U.S. Enjoys a Modest Recovery – No Recession in Sight!

Washington, DC (Tuesday, October 29, 2019):

On October 29, 2019, the Bureau of Economic Analysis released gross output (GO) data for the 2nd quarter 2019. The 2.0% real-term growth in the second-quarter 2019 was 25% higher than the 1.6% growth in the previous period.  Adj. GO[1] grew even faster, 2.9% in real terms for the 2nd quarter.

After experiencing a lower growth rate in the first-quarter 2019, adj. GO growth resumed its trend from the prior three periods and advanced 4% in nominal terms and 2.9% in real terms in the second quarter. Interestingly, nominal GDP grew 4.6% in nominal terms in the 2nd quarter.

Total spending on new goods and services (adjusted GO) rose to nearly $45.7 trillion. In line with the GO indications, B2B spending advanced 5.9% (3.8% in real terms) and consumer spending expanded 6.9% (4.4% in real terms).  All second quarter growth rates were substantially higher than growth rates from the previous period, which ranged from 0.5% to 1.5%.

Mark Skousen, a presidential fellow at Chapman University and editor of Forecasts & Strategies, states, “This expansion implies that the economy is currently still recovering modestly without any major recession indicators in sight.  After a flat performance in the first quarter, business-to-business (B2B) in the supply chain advanced nearly 6% in the second quarter. That’s good news.”

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, bigger than GDP itself. 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.”

Recently, Steve Forbes compared GDP to an x-ray of the economy, and GO to a CAT-scan.  See his commentary in the October 31, 2019, issue of Forbes magazine:  https://www.forbes.com/sites/steveforbes/2019/10/08/gdp-is-the-wrong-measure-to-truly-gauge-an-economys-health/#4be5ff3c13ce

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

 

Business — Not Consumers — Drives the Economy

According to Skousen, the introduction of GO has important implications for the economy and economic policy.  Contrary to what the media says, consumer spending does not represent two-thirds of the economy. GO is a better, more accurate measure of total spending in the economy.  It turns out that the business sector (B2B spending) is almost twice the size as consumer spending. Consumer spending is the effect, not the cause, of prosperity (Say’s law).

The renewed increase in business spending suggests that the economy might be able to avert a major slowdown and continue expanding at a moderate pace. Strong corporate earnings, interest rate cuts by the Fed, and optimism about resolving the trade conflicts with China might be drivers behind renewed business spending.

In addition to an overall GO expansion of 4.9% (2.9% in real terms), most of the individual industrial sectors grew as well. Unlike the first quarter when five sectors contracted, only two sectors (Mining and Utilities) declined in the second quarter.  Interestingly, government spending growth expanded more than two-fold.

GO is a leading indicator of what GDP will do in the next quarter and beyond. As David Ranson, chief economist for the private forecasting firm HCWE & Co., states, “Movements in gross output serve as a leading indicator of movements in GDP.”

Whenever GO is growing faster than GDP, as it did in most of 2018, it’s a positive sign that the economy is still robust and growing.  However, GO has grown at a slower pace than the GDP in 2019.

The federal government will release the advance estimate for third-quarter GDP on January 9, 2020.  Brian Moyer, the director of the BEA, expects top-line GO and bottom-line GDP to be released simultaneously in September 2020.

 

Report on Various Sectors of the Economy

While the Mining sector declined for the third consecutive period, the 6.8% pullback was significantly lower than the 26% contraction in the previous period. The Utilities sector also delivered a second consecutive pullback. Just like the Mining sector, the 8.9% contraction was lower than the previous period’s pullback of 13.6%. However, these two sectors combine for less than 3% share of total GO. Therefore, while important indicators as early stages of production, the impact on the overall GO is minor.

More importantly, Manufacturing – the second-largest segment with 17% share of Gross Output – remained relatively flat and expanded only 0.5%. While experiencing only minimal growth, the Manufacturing sector still performed significantly better than it did in the previous period when the sector contracted 3.7%.

While lower than the 11.7% pullback in the previous period, Durable goods’ 4.2% decline in the second quarter limited growth of the overall Manufacturing sector despite a 1.5% expansion of non-durable gods. After a 12% growth in the previous period, Construction remined flat in the second quarter.

The Information sector was the fastest growing sector with 8.1%. While growing at a slightly lower rate of 6.8%, the Finance, insurance, real estate, rental, and leasing sector contributed the most to GO growth as it is the largest sector with nearly 20% share to total GO. Driven by a 6% expansion of the health care segment, the Educational services, health care, and social assistance sector, which accounts for 8% share of GO, expanded 5.6%.

Unfortunately, the overall expansion of GO brought along an increase in government spending as well. With an 11% share of Gross Output, total government spending increased 5.4%, which is an order of magnitude higher than the growth rate of only 1.5% in the previous period. Generally, state and local government spending tends to grow faster than federal spending. However, in the second-quarter 2019, State and local government spending grew ”only” 4.8% and the Federal government increased its spending by 6.7%. Since early 2016, this has been the second period in a row where federal government grew faster than state and local government spending.

 

Gross output

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. Until mid-2018, GO outpaced GDP, suggesting a growing economy.

 

Currently Business Spending (B2B) has Advanced at a Slower Pace Than Consumer Spending in both Nominal and Real Terms.

Our business-to-business (B2B) index is also useful. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity expanded 5.9% in the second quarter to $26.4 trillion. Meanwhile, consumer spending rose to $14.5 trillion, which is equivalent to a 6.9% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 3.8% and consumer spending rose at 4.4%.

 

Gross output

“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. “After slowing considerably in the fourth-quarter 2018 and first-quarter 2019, business activity picked up the pace in the second quarter, which indicates that the economy might still have enough momentum to maintain a moderate expansion trend, unless prevented by negative developments in trade or monetary policy.”

 

About GO and B2B Index

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.”

 

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: BEA – Gross Output by Industry

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

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 2019 2nd quarter is $37.7 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to $45.6 trillion in Q2 2019. Thus, the BEA omits $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.

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 INTELLECTUAL ANCESTORS

BY MARK SKOUSEN
Presidential Fellow, Chapman University

“If I have seen a little further, it is by standing on the shoulders of giants.”
— Sir Isaac Newton

Dear readers,

I thought you’d get a kick out of this series of photos and quotes — looks like some of the great economic philosophers and writers rubbed off on me!

I’ll try not to get it go to my head…..I still get rejection letters from the American Economic Review!

Henry_Hazlit_tribute_1984

Courtesy:  Mises Institute

My paying tribute to Henry Hazlitt and his classic book, “Economics in One Lesson” in celebration of his 90th birthday (1984)

“Mark Skousen is America’s finest economist.  He has a genius for explaining complex issues in a clear way and connecting ideas.  He is the Henry Hazlitt of our time.”
– Steve Mariotti, President, National Foundation for Teaching Entrepreneurship (NFTE)

MAS_with_Friedrich Hayek_Austria_1985_01

Courtesy:  John Mauldin, 1985

Interviewing Friedrich Hayek in the Austrian alps in 1985

“Mark Skousen is America’s leading economic author because he roots his luminous books in the real world, in the grand tradition of the great Austrian economists.  He is the Hayek of our era.”
– George Gilder

MAS_with_Milton Friedman_San_Francisco_2006_01

Courtesy:  photo by Van Simmons

Meeting with Milton Friedman in his favorite San Francisco restaurant, 2006

“Mark Skousen has emerged as one of the clearest writers on all matters economic today, the next Milton Friedman!” 
– Michael Shermer, Scientific American

Trade War Threatens Recession

Washington, DC (Monday, July 29, 2019):

On July 19, 2019, the federal government released gross output (GO) for the 1st quarter 2019, and the 1.6% real-term growth — which was 30% lower than the 2.3% advancement from the previous period – strengthened the implication that the economic growth might be slowing.  Business-to-business (B2B) in the supply chain actually declined in the first quarter.

While corporate tax cuts and the elimination of some of the burdensome business regulations undoubtedly had positive effects on economic growth, the effects of tariffs and trade restrictions are significantly higher, as trade plays a much bigger role in the US and world economy. Trade accounts for more than 25% of spending in the US economy and nearly 60% of the global economy.

Whereas GO growth decreased in the first quarter after rising in the tree previous periods, GDP reversed direction after falling for three consecutive quarters and advanced at 3.1%, which was nearly 30% higher than the 2.2% growth rate from the fourth-quarter 2018.  But the decline in the value of the supply chain suggests that the rise in real GDP is temporary.

Total spending on new goods and services (adjusted GO) [1] exceeded $45 trillion by a small margin. In line with the GO indications, B2B spending declined 0.3% (0.4% in real terms) and consumer spending expanded 1.4% (0.5% in real terms), which was lower than the 2.2% consumer spending growth rate from the previous period.

Business — Not Consumers — Drives the Economy

Note:  Contrary to what the media says, consumer spending does not drive the economy, and does not represent two-thirds of the economy. Using GO as a better, more accurate measure of total spending in the economy, the business sector (B2B spending) is almost twice the size as consumer spending. Consumer spending is the effect, not the cause, of prosperity (Say’s law).

The continued slowdown in business spending suggests a potential economic slowdown and the end of the longest bull market since the Great Depression, if business spending growth stalls. However, the trend might still reverse on a potential resolution of the trade conflict as Trump Administration’s delegation is heading to China for the next round of trade negotiations.

Furthermore, the overall economy and markets are waiting in anticipation for the results of the Federal Open Market Committee meetings next Tuesday and Wednesday. The primary interest is whether the Fed will decide to counter its quarter-point hike from December 2018 and revert its target rate back to 2% to 2.25%, or go even further and announce a half-point interest rate reduction to June-2018 levels.

The fears of continued trade war with China has certainly influenced business spending slowdown. However, positive impressions from the upcoming trade negotiations with China and a potential Fed funds rate cut of up to half percent might alleviate some of the reservations, which could result in a renewed push to increase business spending in the second half of the year.

In addition to a lower growth of the overall GO, more sectors experienced a decline – five in the first-quarter 2019 versus only two in the fourth-quarter 2018. However, on the positive side, government spending rose only 1.5% in nominal terms at annual rates, which was the lowest growth rate in the past seven quarters.

GO is a leading indicator of what GDP will do in the next quarter and beyond. As David Ranson, chief economist for the private forecasting firm HCWE & Co., states, “Movements in gross output serve as a leading indicator of movements in GDP.”

Whenever GO is growing faster than GDP, as it did in most of 2018, it’s a positive sign that the economy is still robust and growing.  However, GO has grown at a slower pace than the GDP in the last two quarters.

The advance estimate of second-quarter GDP was released on July 26, 2019. As implied by the slower GO growth in the first quarter, the second-quarter GDP rose at 2.1% in real terms, which is 32% lower than the 3.1% advancement from the first quarter 2019.

Report on Various Sectors of the Economy

After growing at double-digit percentages and nearly doubling over four quarters, the Mining sector pulled back 7.2% in the fourth quarter 2018. Unfortunately, the Mining sector extended its decline and contracted more than 26% on an annualized basis for the first-quarter 2019. The Mining sector comprises only 1.6% of the entire Gross Output and the first-quarter decline has only a small impact on the overall economic output in the current period. However, the Mining sector is one of the early stages of production and often an early indicator of potential economic downturns in the near future.

Similarly, the Agriculture, forestry, fishing, and hunting sector – another early stage of production sector – also contracted 1.5%. Furthermore, Manufacturing – the second-largest segment with 17% share of Gross Output – declined 3.7%. One promising development within the Manufacturing sector was that production of Durable Goods increased 4%. Non-durable Goods declined 11.7%. Additionally, Transportation & Warehousing — another indicator of economic activity strength — also contracted 5.6%.

Among the expanding sectors, Construction – 4.6% share of GO – advanced at an annualized rate of nearly 12%, Educational services, health care, and social assistance, which accounts for 8.2% share of GO expanded 7.6%. Also, the largest sector that accounts for 19% of GO – Finance, insurance, real estate, rental, and leasing – expanded 2.2%.

Total government spending accounted for 10.6% of the total GO spending and increased 1.5% in the first-quarter 2019, which is significantly lower than the 3.5% growth in the previous quarter. This growth rate is the lowest since the second quarter 2017. While federal government increased 2.4%, state and local government expanded only 1.1%, which is less than one-third the 3.5% growth from the previous period. Additionally, the federal government grew more than state and local governments for the first time since the second quarter 2016.

Trade

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. Until mid-2018, GO outpaced GDP, suggesting a growing economy.  However, since then GO has slowed dramatically, threatening the economic boom.

Currently Business Spending (B2B) Is Advanced at a Slower Pace Than Consumer Spending in both Nominal and Real Terms.

Our business-to-business (B2B) index is also useful. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity pulled back 0.3% in the first quarter to slightly below $26 trillion. Meanwhile, consumer spending rose to $14.24 trillion, which is equivalent to a 1.4% annualized growth rate. In real terms, B2B activity declined at an annualized rate of 0.4% and consumer spending rose at 0.5%.

Trade

“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. “The business activity slowed considerably in the 4th and 1st quarters, although it could be a temporary situation, depending on trade policy.”

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, bigger than GDP itself. 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 new output statistic 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 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 provided 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: BEA – Gross Output by Industry

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

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 2019 1st quarter is slightly above $37.25 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to nearly $45 trillion in Q1 2019. Thus, the BEA omits almost $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.

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

 

STEVE FORBES AWARDS MARK SKOUSEN A TRIPLE CROWN IN ECONOMICS

Steve ForbesFor Immediate Release
July 18, 2018

Washington, DC:  Steve Forbes, chairman of Forbes Media and Editor-in-Chief of Forbes magazine, bestowed upon economist Mark Skousen a Triple Crown in Economics for his work in economic theory, history and education.

The presentation took place on July 11, 2018, at the Paris Resort in Las Vegas in a session entitled, “Who’s Winning the Battle of Ideas?” as part of the global economic summit at FreedomFest.

“Mark is a superb and highly original scholar,” he stated. “He’s a highly accomplished economist and in a normal, non-political environment, he and a handful of others would have already won the Nobel Prize for economics. He brings history to life.  And he is a pioneering thinker, especially with his gross output (GO) statistic.”

Steve Forbes
Ken Schoolland, Mark Skousen, and Steve Forbes at session on “Who’s Winning the Battle of Ideas?”

Mark Skousen is a Presidential Fellow at Chapman University, the author of over 25 books on economics and finance, and the long-time editor of Forecasts & Strategies.  He was recently named one of the top 20 most influential living economists.

The award was arranged by Ken Schoolland, professor of economics at Hawaii Pacific University, who has written a tribute, “Mark Skousen’s Contributions to Economics,” published by the Cobden Centre in London.

In the pamphlet he stated that Skousen’s three major achievements in economic theory, education, and history constitute a “triple crown in economics” such as in horse racing, baseball, and surfing.

Three Contributions to Economics

He identifies Skousen’s contributions as follows:

  1. Theory: A breakthrough alternative macro model to Keynes that introduces an Austrian/supply-side, 4-stage model of the economy and gross output (GO) as the top line in national income accounting in Mark’s magnum opus, The Structure of Production(New York University Press, 1990).
  1. Education: Squaring the Mises Circle—Providing an alternative to Samuelson-style economics textbooks by integrating supply-side Austrian economics and business principles into his college textbook Economic Logic(Capital Press, 2017), now in its 5th ed., including the profit-and-loss income statement, the 4-stage model of the economy and gross output (GO).
  1. History: Creating an exciting new alternative to Heilbroner’s “Worldly Philosophers,” that has a plot, an heroic figure, and a good ending in the story of economics:  The Making of Modern Economics(Routledge Publishers, 2015), now in its 3rd ed. makes Adam Smith and his “system of natural liberty” as the protagonist, whereby all economists and their theories are judged by whether they build on the House that Smith built (the French laissez faire school, the Austrians, the British and Chicago schools, etc.) or they try to tear it down and build a new model (Marxists, Keynesians, and Institutionalists).  And it has good ending with the collapse of the Berlin Wall and the socialist central planning model and the triumph of Smithian free-enterprise capitalism.

You can read Ken’s encomium here:  https://www.cobdencentre.org/2017/10/mark-skousens-contributions-to-economics-by-ken-schoolland-hawaii-pacific-university/

Award Presentation and Remarks by Steve Forbes

Professor Schoolland asked Mr. Forbes to present the pathbreaking award, a “Triple Crown in Economics,” to Skousen.

Steve Forbes
Steve Forbes (holding “Economic Logic”); Mark Skousen (holding “Structure of Production”); and Ken Schoolland (holding “Making of Modern Economics”)

In the presentation, Mr. Forbes made the following remarks (excerpts):

“Mark Skousen is an amazing individual. He’s a highly accomplished economist and in a normal, non-political environment, he and a handful of others would have already won the Nobel Prize for economics. But, given the political environment we have today, that’s not going to happen right now. Maybe in the future.

“He is a superb and highly original scholar. Just look at his textbook Economic Logic, now in its 5th edition, which demonstrates Mark’s ability to look at the whole economy, the real world and real people.  This rigidity between micro- and macroeconomics is not for him.  He realizes they’re all connected together. He began this book with a profit-loss income statement to demonstrate the dynamics of the real-world economy. No other textbook does that. He gets it.

“And extraordinarily, Mark’s book brings in many other disciplines to teach lessons of economics, underscoring crucial lesson, whether it is history, sociology, finance business or marketing management. He recognizes that this rigidity may be nice for departments created at universities. But, in the real world, it does not advance learning.  They are need to be combined together. In that sense, he goes back 200 years to before mathematicians took over economics. His output is voluminous, with numerous books and articles.  And, what is so unusual, is that he combines mastery of math-laden fields with the ability to write clearly and directly in a manner that would have elicited cheers from Ernest Hemingway. Imagine, he gets to the point.

“Mark is also an outstanding historian.  He has a fascination with history, with flesh and blood individuals.  Read his concise and incisive sketches of numerous economists in “The Making of Modern Economics.”  He brings history to life. People are interested in people. He recognizes that stories are highly instructive.

“And he’s a pioneering thinker. This is what I think he’s a really going to be noted for. He’s pushing the concept of the gross output.  I prefer the acronym GO.  What does GO mean?  It’s a more comprehensive way to measure the entire economy.  It’s better than GDP to take a picture of our economy. It’s like the difference between an x-ray and an MRI.  GDP is the x-ray; GO is the MRI.

“The GDP is like looking at a carton of milk in the supermarket and ignoring all the cows that you had to raise, and pasteurize the milk, then bottle the milk and deliver the milk.  GDP gives you a very incomplete picture.  It’s just final output.  Alone it’s misleading and that’s why you read time and time again, GDP shows that 70% of the economy is consumption. That is absolute nonsense.

“What makes consumption possible is people’s income, which comes from investment. And so, GO looks at the whole economy from production to final output and show that investment is the big part of the economy, not consumption. Also, GO knocks government down to size.  In terms of GDP, they say the more government spends the better the economy is. Ask the old Soviet Union how well that worked.

“The BEA – the Bureau of Economic Analysis – is finally beginning to recognize the value of GO.  Thanks to Mark, GO is now being published by the federal government, and eventually is going to replace GDP as a much more accurate picture, much more sensitive and full picture of what is actually happening in the economy.

“So enough of my verbiage.  Mark has done many other things.  He’s a great investor, he’s written great books on investing, he created FreedomFest.  All tributes to his creativity.  He also married Jo Ann, best thing he ever did, which is why we’re all here today.”

To read Mr. Forbes’s full remarks, go to www.mskousen.com.

For More Information

For a list of Dr. Mark Skousen’s books and articles on economics and finance, go to www.mskousen.com.

For more information on his investment newsletter and services, go to www.markskousen.com.

For details about gross output (GO), go to www.grossoutput.com.

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

# # #

FreedomFest 2018: My Favorite Sessions to Attend This Year

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 “agenda” at www.freedomfest.com and see the entire up-to-date program.

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

WEDNESDAY, JULY 11 — PRE-CONFERENCE EVENTS

1-1:50 pm. Champagne 1.   “Antonio Gramsci and the Cultural Revolution:  How Marxists Took Over Higher Education, and How to Take it Back,” with Daniele Struppa, president of Chapman University.  I’ll be introducing him.

2 – 2:50 pm.  Champagne 4.  “Freedom Festschrift:  Murray Rothbard, Pro and Con.”  I’ll be telling great stories about my relationship with the dean of the American school of Austrian economics.  Other panelists include Walter Block and Jeff Tucker.  Moderated by Hunter Hastings.  Expect lots of discussion and debate.

3 – 4 pm.  Champagne 4.  “Adam Smith, Marx and Keynes:  Who’s Winning the Battle of Ideas?”  Marxism is still alive and kicking on the 200th anniversary of Karl Marx’s birth — the same year that Mary Shelly wrote “Frankenstein” — when two monsters were born!  I’ll compare Marx’s influence with Adam Smith and Keynes.  Ken Schoolland will introduce me, and Steve Forbes will participate in an historic ceremony at the end.  Don’t miss it!

WEDNESDAY — OPENING CEREMONIES AND COCKTAIL RECEPTION

4:45 – 6:40 pm.  Rivoli Main Ballroom.  Lots of fireworks with Steve Forbes on “The Voice of Reason in the Age of Trump”; Dr. Keith Ablow on “What Gives the Human Brain the Ability to Reason”; a debate/panel on “A World Gone Mad…” with Larry Elder (moderator), David Boaz (Cato), Deneen Borelli (Fox News contributor), Jennifer Grossman (Atlas), and Ross Douthat (NYTimes columnist).

Then we have Patrick Byrne, CEO of Overstock, Inc., on the revolutionary block chain and digital currency revolution.

And last but not least, George Will on “Discord?  Nonsense.  America’s Biggest Problem is Consensus.”  After his talk, Alex Green and I will interview him on “The Most Predictable Crisis in American History,” and his views on Eric Hoffer’s disturbing book, “The True Believer,” and how it applies today.

The Wall Street Journal calls George Will “the most powerful journalist in America,” and he has the distinction of having worked with ABC News, Fox News, and now MSNBC.  What does he think of each network?  I plan to ask him Wednesday night.  I’ll be joined by Alex Green (Oxford Club) for an unforgettable interview.

Then I look forward to our gala opening cocktail party, a chance to mingle with each other and the exhibitors, what John Mackey calls “The Trade Show for Liberty,” and autograph sessions at the FreedomFest bookstore.  Here’s a chance to buy one or more American eagle silver dollars…and see if you can solve my daily “white mates in two” chess problem.  Hopefully you will encounter our libertarian card magician, Peter Studebaker.  What fun!

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 12

We’re start the day’s session at 8:20 am with a welcome from Naomi Brockwell.  I will make some general announcements about this year’s FreedomFest, including our “Fast Money Summit,” and my wife Jo Ann will talk about this year’s selections in the Anthem film festival. 

8:30 – 9:00 am. Rivoli Main Ballroom.  Global Economic Summit with Steve Forbes, Rodolfo Milani, Steve Moore, Jim Rogers, Magatte Wade, and Barbara Kolm (moderator) discussing Trump trade wars, Latin America’s turning socialist/Marxist, European nationalism, China’s future, and corruption in South Africa.

10 – 10:30 am.  Rivoli Main Ballroom.  Libertarian CEO Panel, “Can Conscious Capitalism Make a Difference?” with John Mackey, CEO, Whole Foods Market, and Andy Puzder, former CEO, CKE Restaurants (Carl’s Jr., and Hardee’s) and Trump’s first choice for Labor Secretary.   I plan on a “true or false” quiz for them and the audience to keep the session lively.

11:15 am – 1 pm.  Rivoli Ballroom.  Keynote speaker:  Judge Andrew Napolitano on “What If You Lived in a Country Where the Constitution Meant Nothing?” followed by luncheon in Champagne 2 with Steve Forbes:  “The Judge Answers Your Tough Questions” about the Supreme Court, Trump, immigration, religion, civil forfeitures, etc.

Breakout sessions begin at 1 pm, and we’ve reduced the choices to 10 — but it’s still difficult to choose.  Our “Fast Money Summit” starts at this time, and I’ll be involved from time to time.  Here’s what I’m planning to attend:

1 – 1:50 pm.  Versailles 2.  “DEBATE:  Is Faith Compatible with Reason?” between BYU Professor Daniel Peterson and Scientific American columnist and Skeptic editor Michael Shermer.  I came up with the idea of this debate after reading two books that have opposite conclusions:  In “The Closing of the Western Mind,” historian Charles Freeman argues that the “rise of Christian faith resulted in the fall of reason” in the first 1,000 years after Christ; while in “The Victory of Reason,” Baylor sociologist Rodney Stark contends that “Christianity led to freedom, capitalism, and Western success.”  Who’s right?  Peterson and Shermer will battle it out.  C-SPAN coverage! 

2 – 2:50 pm. Versailles 3.  Anthem Film Festival Room.  “PANEL: 200 Years of Frankenstein:  Leviathan and the Mad Scientist.”  In 1818, Mary Shelley wrote her famous horror novel.  We will hear from top experts on the controversies and meaning of the monster in literature, film and culture:  Reason’s science editor Ron Bailey; and literary professors Socky O’Sullivan (Rollins College) and Jo Ann Skousen (Chapman University).

2:50 – 3:20 pm.  Coffee Break in exhibit hall.  I’ll be enjoying the FreedomFest bookstore, visiting exhibitors, and watching the “pop up” entertainment. And stop by our Eagle booth and say hello!  This is a great time to renew your subscription to my newsletter and trading services.

3:20-4:10 pm.  Versailles 2.  “THE PLAYBOY DEBATE:  Should We Dedicate a Room to Hugh Hefner?”  Every year we dedicate our various rooms to patriots who have died in the past year.  (They will be listed in the official program.)  Steven Watts, professor of history at Missouri U, has written the story of “Mr. Playboy:  Hugh Hefner and the American Dream,” and will argue that Hefner liberated American society from Puritanical sexual neuroses.  Taking the opposite view will be NYTimes conservative columnist Ross Douthat, who has declared Mr. Playboy to be a chauvinist pornographer who exploited women and made our culture “coarser, crueler, and more sterile.”  A timely debate in this “me too” age.  Debate will be moderated by Jennifer Grossman (Atlas Society).  C-SPAN coverage! 

4:20 – 6:30 pm.  Rivoli Main Ballroom.  General sessions include a panel on market-driven solutions to our healthcare crisis; talks by Deneen Borelli on race relations; Robert Kiyosaki on investing; and Rich Lowry (editor of National Review) on “Should We Be Afraid of the New American Nationalism?” (I am.)

I’ll be especially interested in the remarks by Robert Kiyosaki, author of “Rich Dad, Poor Dad,” the #1 financial bestseller ever (26 million copies in print).  I have mixed feelings about his advice, which tends to be doom-and-gloom.  He wrote “Rich Dad’s Prophecy” in 2002, predicting a gigantic crash in 2016.  We did have a financial panic in 2008, but since then it’s been the mother of all bull markets.  He rejects the traditional advice to “go to college, get a good job, stay out of debt, and invest long term in the stock market.”  He says this advice is obsolete.  Instead, one must be an entrepreneur in real estate and business.  But is his advice sound for everyone?

6:10 – 6:40 pm.  Rivoli Ballroom.  We have just added another big debate, “Newsmax vs New York Times!” This debate will star Wayne Allyn Root (Newsmax radio/tv host) vs Ross Douthat (NYTimes columnist).  The topic will be explosive:  “Is Trump Another Reagan — or a Mussolini?”  Our most controversial Trump debate yet.   

After 8 pm, there are lots of fun things to do.  We have a series of “conversational circles,” where attendees discuss various topics in separate rooms — on foreign policy led by Ed Rush, investments by Jim Woods, and libertarian issues by Walter Block.  Anthem film festival will also be showing “The Housing Bubble,” followed by a panel starring Doug Casey, Jim Rogers, Peter Schiff, Gene Epstein, and others.

FRIDAY, JULY 13

7:30 – 8:30 am.  Champagne 3.  Start off early with breakfast with Yeonmi Park, North Korean defector and author of the new book “In Order to Live:  A North Korean Girl’s Journey to Freedom.”  I look forward to her perspective on potential opening up of relations with North Korea.

Then we have general sessions in Rivoli Main Ballroom with Jenny Beth Martin updating us on the Tea Party Movement; Matt Kibbe (Free the People) on a new technology, “Atlas Shoved:  The 21st Century Motor!”; and the annual Pitch Tank competition with Kevin Harrington, Steve Forbes, John Mackey, Bernt Ullmann, and Greg Writer (moderator).

Breakout sessions begin after the coffee break….

11:00 – 11:50 am.  Burgundy.  Tom Palmer (Atlas Network) on “The Age of Reason: The Common Sense of Tom Paine.”  Tom is our resident philosopher, always insightful.

12:00 – 12:50 pm.  I’m going to either the Chablis for Larry Reed’s session, “Was Jesus a Socialist?” or the Rivoli Ballroom for the panel “The Assassination of Western Civilization:  What’s Causing our Society to Decline?” with Steve Forbes, Deirdre McCloskey, John Prevas, and Barry Strauss (Gary Alexander to moderate).

1 – 1:50 pm.  Lunch with hosted exhibitors or on your own.

2 – 2:50 pm.  Bordeaux.  I take on Jeff Berwick, producer of AnarchaPulco, on “The Ultimate Libertarian Debate:  Should You Vote?”  Many libertarians refuse to participate in the political process, which they say is inherently corrupt and immoral.  They have been influenced by such books as “None of the Above” by Sy Leon and “Don’t Vote–It Just Encourages the Bastards,” by P. J.  O’Rourke.  Not to be missed!

Then back to the Fast Money Summit in the Vendome A room:

3 – 3:25 pm.  Vendome A.  “What am I Missing:  The Ultimate Question for All Bears and Bulls,” where moderator Eric Gemelli will be asking this tough question to Doug Casey, Keith Fitz-Gerald, Alex Green, and Jim Rogers. 

3:25 – 3:50 pm.  Vendome A.  I’ll be interviewing Prof. Deirdre McCloskey in “The Capital Debate:  Which is More Important, Investment or Ideas?” and challenging her book title, “Bourgeois Equality:  How Ideas, Not Capital or Institutions, Enrich the World.”

4:00 – 4:30 pm.  Champagne 2.  I’ll be attending FreedomWorks reception, “Midterm Elections: Can Limited Government Make a Comeback?” with John Fund, pollster Brett Loyd, and Adam Brandon.  Brett Loyd is one of the few pollsters who predicted Trump’s victory.

Then back in the Rivoli Main Ballroom for…

4:35 – 4:55 pm.  Heather Mac Donald on “The Delusion of Diversity”

4:55-5:15 pm.  I’ll be leading a half hour panel on “Are We Making a Difference?  A Freedom Movements Progress Report” with Tom Palmer (Atlas Network), Larry Reed (FEE), Adam Brandon (FreedomWorks) and Charlie Copeland (Intercollegiate Studies Institute).

At 5:15 pm, we begin our most popular event, the mock trial.  This year we are putting the “Public School System on Trial,” starring Kennedy (Fox News) as the Judge; prosecuting attorney Bob Bowdon; Defending attorney “Tick” Segerblom; star witnesses Cory DeAngelis (Cato), Vicki Alger (Independent Institute), Julian Heilig (Sacramento State and NAACP); and Lisa Sparks (Orange County School System, California).  Naomi Brockwell will be the foreman.  And 12 jurors selected from the audience.  Let the debate begin!

There’s plenty going on after the mock trial (conversation circles, Anthem film festival, and Karaoke after dark), but I have a couple of dinners I am going to.

SATURDAY, JULY 14  

7:30 – 8:25 am.  Another breakfast, this time with a debate between me and Alex Green on “Can You Predict the Future?”  He says no, I say yes.  Lots of historical examples.  We did this debate once before at a conference, and it was electrifying.  Eric Gemelli is the moderator.

8:30 – 8:45 am.  Rivoli Main Ballroom.  A testy debate on Tesla Motors and Elon MuskKeith Fitz-Gerald (Money Map) defends Tesla while Rob Arnott, the godfather of smart beta, contends that Tesla is too far in debt to escape bankruptcy.  Jim Woods as moderator.

Following the debate, I’ll be announcing the winner of this year’s Leonard E. Read Book Award.  Read this book!

Afterwards, we will have a series of talks and panels:  Republican leaders Senator Mike Lee, and representatives Thomas Massie and Tom Garrett on “Republicans Gone Wild”….Magatte Wade on the future of Africa…Libertarians on winning in November with Bill Weld, Jim Gray, Ron Nielson and Ben Swann….and Reason editors Nick Gillespie, Matt Welch, and Katherine Mangu-Ward on the future of libertarianism and Reason Foundation.

After the coffee break….we have a breakout session:

10:50 – 11:15 am in Vendome A (Fast Money Summit), I interview Rob Arnott, CEO of Research Affliates, who manages over $200 billion on his formula for beating the market, what works and what doesn’t work on Wall Street.

11:15 – 11:50 am.  We show a 5 min video of Mark Mobius, long-time manager of the Templeton Emerging Markets Fund (ranked #1 over 30 years), on “Lessons of Investing in Emerging Markets,” followed by comments by financial guru Jim Rogers.

Then back in the Rivoli Main Hall for our final general session:

11:50 am – 12:20 pm.  A panel on foreign policy with Senator Mike Lee, Representative Thomas Massie, and Ed Rush. 

12:20 – 12:50 pm. I lead the closing panel, with David Boaz (Cato), Heather Mac Donald (Manhattan Institute), Steve Forbes, and Jenny Beth Martin (Tea Party Patriots) on what we have learned in answering the question, “Where is the Voice of Reason?”

At 12:40 pm I will announce the theme for next year and our big name celebrity speaker.  Don’t miss it!  Before we dismiss for lunch, I invite everyone who has a silver dollar to come forward and take a picture with Steve Forbes and members of our closing panel.

After a hosted luncheon or lunch on your own, we have our final blockbuster Saturday afternoon breakout sessions:

2 – 2:50 pm. Loire.  I plan on attending this panel:  “How to Turn a Bestseller into a Classic.”  Out of the some 120 million books that have been published in the history of the world, only 2% have become bestsellers and only 1,200 or so have become classics.  What are the criteria to determine a classic novel or non-fiction work?  Dan Peterson (BYU), Socky O’Sullivan (Rollins College), and Daniele Struppa (Chapman U) will seek to answer this question.

3-3:50 pm.  Loire.  David Boaz addresses the issue, “Leviathan and the Age of Reason:  Why Life After Locke and Hobbes is no Longer Nasty, Brutish, and Short.”  Introduction by Elizabeth Ames.

4-4:25 pm.  Vendome A (Fast Money Summit).  I introduce John Mackey, CEO of Whole Foods, who is will speak on “Investing on the Run:  How I Became a Successful Part-Time Investor Running a Full-time Business.”  This is the first time John is speaking on his life as an investor and speculator!

4:25 – 4:50 pm.  Vendome A.  Steve Forbes closing address to the Fast Money Summit:  “An Optimist’s Guide to Investing in Capitalism.”  It will be followed by reception and cash bar: An opportunity to meet Mr. Forbes and other speakers, take photographs, have them sign books, etc.

6 – 10 pm.  Rivoli Ballroom.  Get ready for the farewell reception and gala Saturday night banquet, with the Anthem Film Awards, Reason Media Awards, and the dance band The Salamanders as we celebrate the 50th anniversary of Reason Foundation.  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, Jennifer Hunter, Harold Skousen, our registration team, and my wife Jo Ann.  

And see you next year!  Dates are July 17-20, 2019, 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).

Away We GO: Business Spending Accelerates in 4th quarter 2017

Washington, DC (Thursday, April 19, 2018)

Gross output (GO), the top line of national accounting that measures spending at all stages of production, accelerated economic growth to record levels in the 4th quarter 2017.

Based on data released on Thursday, April 19, 2018 by the BEA and adjusted to include all sales throughout the production process, real adjusted GO (GO*) increased at an annualized rate of 5.6% in the fourth quarter of 2017, which is a significant improvement over the previous quarter’s increase of 2.7%[1]. Additionally, real adjusted GO for the fourth quarter of 2017 rose at nearly double the 2.9% GDP growth rate.

Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University, states, “The latest GO data indicates that business investment and spending took off in the 4th quarter, probably as a result of the business tax reductions passed by Congress in late December 2017.  The new tax breaks and deregulatory environment are likely to stimulate further economic growth in 2018, barring international tensions and trade wars.”

Real GDP, the bottom line of national income accounting, rose at an annualized rate of 2.9% in the fourth quarter 2017. During an economic expansion, real GO* generally grows at a higher rate than real GDP. In Q4 2017, real GO* grew at 5.6% ‒ 95% higher than the real GDP growth rate for the quarter ‒, which is a good indication that intermediate business activity is picking up pace and should translate into higher GDP growth in the near future.

Skousen states, “The GDP growth rate of 2.9% failed to take into account what happened behind the scenes in the booming supply chain in the 4th quarter.  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. After two quarters of lagging behind the GDP, the GO is again growing at a dramatically faster rate and shows a strong positive outlook for the economy in 2018.”

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 reliable leading indicator: http://www.hcwe.com/guest/EW-0118.pdf

The fourth quarter Skousen B2B Index, a measure of business spending throughout the supply chain, increased at 12.2% in nominal terms, which is significantly higher than the 4.2% growth rate from the previous quarter. The substantial growth in the fourth quarter puts the business spending increase at levels we have not seen since the second quarter of 2014. In the fourth quarter of 2017, B2B transactions rose at an annual rate of 8.5% in real terms, which is more than triple the 2.7% rate form the previous quarter.

After a growth slowdown in the second quarter and a slight uptick in the third quarter, the adjusted GO grew at more than 9% in nominal terms and increased to reach $42.7 trillion. The current adjusted GO reached $42.7 trillion, more than double the size of GDP ($19.75 trillion), which measures final output only.

The overall growth of GO in the fourth quarter resulted from the growth in all but two industrial sectors. The spending increase in the early stages of production, such as manufacturing, is usually a reliable leading economic indicator that overall economic growth should continue to expand.

Supply Chain Activity Skyrockets

The mining sector growth exploded from its 4.7% growth rate last period and expanded at nearly 46% in the fourth quarter of 2017. While it is important to monitor the growth rate in the mining sector as an early indicator of economic expansion, the mining sector accounts for just 1.5% share of total GO, which minimizes the impact on the overall GO. However, the manufacturing sector accounts for nearly a fifth of total GO (18% share). Therefore, the 13% annualized growth of the manufacturing sector has a much greater positive impact on the total GO and should be an even better indicator of an accelerated economic expansion to come. Just as a reference, the manufacturing sector rose 5.6% in the previous quarter. The 10.2% growth rate for durable goods was slightly lower than the growth rate for non-durable goods, which rose 16% in the fourth quarter.

Another sector with an 18% share of GO is the finance, insurance, real estate, rental and leasing sector. This sector expanded 6% in the fourth quarter, which was more than double the expansion rate in the previous quarter when this sector grew at a 2.8% annualized rate in nominal terms. Additionally, the real estate, rental and leasing sub-segment drove this expansion by growing at 6.4% versus the Finance and insurance sub-segment, which grew at a respectable but slightly lower 5.4%.

Compared to the previous quarter, spending fell significantly only in the Arts, entertainment, recreation, accommodation, and food services sector which accounts for just 4% of the total GO and declined 3% from the previous quarter. Within this sector the Arts, entertainment and recreation sub-segment fell more than 11% from the prior quarter and the Accommodation and food services sub-segment was flat to Q3.

In addition to Mining and Manufacturing industries, two more segments posted double-digit percentage increases from the previous quarter. The Utilities segment rose 12.5% and Construction increased 12.4%. Both segments combined account for 5.5% of total GO.

Total government spending (11% share of total GO) increased its spending at a rate higher than the 3.1% two-year average for the second consecutive quarter. After a 3.6% hike in the third quarter, total government spending inched up another 4.8% in the fourth quarter. State and local governments lead the growth with a 5% increase and the federal government expanded at a slightly lower 4.4% annualized rate in nominal terms.

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. Recently quarterly GO and GDP have both been growing at a similar pace.

Business Spending (B2B) Grows Faster Than Consumer Spending

Our business-to-business (B2B) index is also useful. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 12.2% in the 4th quarter to $24.6 trillion. Meanwhile, consumer spending rose to $13.7 trillion, which is equivalent to a 6.7% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 8.5% and consumer spending rose 4.4%.

“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. “The business activity is heating up again in the fourth quarter of 2017, potentially because the business community saw early indications that President Trump and Congress were serious about trying to pass a tax reform bill before the end of 2017.”

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 “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: BEA – Gross Output by Industry

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

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

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[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 3rd quarter is $33.8 trillion. By including gross sales at the wholesale and retail level, the adjusted GO is $41.7 trillion in Q3 2017. Thus, the BEA omits nearly $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.