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Best, AEIOU,

Mark
Mark Skousen 
Presidential Fellow, Chapman University

Producer, FreedomFest
10th Anniversary of 
“The World’s Largest Gathering of Free Minds”
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THE ECONOMY IS BACK ON TRACK: THIRD QUARTER GROSS OUTPUT AND B2B INDEX SHOW ROBUST GROWTH

By: Mark Skousen

Washington, DC (Thursday, January 19, 2017):  Gross output (GO), the top line of national income accounting, increased at a 4.6% annualized rate in the third quarter of 2016, according to data released today by the Bureau of Economic Analysis.  Adjusted GO reached almost $40 trillion ($39.8 trillion) in the 3rd quarter 2016.

It is a second consecutive quarterly increase, indicating a sustained recovery as we enter 2017.  Moreover, almost all of the industries, including the early stages of production, showed positive performance.

The Skousen business-to-business (B2B) Index, a measure of business spending throughout the supply chain, also increased for the second quarter in a row, after showing a decline of three consecutive quarters reversed in Q2 2016.  The B2B Index change versus the prior quarter, in nominal terms, is an annualized 3.4%.

Based on data released by the BEA today and adjusted to include all sales throughout the production process, nominal adjusted GO increased 4.6% in the 3rd quarter of 2016, matches the same increase from the 2nd quarter of 2016[1].  Adjusted GO reached almost $40 trillion ($39.8 trillion) in the 3rd quarter, more than double the size of GDP ($18.65 trillion), which measures final output only.  Nominal GDP, the bottom line of national income accounting, rose at a 4.4% annualized rate.

Supply chain activity varied among various sectors significantly in the 3rd quarter, but was mostly positive, especially in the early-stages of production.  Mining activity reversed two quarters of double-digit declines and increased 22% in Q3 2016.  Utilities managed a 25% annualized increase in the third quarter.  The construction sector showed a minor Q3 increase of 2.6%.  However, that is significantly better than the 7.5% decline in the second quarter.

While the manufacturing sector increased only 3.7%, it was a major contributor to positive results in Q3 because the manufacturing sector accounted for an 18% share of total GO.  With a 6.9% increase and a 7% share of total GO, the finance and insurance sector was another significant contributor to overall growth.

The information sector reversed course again and increased 8.1% after a 2.3% decline of in Q2.

Professional and business services sector made a positive contribution and increased 4.4%, improving on the 3.6% growth rate from Q2.  After increasing at 7.5% in Q1 and almost 10% in Q2 the Health care and social sciences sector reversed course and declined slightly by 0.4%

While the Retail sector’s increase improved on previous quarter’s performance (3.5% in Q3 vs. 1.75% in Q2), the Wholesale sector rose almost 4% reversing the 1.80% decline from the previous quarter.  The positive contribution by the wholesale sector is another indicator that spending in early stages is improving.

Government spending (11% share of total GO) increased 4%, with federal spending growing a bit less (3.4%) than local government, which grew by 4.2%.

2017-Q3-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 is a positive sign.

Real Business Spending (B2B) Shows Strong Growth

We also have created a new business-to-business (B2B) index based on GO data.  It measures all of the business spending in the supply chain and new private capital investment.  Nominal B2B activity increased at an annualized rate of 3.4% compared to the previous quarter to reach $22.7 trillion.  Meanwhile, consumer spending rose at an annualized rate of 3.6% to $12.8 trillion in Q3 2016.

2017-Q3-GO_and_B2B_2

“The GO data and my own B2B Index demonstrate that total US economic activity is expanding robustly,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University.  “B2B spending is in fact a pretty good indicator of where the economy is heading, since it measures spending in the entire supply chain, and it indicates balanced growth at this stage.”

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.  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, which 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 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

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 3rd quarter is $32.4 trillion.  By including gross sales at the wholesale and retail level, the adjusted GO is $39.8 trillion in Q3 2016.  Thus, the BEA omits $7.5 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.

SECOND QUARTER GROSS OUTPUT AND B2B INDEX INCREASE, STILL NO SIGNIFICANT GROWTH OF THE U.S. ECONOMY.

By Mark Skousen

Washington, DC (Thursday, November 3, 2016):  Gross output, the top line of national income accounting, increased 1.1% in the second quarter of 2016, according to data released today by the Bureau of Economic Analysis.  It is still sluggish and without indication of significant growth.  While the overall economy showed signs of growth, industries in the early stages of production are struggling according to economic data released today.

The Skousen B2B Index, a measure of business spending throughout the supply chain, moved into positive territory after falling for three quarters in a row.  The B2B Index change versus prior quarter in nominal term is currently at +1.1%.  The small increase is a positive sign.  However, unless the trend continues for the remainder of the year, the threat of a potential mild business recession still remains as we approach 2017.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO increased 1.1 % in the 2nd quarter of 2016, slightly better than the increase in the 1st quarter of 2011 (+0.3%) [1].  Adjusted GO was almost $39.5 trillion in the 2nd quarter, more than double the size of GDP ($18.45 trillion), which measures final output only.  Nominal GDP, the bottom line of national income accounting, rose 0.92% in the 2nd quarter versus the previous quarter (3.7% annualized).

Supply chain activity varied among various sectors significantly in the 2nd quarter, with significant declines in early-stage production.  Compared in real terms to the previous quarter, mining activity fell by another -12.6% in Q2 after declining -18.7% in Q1.  The Construction sector declined -7.5% after showing a +9.4% growth in the previous quarter.  The information sector also reversed course and declined -2.3% in Q2 after a 5.6 increase in Q1 2016.

The Professional, scientific, and technical services sector made a positive contribution and increased 3.6%.  However, that is less than half the growth rate (+8.8%) from Q1. The sector that increased more than previous quarter was Health care and social sciences, which grew by almost 10%.  This is higher by a third compared to the Q1 result of +7.5%

While the Retail sector was slightly higher (1.78%) in Q2 2016 versus the previous quarter, the Wholesale sector was down (-1.80%).  This is another indicator that spending in early stages is still struggling.

Government spending (11% share of total GO) was flat (+0.13%) with federal spending growing a bit more (0.21%) than local government, which grew only 0.09%.

Adjusted GO vs GDP rate of change 2016 Q2e

Gross output (GO) and Gross domestic product (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.

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 reversed course and grew faster than GDP is a positive sign.  However, GO growth will have to increase significantly in upcoming quarters to suggest that the economic recovery continues into 2017.

Real Business Spending (B2B) Suffers Slight Decline

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 1.1% compared to the previous quarter to $22.5 billion.  Meanwhile, consumer spending rose 1.6% to $12.7 billion in Q2.

2016 Q2 Skousen B2B Index vs consumer spending

“The GO data and my own B2B Index demonstrate that total US economic activity has picked up slight,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth at this stage, despite desperate efforts by the Federal Reserve and the federal government to stimulate the economy.”

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.  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 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

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 2nd quarter is $32 trillion.  But by including gross sales at the wholesale and retail level, the adjusted GO is $39.5 trillion in Q2 2016.  Thus, the BEA omits $7.5 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 (GO) a Major Discovery as a Top Line in National Income Accounting

By Mark Skousen

Today (Columbus Day) I submitted my paper “GO Beyond GDP:  Introducing Gross Output as a Top-Line in National Income Accounting” to the American Economic Review.  I think it appropriate to submit it on Columbus Day as I believe GO is a major discovery in national income accounting and one of the most important macroeconomic event since GDP was invented in the 1940s.  I consider GO the missing piece of the macroeconomic puzzle.  By including the supply chain, GO restores the importance that the business sector — the entrepreneur, the inventor and capital investment — plays in growing the economy.  It debunks the idea that “consumer spending drives the economy.”  It turns out that business (B2B) spending is almost double the size of consumer spending in the US, and far more cyclical.

Now, the question is, will the AER editors recognize this paradigm shift in macroeconomics?  It certainly helps that the government — Bureau of Economic Analysis (BEA) — has adopted and is now publishing GO on a quarterly basis, just like GDP.   It’s also being added to next edition of many of the major economics textbooks.

Top line (GO) and bottom line (GDP) in national income accounting

2016 Q1 Adjusted Gross Output (GO*) versus GDP

2016 Q1 Adjusted Gross Output (GO*) versus GDP

Here is a short summary of my paper:

  1. Government starting measure gross output (GO):  In April 2014, the Bureau of Economic Analysis began publishing a new measure of the aggregate economy called gross output (GO), the first macro measure to be released on a quarterly basis since gross domestic product (GDP) was invented in the 1940s.
  1. What is GO? GO is a broader measure of economic activity, adding up sales/revenues at all stages of production, and serves as a complement to GDP.
  1. The BEA now defines GDP in terms of GO minus intermediate production. GO attempts to measure the production process or the “make” economy while GDP is a measure of final goods and services, or the “use” economy.
  1. New top line in national income account: I make the case that GO and GDP together should play a vital role in national accounting statistics, much like the top line (sales) and bottom line (earnings) in quarterly financial statements.
  1. Top line and bottom line accounting are employed in compiling the quarterly earnings reports of publicly-traded companies.
    Does consumer spending drive the economy?  The media often reports that “consumer spending is two-thirds of the economy,” based on a misuse of GDP as a measure of the economy.  The source of the fallacy is that GDP measures final spending only.  GO is the more complete measure of total economic activity.  It demonstrates that business spending is a significantly larger segment of the economy than consumer spending is.  In fact, business spending (B2B) is almost double the size of consumer spending.  Business spending is 60% of total economic activity, while consumer spending is only about one third (not two-thirds as normally reported).
2016 Q1 Skousen B2B Index

2016 Q1 Skousen B2B Index

  1. GO and GO by Industry may be helpful in forecasting the direction of the economy.  Business spending tends to be more volatile than GDP.  Earlier-stage and intermediate inputs in GO may also be helpful in forecasting the direction of economic growth.
  1. In this paper, I argue that gross output should be the starting point of national income accounting. GO is also more highly correlated with leading macroeconomic indicators of the business cycle than GDP is and is, additionally, more intellectually consistent with the economy-wide growth at all stages of production and distribution that growth theory attempts to model.

 What Others are Saying about Gross Output

and “The Structure of Production”

Financial Media

 “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)

“Economist Mark Skousen can be credited with pioneering the concept of gross output in his 1990 book, The Structure of Production.  Among other things, Skousen notes that GO acts as a more sensitive seismograph in registering the shock of business cycles.” – Gene Epstein, Economics Editor, Barron’s

 “The next economics will have to be centered on supply and the factors of production rather than being functions of demand.  I’ve read Mark Skousen’s monumental book twice, and it comes the closest to achieving this goal.” – Peter F. Drucker, Claremont Graduate University 

“National income accounting has long been unfathomably flawed and worse by the decade but Mark Skousen’s introduction of gross output (GO) has been a big step forward in portraying a more total picture of the economy and where and when it’s vulnerable.  Kudos to Mark for it being adopted.” – Ken Fisher, CEO, Fisher Investments, Forbes columnist

“GO is better correlated with financial-price movements than most of the other indicators.  It tends to portray the economy as more cyclical than real GDP does, the recession of 2008-09 as deeper, and the recovery as slower.  The universal use of real GDP as a measure of the economy’s vitality is subject to misunderstandings, pitfalls and criticism — especially in the short run.  GDP includes only ‘final’ goods and services, leaving out the huge economy that consists of businesses buying and selling intermediate goods to one another.” – David Ranson, chief economist, H. C. Wainwright Economics. 

Government Officials

 “Gross Output provides an important new perspective on the economy and a powerful new set of tools of analysis, one that is closer to the way many businesses see themselves.” – Steve Landefeld, director, Bureau of Economic Analysis (2014)

 Academic Economists

“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)

“Congratulations on your work.  It has been a long slog to get the national accounts to introduce innovative measures, and Steve Landefeld [long-time director of the BEA] has been a superstar in this respect…  This will open up the potential for new insights into the behavior of the economy.” – William D. Nordhaus, Yale University

“The more data the better, and your GO gives us valuable extra information.  I wish you all the best with your new top-line measure of the economy.” – Jeremy Siegel, Wharton School of Finance, University of Pennsylvania

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

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

“The two most important works on ‘Austrian’ capital theory since Hayek’s winning of the Nobel Prize are Roger Garrison’s Time and Money and Mark Skousen’s Structure of Production.  All members of the Austrian School should take his book seriously.” – Richard Ebeling, Northwood University

“I’m a big fan of GO.” – Garrett Jones, George Mason University

“A good idea!” – Alan Blinder (Princeton University)

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

“The government’s announcement puts Mark Skousen’s triumphant foundational GO work and Irving Fisher’s ‘total transactions’ model on the same pedestal of economic achievement.” Jay Carlson, Utah Valley University

FIRST QUARTER GROSS OUTPUT AND B2B INDEX POINT TO NEGLIGIBLE GROWTH OF THE U.S. ECONOMY

Washington, DC (Thursday, July 21, 2016):  U. S. economic activity is still sluggish and without indication of significant growth. Economic data released today indicates that industries in the early stages of production are struggling, which could spell trouble for consumer spending in the upcoming months.

Gross output (GO), the new measure of total U. S. economic activity published by the Bureau of Economic Analysis, showed that spending throughout the economy held steady in the 1st quarter of 2016, only marginally increasing versus the 4th quarter of 2015 — 0.8% on an annualized basis.  The Skousen B2B Index — a measure of business spending throughout the supply chain — has now fallen three quarters in a row. The B2B Index change versus prior quarter in nominal term is currently at -1.6% — its lowest level since the 2008 recession.  Both data suggest continued lethargic growth of the economy and a potential mild business recession as we enter the second half of 2016.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal GO increased only 0.8% in the 1st quarter of 2016, slightly better than the small decline in the 4th quarter of 2015 (-0.6%)[1].   Adjusted GO was almost $39.0 trillion in the 1st quarter, more than double the size of GDP ($18.2 trillion), which measures final output only.  Nominal GDP actually rose 1.4% in the 1st quarter.

While the GDP Price index continued to increase, the GO Price Index fell to a level not seen since Q2 2013. Therefore, in real terms, the adjusted GO growth rate (+0.8%) was slightly higher than the GDP real growth rate (+0.5%)

Supply chain activity varied among various sectors significantly in the 1st quarter, with significant declines in early-stage production.  Compared in nominal terms to the previous quarter, mining activity continued to fall by 19.6%. The only exception among early stages was construction, which grew by 3.42%.  However, since construction accounts for mere 4% share of total GO, it was not enough to offset other losses in the early stages of production. While manufacturing declined only 1.84%, it accounts for 18% share of total GO.  Therefore, manufacturing had more than twice the impact of construction but in the opposite direction.  Some gains were achieved in Professional and business services (+2.05%) and Health care and social assistance (2.2%), with remaining sectors without major change versus the previous quarter.  While the wholesale sector was down (-1.75%),  the retail sector was slightly higher (1.6%) in Q1 2016 versus the previous quarter.  Government spending (11% share of total GO) was flat (+0.12%) with federal spending declining slightly (-0.12%), while state and local government spending increased 0.24%.

Press_Release_2016-07-21_Graph_01

GO and GDP are complementary statistics in national income accounting. Gross output (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 is still declining faster than GDP growth suggests that the economic recovery is remaining sluggish as we enter the second half of 2016.

Real Business Spending (B2B) Suffers Slight Decline

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 fell 1.6% from the previous quarter to $22.3 trillion.  Meanwhile, consumer spending rose 0.4% to $12.5 trillion in Q1.

Press_Release_2016-07-21_Graph_02

“The GO data and my own B2B Index demonstrate that total US economic activity has slowed dramatically.  While the ‘use’ economy (GDP) is growing slightly, the ‘make’ economy (GO) is in recession,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth and maybe even a downturn.”

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.  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 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

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, 1-201-788-6623, or email him 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 1st quarter is $31.6 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $39.0 trillion at the beginning of 2016.  Thus, the BEA omits $7.5 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.

HOW BEN FRANKLIN SAVED THE POST OFFICE AND HELPED UNIFY AMERICA

By Mark Skousen

Special to the Franklin Prosperity Report

July 4, 2016

 

B_Fanklin_Stamp_001

“In the fourth year of Franklin’s administration, [the Post Office] paid a profit for the first time in its history.” — Thomas Fleming, “The Man Who Dared the Lightning” (1970)

“No one man before him had ever done so much to draw the scattered colonies together.” — Carl Van Buren, “Benjamin Franklin” (1938)

Despite mammoth efforts to increase revenues and productivity, the U. S. Postal Service has failed to make a profit in years. In fact, this year it’s expected to run a deficit of over $5 billion. The difference is made up by the Treasury — that is, the American taxpayer.

Benjamin Franklin faced a similar challenge when he was made America’s first postmaster general in 1753. Within four years, he reformed the Crown’s mail service from an unreliable, expensive and unprofitable service to an efficient, dependable and rewarding operation. And in doing so he helped make the 13 colonies come together as a nation. What was his secret, and what we learn from his experience today?

First, some background: The colonial post office was run by the British Crown, which appointed local postmasters. The royal mail was expensive, slow, erratic and limited to major towns. It was discriminatory — government officials like the Penns had the franking privilege (free mailing service). So did the local printers like Franklin, who was appointed postmaster of Philadelphia in 1737. Their newspapers could be circulated for free. And mailing letters was expensive, limiting its use to the wealthy, businessmen and lawyers. Few colonists could afford to mail letters through the official royal mail. Finally, mail delivery was slow. A letter from Boston to Philadelphia might take six weeks to arrive. There was no centralized network to transport mail.

How Franklin Reformed the Royal Post

How did Franklin transform the post office? First, he lobbied for the job, and won it because for 16 years he ran the post office in Philadelphia. His experience paid off.

His first action was to make a grand tour of the postal service. Like a true scientist, he felt is essential to have firsthand knowledge of the mail system, and within a few months after his appointment, he went on a ten-week inspection tour of New England from New Jersey to Massachusetts, to determine the problems facing the post office (poor roads, bad record keeping, etc.). He talked face to face with riders and postmasters, responding to suggestions and improvements.

After his grand tour, Franklin immediately went to work. On the post roads, he had milestones erected to help riders pace themselves better. (These milestones still exist between Boston and New York.) After consulting with local postal workers, he suggested new roads, fords and ferries to deliver the mail faster and more regularly. As a result, he was able to reduce the travel time for mail between Boston and Philadelphia from six weeks to three. Within a year, he had cut the delivery time of a letter between Philadelphia and New York to one day.

Franklin insisted on precise record keeping. When he started working for Andrew Bradford, who published the town’s only newspaper, he noticed Bradford was irregular in his accounts. To deal with this problem, he furnished a uniform system of accounts to all postmasters throughout the colonies, and insisted that all postmasters keep precise accounts of their revenues and costs.

In his old newspaper the Gazette, he had for years printed the names of persons who had letters waiting for them, and introduced this practice in other post offices. Too often, letters were allowed to lie around or read by friends. Franklin discontinued the practice in Philadelphia, and imposed the same regulation in the rest of the colonies.

He also introduced home delivery and the penny post. If individuals failed to pick up a letter after their names were published in the newspaper, letters would be sent the next day for an additional fee. Franklin encouraged the same local delivery in other large towns. Unclaimed letters after three months were forwarded to the central office in Philadelphia. Thus Franklin has another claim: inventor of the dead letter office!

Franklin also made the post office egalitarian. He reduced the price and expanded the service for all colonists, not just the wealthy or important people. He abolished the monopolistic practice of allowing local postmasters to distribute newspapers for free, and opened the service to all papers for a small fee. Franklin was never one to maintain monopoly power. For example, he never trademarked any of his inventions. He thought they should be made available to everyone for their benefit, whether it be the Franklin stove, the lightning rod, or bi-focals.

All these improvements in the postal system under Franklin cost money. It cost him and his partner, William Hunter, a great deal, and they incurred £900 over their first four years. But by the fourth year they collected more money in twelve months than it had in the previous thirty-six, earning a profit of £300 a year apiece. It remained profitable until the Revolutionary War broke out.

In three years, the colonial postal service was completely overhauled, and its new speed and reliability made it profitable and popular with the people. As biographer Carl Van Buren concluded, “No one man before him had ever done so much to draw the scattered colonies together.”

On this 4th of July, it is entirely appropriate to remember Benjamin Franklin as the father of American capitalism. The post office has honored Franklin with his image on more stamps than any other person other than George Washington.

B_Fanklin_Stamp_002_c

Washington and Franklin on the 100th anniversary of stamp collecting

In celebration of Franklin’s contribution to the postal service, I recommend that the Post Office issue a permanent one-cent stamp with his image on it, and the words, “A penny saved is a penny earned.”

 

*     *     *

Mark Skousen is a Presidential Fellow at Chapman University, editor of Forecasts & Strategies, and producer of www.freedomfest.com.   This article is based on a column written for the Franklin Prosperity Report and appeared on the Newmax website:  http://www.newsmax.com/Newsfront/ben-franklin-saved-post/2016/07/03/id/736842/ with comments from readers. 

FreedomFest Fun Activities

In addition to all the great debates, presentation and hundreds of vendors in our exhibit hall.  there are many other activities to occupy your time and challenge your intellect.

FF_White_Mates_in_Two

 

 

 

 

 

 

 

One of the many fun activities at www.freedomfest.com :  “White Mates in Two” chess problem baffles Art Benjamin (Clermont College) and Michael Shermer (Skeptic magazine) at FreedomFest 2015.

Big news: the Bureau of Economic Analysis (BEA) has changed its definition of GDP that starts with Gross Output.

This is a significant breakthrough, which I have encouraged them to do for some time.

Here is the BEA’s official release (March 25, 2016), which re-defined GDP as follows:

“Real gross domestic product — 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 [II], adjusted for price changes — increased at an annual rate of 1.4 percent in the fourth quarter of 2015, according to the “third” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.”

Thus, the BEA defines GDP as follows:

GDP = GO – II,

where

GDP = gross domestic product (value of final goods and services)

GO = gross output (total revenues/sales at all stages of production)

II = intermediate inputs (value of supply chain)

I am not sure why the BEA won’t simplify the definition of GDP to define it simply as “the value of final goods and services.”  But in any case, it’s a good way to introduce GO.

Mark Skousen

FOURTH QUARTER GROSS OUTPUT AND B2B INDEX POINT TO BUSINESS RECESSION

By Mark Skousen

April 21, 2016

Washington, DC (Thursday, April 21, 2016):  U. S. economic activity continued to slow dramatically in the 4th quarter 2015, threatening recession.  As a whole, the growth rate of the economy was anemic, almost flat, for 2015.

Gross output (GO), the new measure of total U. S. economic activity published by the Bureau of Economic Analysis, showed that spending throughout the economy declined slightly in the 4th quarter of 2015.  And the Skousen B2B Index — a measure of business spending throughout the supply chain — has now fallen two quarters in a row.  Both data suggest a mild business recession as we entered 2016.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal GO fell 0.6% in the 4th quarter of 2015, compared to an increase in the 3rd quarter (+2.3%)[1].   Adjusted GO was $39.0 trillion in the 4th quarter, more than double the size of GDP ($18.2 trillion), which measures final output only.  Nominal GDP actually rose 2.3% in the 4th quarter.  When GO declines relatively to GDP, it’s usually a sign of recession.

Deflationary pressure on prices continued in the 4th quarter, so that in real terms, the adjusted GO growth rate rose slightly.  But the rise in real GO (+0.8%) was less than the growth in real GDP (+1.4%).

Supply chain activity varied significantly in the 4th quarter, with continued declines in early-stage production: Mining activity fell by 11.4% and manufacturing declined by 2%.  Gainers were led by information, finance, real estate, rental, and leasing, but they were not enough to compensate for the losses in the early stages.  Wholesale and retail sectors also fell by 1.6%.

Press_Release_2016-04-21_Graph_01_Original

GO and GDP are complementary statistics in national income accounting.  Gross output (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 is now falling faster than GDP growth suggests that the economic recovery is losing steam as we enter 2016.

Real Business Spending (B2B) Suffers Decline

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 fell 0.8% from the previous 3rd quarter to $22.7 trillion.  In real terms, B2B fell 1.0%.  Meanwhile, consumer spending rose 0.6% to $12.4 trillion in Q4 (+0.3% in real terms).

Press_Release_2016-04-21_Graph_02_Original

“The GO data and my own B2B Index demonstrate that total US economic activity has slowed dramatically.  While the ‘use’ economy (GDP) is still barely growing, the ‘make’ economy (GO) is in recession,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth and maybe even a downturn.”

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.  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 by providing technical data for this release.

Special Announcement

Cato Institute Luncheon and Policy Forum on Gross Output,

Friday, May 13, Washington, DC, 11:00 am – 1 pm ET.

Mark Skousen, Steve Forbes and George Gilder will be speaking at the Hayek Auditorium at the Cato Institute, 1000 Massachusetts Ave. NW, Washington, DC 20001, on the topic, “GO Beyond GDP: What Really Drives the Economy?”  The discussion will focus on gross output (GO) and how to encourage long-term economic growth, and what it means to investors, businesses and government policy.  The panel will be moderated by Peter Goettler, president of the Cato Institute.  Afterwards, we will have a luncheon and autograph session for the various author’s books:  Mark Skousen, “The Structure of Production”; Steve Forbes, “Reviving America”; and George Gilder, “The Scandal of Money.”

Lunch is complimentary.

To register, go to http://www.cato.org/events/go-beyond-gdp-what-really-drives-economy.

Or email events@cato.org or call (202) 789-5229.

If you can’t make it, you can see this event live by going to www.cato.org/live.

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 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

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 2015 3rd quarter is $31.6 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $39.0 trillion at the end of 2015.  Thus, the BEA omits $7.5 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.

CATO INSTITUTE POLICY FORUM: “GO Beyond GDP: What Really Drives the Economy?”

We hear constantly that consumer spending is 70% of GDP and that consumer spending drives the economy.  Our government often sets policies and spends taxpayer money in order to increase consumer spending in a misguided attempt to stimulate the economy.

However, what if these assumptions are wrong?  What if there is something other than GDP that is a better indicator of economic growth?

To get the answer to these questions and to find out what really drives the economy, we must GO Beyond GDP.

Join Mark Skousen, Steve Forbes and George Gilder, on May 13, 2016 for a “GO Beyond GDP: What Really Drives the Economy?” policy forum at the CATO Institute in Washington, DC to discover the real driver behind economic growth.

While you can watch the event online via live streaming, being there in person is a much better experience. You get a complimentary lunch, you get to meet all three panelists in person and you can get autographs of their latest books.

To attend in person, follow the link below to register:

http://www.cato.org/events/go-beyond-gdp-what-really-drives-economy