market takes the stairs up and the elevator down.” So true!

For 30 years, I’ve been painstakingly collecting all the wise old adages, proverbs, humor and legends on Wall Street, based on in-depth interviews with old timers, reading rare financial books and my own experiences of more than 40 years in the financial markets. They include famous lines from Warren Buffett (“If you wait to see the Robin sing, Spring may be over”)… J. P. Morgan (“Troubled waters make for good fishing”)… Richard Russell (“In a bear market, the winner is he who loses the least”)… and Steve Forbes (“Everybody is a disciplined, long-term investor until the market goes down”).

I divide the book into various categories: beating the market, diversification vs. concentration, value vs. growth, bulls vs. bears, black swan events… doomsayers and cassandras… hot tips and inside information… chartists vs. fundamentalists… taxes and tax havens… inspiring “pearls of wisdom” and even a few short stories.

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Announcing the New Third Edition of “The Structure of Production”

Federal Government Introduces a New Macro Statistic: A Triumph in Supply-side “Austrian” Economics and Say’s Law

Mark Skousen, The Structure of Production. New York University Press. Third revised edition, 2015, 402 pages. $26 paperback. Available on Kindle.

To buy the book: NYU, Amazon
Quarterly data for Gross Output can be found at the BEA site here.
For Skousen’s latest quarterly report on GO, see this.

From the cover:

SoP3coverweb2In 2014, the U. S. government adopted a new quarterly statistic called gross output (GO), the most significance advance in national income accounting since gross domestic product (GDP) was developed in the 1940s. The announcement comes as a triumph for Mark Skousen, who advocated GO twenty-five years ago as an essential macroeconomic tool and a better way to measure the economy and the business cycle. Now it has become an official statistic issued quarterly by the Bureau of Economic Analysis at the U. S. Department of Commerce.

Quarterly data for Gross Output can be found at the BEA site here.

For Skousen’s latest quarterly report on GO, see this.

Since the announcement, Gross Output has been the subject of editorials in the Wall Street Journal, Barron’s, and other financial publications, analyzed in the Eastern Economic Journal, and is now being included in leading economics textbooks, such as Roger Leroy Miller’s new 18th edition of Economics Today. Economists are now producing GO data for other countries, including the UK and Argentina.

In this third printing of Structure of Production, Skousen shows why GO is a more accurate and comprehensive measure of the economy because it includes business-to-business (B2B) transactions that move the supply chain along to final use. (GDP measures the value of finished goods and services only, and omits most B2B activity.) GO is an attempt to measure spending at all stages of production.

As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in “A New Architecture for the U. S. National Accounts,” “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen states, “Gross Output fills in a big piece of the macroeconomic puzzle. It establishes the proper balance between production and consumption, between the ‘make’ and the ‘use’ economy, between aggregate supply and aggregate demand. I make the case that GO and GDP complement each other as macroeconomic tools and that both should play a vital role in national accounting statistics, much like top line and bottom line accounting are employed to providing a complete picture of quarterly earnings reports of publicly-traded companies.”

He concludes, “Because GO attempts to measure all stages of production (known as Hayek’s triangle), it is a monumental triumph in supply-side ‘Austrian’ economics and Say’s law.”

Using GO, Skousen demonstrates that consumer spending does not account for two-thirds of the economy, as is often reported in the financial media, but is really only 30-40% of total economic activity. Business spending (B2B) is over 50% of the economy, and thus is far larger and more important than consumer spending, more consistent with economic growth theory, and a better measure of the business cycle. (See chart below.)

GO1stQtr2015-B

About the Author

MARK SKOUSEN is a Presidential Fellow at Chapman University in California. He has taught economics and finance at Columbia Business School, and is a former economic analyst for the Central Intelligence Agency. He received his Ph. D. in economics at George Washington University (1977). He is the editor-in-chief of the investment newsletter Forecasts & Strategies, and author of several books, including The Making of Modern Economics.

Reviews

“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.” — Steve H. Hanke, Johns Hopkins University (2014)

“The development of Gross Output is a good idea and a better measure [of economic activity] than GDP.” — David Colander, Eastern Economic Journal (2014)

“This is a great leap forward in national accounting. Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy.” –Steve Forbes, Forbes magazine (2014)

“Skousen’s Structure of Production should be a required text at our leading universities.” (referring to second edition) –John O. Whitney, Emeritus Professor in Management Practice, Columbia University

“Monumental. I’ve read it twice!” (referring to first edition, published in 1990) — Peter F. Drucker, Clermont Graduate University

“I am enormously impressed with the care and integrity which Skousen has accomplished his work.” — Israel Kirzner, New York University

For Interviews or Lectures

To interview Dr. Mark Skousen or arrange a lecture, contact him at mskousen@chapman.edu, or Valerie Durham, Media Relations, 410-570-0535, or email her at vdurham@skousenpub.com.

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