Federal Government Introduces a New Macro Statistic: A Triumph in Supply-side “Austrian” Economics and Say’s Law
Mark Skousen, The Structure of Production. New York University Press. Third revised edition, 2015, 402 pages. $26 paperback. Available on Kindle.
From the cover:
In 2014, the U. S. government adopted a new quarterly statistic called gross output (GO), the most significance advance in national income accounting since gross domestic product (GDP) was developed in the 1940s. The announcement comes as a triumph for Mark Skousen, who advocated GO twenty-five years ago as an essential macroeconomic tool and a better way to measure the economy and the business cycle. Now it has become an official statistic issued quarterly by the Bureau of Economic Analysis at the U. S. Department of Commerce.
Quarterly data for Gross Output can be found at the BEA site here.
For Skousen’s latest quarterly report on GO, see this.
Since the announcement, Gross Output has been the subject of editorials in the Wall Street Journal, Barron’s, and other financial publications, analyzed in the Eastern Economic Journal, and is now being included in leading economics textbooks, such as Roger Leroy Miller’s new 18th edition of Economics Today. Economists are now producing GO data for other countries, including the UK and Argentina.
In this third printing of Structure of Production, Skousen shows why GO is a more accurate and comprehensive measure of the economy because it includes business-to-business (B2B) transactions that move the supply chain along to final use. (GDP measures the value of finished goods and services only, and omits most B2B activity.) GO is an attempt to measure spending at all stages of production.
As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in “A New Architecture for the U. S. National Accounts,” “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”
Skousen states, “Gross Output fills in a big piece of the macroeconomic puzzle. It establishes the proper balance between production and consumption, between the ‘make’ and the ‘use’ economy, between aggregate supply and aggregate demand. I make the case that GO and GDP complement each other as macroeconomic tools and that both should play a vital role in national accounting statistics, much like top line and bottom line accounting are employed to providing a complete picture of quarterly earnings reports of publicly-traded companies.”
He concludes, “Because GO attempts to measure all stages of production (known as Hayek’s triangle), it is a monumental triumph in supply-side ‘Austrian’ economics and Say’s law.”
Using GO, Skousen demonstrates that consumer spending does not account for two-thirds of the economy, as is often reported in the financial media, but is really only 30-40% of total economic activity. Business spending (B2B) is over 50% of the economy, and thus is far larger and more important than consumer spending, more consistent with economic growth theory, and a better measure of the business cycle. (See chart below.)
About the Author
MARK SKOUSEN is a Presidential Fellow at Chapman University in California. He has taught economics and finance at Columbia Business School, and is a former economic analyst for the Central Intelligence Agency. He received his Ph. D. in economics at George Washington University (1977). He is the editor-in-chief of the investment newsletter Forecasts & Strategies, and author of several books, including The Making of Modern Economics.
“Now, it’s official. With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure. How did this counter revolution come about? There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen’s book The Structure of Production, which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.” — Steve H. Hanke, Johns Hopkins University (2014)
“The development of Gross Output is a good idea and a better measure [of economic activity] than GDP.” — David Colander, Eastern Economic Journal (2014)
“This is a great leap forward in national accounting. Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy.” –Steve Forbes, Forbes magazine (2014)
“Skousen’s Structure of Production should be a required text at our leading universities.” (referring to second edition) –John O. Whitney, Emeritus Professor in Management Practice, Columbia University
“Monumental. I’ve read it twice!” (referring to first edition, published in 1990) — Peter F. Drucker, Clermont Graduate University
“I am enormously impressed with the care and integrity which Skousen has accomplished his work.” — Israel Kirzner, New York University
For Interviews or Lectures
# # #