Where’s Walter Lippmann when we need him?

Columnist and author Walter Lippmann (1889-1974) was considered the most influential journalist of the 20th century.

Who is the Walter Lippmann of our day?  Richard Rahn, who writes for the Washington Times, comes the closest.  He focuses on ideas and problems, and avoids the politically divisive “left-right” labels.  I highly recommend his columns:  https://www.washingtontimes.com/staff/richard-w-rahn/

Lately I’ve been reading “The Good Society,” by Walter Lippmann (his best book), and see that he was highly influenced by Mises and Hayek, so that he rejected socialist central planning….although he supported Keynesian monetary and fiscal policy.

Walter Lippmann

Here is a short summary of his approach:

“Lippmann’s style was distinctive and very effective with his audience.  He did not patronize and was resolutely nonpartisan.  He supported candidates for public office whose positions pleased him regardless of party affiliation.  He could and often did change his mind about people and politics.  He read widely and made every effort not to be identified with any group or ideology.  For example, although he drew from both traditions he was careful not to present himself either as a Keynesian or an Austrian.  He was often impatient and he tended to become disillusioned quickly with politicians after they had been elected, especially presidents of the United States.

“Often he experienced and reflected upon a problem well in advance of bringing it to his readers.  He preferred to make use of theory only after he had gathered a lot of empirical evidence….His style was to lay out his arguments simply and without jargon.

“It is impossible to gauge precisely Lippmann’s influence upon his readers, but it must have been substantial.  Indeed, it seems he could help to make or break a political career, and he could speed or retard the passage of a bill through Congress.”  — Craufurd D. Goodwin, “Walter Lippmann: Public Economist” (Harvard University Press, 2014), pp. 2-3.

Gross Output (GO) Growth Outpaces GDP Again to Suggest Robust Recovery

Washington, DC (Thursday, March 25, 2021): On March 25, 2021, the federal Bureau of Economic Analysis (BEA) released data for the fourth quarter 2020 gross output (GO) – the most comprehensive measure of total spending in the economy, including the supply chain. The data revealed that GO advanced significantly faster than GDP in the last period of 2020, a good sign that strong economic growth will continue into 2021.

While fourth-quarter GDP expanded 6.1% in nominal terms, GO surged 10.6% in comparable terms. Similarly, GO growth of 6.6% in real terms exceeded the real-term GDP growth of 4.3%. Furthermore, on an annualized basis, fourth-quarter GO and GDP exceeded their values from before the 2020 pullback and have risen near their respective highest levels ever – lagging slightly only behind Q3 2019 results in nominal terms.

After a minor dip in the first quarter 2020 and the sharp decline in the second quarter, the economy rallied back in the third quarter to recover most of the second-quarter losses. That growth trend continued in the fourth quarter 2020 at growth rates that exceed recent averages by a significant margin.

Many economists feared that the sharp economic decline in the second quarter would have negative effects on long-term economic growth.  To the extent that major sectors of the economy are still struggling (entertainment, sports, cruise ships, etc.), the US economy is still underperforming and is in many ways, a “K”-shaped recovery rather than a “V”-shaped recovery.

The report released today is based on fourth-quarter 2020 data, when we still did not have complete information on the implementation of Operation Warp Speed – whether vaccines will be effective or how soon we would have enough doses to vaccinate the population to the point of herd immunity. However, with more than one-third of the adult population already vaccinated, easing of government business restrictions and more states going back to business as usual will provide further support necessary to maintain the current economic growth trend.

A positive outlook can also be seen in the relationship between the GO and GDP decline during 2020. Earlier stages of production are generally more sensitive and more volatile in their response to economic disruptions. Therefore, during past recessions, GO commonly declined significantly more than GDP, which captures only final outputs in the economy. For instance, GO declined more than 26% during the last quarter 2008. In the same period, GDP pulled back less than 8%.

But the 2020 economic slowdown broke from this pattern and saw GO decline at similar rates as the GDP. This anomaly from the established historical pattern, provides another indication that the underlying business fundamentals are significantly stronger than originally anticipated, that government shutdowns in response to the COVID-19 epidemic might have been unnecessary and that those responses might have even amplified the initial economic contraction in the second-quarter 2020.

More importantly, as it did during the third quarter, business spending continued to outpace consumer spending in the last quarter 2020.

 

Business – Not Consumers – Drives the Economy

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

Therefore, our business-to-business (B2B) index is very useful for gauging the economy’s underlying health and the readiness to rebound after economic downturns. The B2B Index measures all the business spending in the supply chain and new private capital investment. In the fourth quarter, nominal B2B activity expanded more than 14% to $26.6 trillion. At the same time, consumer spending grew less than 4% on an annualized basis to $14.5 trillion. In real terms, B2B activity expanded at an annualized rate of 12% to $23.25 trillion and consumer spending remained flat at the same level as in the previous period of $13 trillion.

 

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 declining 5.4% and 44% in the first and second quarters, respectively, business activity expanded at an annualized rate of 39% and 12% in real terms in last two quarters of last year.”

 

GO Continues to Grow Faster than GDP in Fourth Quarter to Suggest Strong Economic Recovery at least in the First Half of 2021

Despite significant declines in the first two quarters of 2020, Gross Output indicates robust long-term growth. Prior to what appears to be merely a short-term pullback, GO delivered steady quarterly growth over the previous 42 consecutive periods. Gross Output growth slowed in late 2019, which could have been an early sign of economic slowdown even before the pandemic and government shutdowns in early 2020.

However, GO’s renewed growth in the third and fourth quarter 2020 could set the tone for the overall direction of the economy for the entire 2021 and beyond. Gross Output 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.”

The federal government will release the advance estimate for first-quarter 2021 GDP on April 29, 2021 and the full release of Gross Output, as well as the third estimate of GDP on June 24, 2021.

Important Note:  We are hopeful that in the near future, the BEA will release GO at the same time as the first estimate of GDP for the quarter, not the third estimate.

 

Report on Various Sectors of the Economy

After two periods of contraction and a robust rebound in the third quarter, all but a few of the individual economic sectors continue to expand.

After declining in the previous three quarters, the mining sector expanded nearly 10% in real terms during the fourth-quarter 2020. The Oil and gas extraction sub-segment, which accounts for more than 60% of the overall mining sector, expanded 5.3% in the previous quarter. While exhibiting significant growth, the mining sector’s share of only 1.7% of the economy contributes very little to the overall GO. However, since mining represents the earliest stages of production, we watch its expansion and contraction as an early indicator of what other sectors further down the supply chain might do in subsequent periods.

The Agriculture sector expanded slower in the last quarter than in the third quarter 2020, but still grew 3.3% on an annualized basis. Furthermore, Manufacturing grew 5.7% after spiking more than 40% in the previous period. The two manufacturing sub-segments with highest growth in the most recent periods were Computer and electronic products with 18% and the Fabricated metal products sub-segment with a 16.2% expansion.

More importantly Manufacturing of durable goods expanded at 10% versus the growth of only 1% for Nondurable goods. All these results suggest that, while short-term consumer spending is still lagging, businesses and consumers are confident about the long-term outlook for the economy.

The largest segment of the economy, Finance, insurance, real estate, rental, and leasing, which accounts for one-fifth of GO, grew nearly 5%. The finance and insurance sub-segment expanded 7.6% and the Real estate rental and leasing sub-segment contributed to the growth with an annualized expansion of nearly 3% in the fourth quarter.

The Construction sector delivered a strong growth of nearly 12% – its highest expansion rate last year. However, the Transportation and warehousing sector advanced even faster at 17.4% in real terms. Except for the Pipeline transportation sub-segment, which contracted 8.2%, most other transportation sub-sectors expanded at double-digit percentages. The Transit and ground passenger transportation sub-segment nearly doubled compared to the third quarter, Air transportation grew more than 60%, Rail transportation increased 27.4%, Water transportation volume improved 23% and trucking expanded 5.2%.

Government spending was a mixed bag of results. Federal spending fell 1.2%, but government spending at the state and local level rose 0.5%. While the federal government’s decline rate is higher, State and local government spending accounts for two thirds of total government spending. Therefore, State and local government spending increase erased all spending reductions at the federal level. On the upside, the offset was almost exact and total government spending was flat compared to the previous period.

 

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 not quite the same as the “bottom line” (profit, or net income) of an accounting statement, but rather the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP.

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 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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019:  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

GO-Day podcast discussion panel hosted Mark Skousen that included Steve Forbes, Sean Flynn, Steve Hanke, and David Ranson, September 30, 2020: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000

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

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

Mark Skousen, “If GDP Lags, Watch the Economy Grow,” Wall Street Journal, April 24, 2018:  https://www.grossoutput.com/2018/04/26/away-go-economy-growing-faster-expected/

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

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

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

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

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

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

To interview Dr. Mark Skousen on this press release, contact him at [email protected], or Ned Piplovic, Media Relations at [email protected]

# # #

________________________________________

[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 2020 3rd quarter is $36.94 trillion. By including gross sales at the wholesale and retail level, the adjusted GO expands to $45.11 trillion in Q3 2020. Thus, the BEA omits nearly $8.2 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.

Business-to-Business (B2B) Spending Grows Faster Than GDP!

Washington, DC (Tuesday, December 22, 2020): On December 22, 2020, the federal Bureau of Economic Analysis (BEA) announced that gross output (GO) – the most comprehensive measure of total spending in the economy, including the supply chain – rose dramatically in the 3rd quarter 2020.

In the aftermath of a sharp economic decline reported in the second quarter 2020, Gross Output reversed its downtrend over the past two periods and soared in the third quarter 2020. While still not recovered fully to its past highs, third-quarter 2020 Gross Output rebounded to within 2.8% of its level one year ago. This rapid rebound offers supporting evidence that we might indeed see a brisk v-shaped recovery of the economy supported by positive news on new vaccines availability as we enter 2021.

During past recessions, GO generally declined significantly more than GDP. In the fourth-quarter 2008 GO dropped more than 26% while GDP declined less than 8%. Alternatively, GO also bounced back at faster rate than the GDP during past recoveries.  However, the 2020 economic slowdown does not follow the same pattern. Rather than dropping significantly more than the GDP, GO has maintained decline rates parallel with the GDP.

This break from historical recession patterns suggests that business and supply chain spending has remained relatively robust during this economic pullback. Therefore, third quarter economic rebound indicates strong economic fundamentals that could support rapid recovery as soon as economic shutdowns are lifted with widespread availability of vaccinations.

More importantly, business spending outpaced consumer spending during the third quarter.

 

Business – Not Consumers – Drives the Economy

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

Therefore, our business-to-business (B2B) index is very useful for gauging the economy’s underlying health and the readiness to rebound after economic downturns. The B2B Index measures all the business spending in the supply chain and new private capital investment. In the third quarter, nominal B2B activity soared nearly 43% to $25.7 trillion. At the same time, consumer spending grew less than 40% on an annualized basis to $14.4 trillion. In real terms, B2B activity expanded at an annualized rate of 39% to $22.6 trillion and consumer spending reached $13 trillion after expanding 34.5%.

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 declining 5.4% and 44% in the first and second quarters, respectively, business activity expanded at an annualized rate of 39% in real terms in the third quarter 2020.

 

GO Increase Outpaces GDP Growth in Third Quarter to Indicate Potentially Accelerated Economic Recovery

Gross Output suffered significant declines in the first two quarters of this year. However, prior to these pullbacks, GO increased steadily for 42 consecutive quarters. Even before the pandemic and government shutdowns in early 2020, GO began to show weaker growth in late 2019 falling from nearly 2.5% in the third-quarter 2019 to just 1.1% in the final period of last year.

However, GO growth in the third quarter could set the tone for the overall direction of the economy going into next year. 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.”

After the first-half 2020 pullback, both GDP and GO roared back in the third quarter. However, with a third-quarter annualized growth rate of nearly 40%, Adjusted Gross Output (GO*)[1] outpaced the 33.8 % GDP growth rate in the same period by more than 6%. In real terms, the variance between the growth rates of 30.6% for GO* and 29.9% for GDP was slightly lower at 2.3%.

The federal government will release the fourth-quarter and full-year 2020 advance estimate for GDP of for on January 28, 2021 and the full release of Gross Output and third estimate of GDP on March 25, 2021.

Important Note:  We are hopeful that in the near future, the BEA will release GO at the same time as the first estimate of GDP for the quarter, not the third estimate.

 

Report on Various Sectors of the Economy

After two periods of contraction, all major sectors of the economy expanded in the third quarter 2020. All but one if the 21 sectors expanded at double-digit percentages.

The mining sector delivered a significant expansion of 56% after contracting 35% in the previous period. However, while important to the economy as an early stage of production, the Mining sector accounts for only 1% of the overall GO and does not contribute to the overall GO as much as some of the larger sectors.

After contracting for four consecutive quarters, the Manufacturing segment expanded 51% in the third quarter. However, since manufacturing is the second largest segment and accounts for 16% of GO, its impact on the overall growth of the overall GO is substantially higher than that of the Mining sector.

Furthermore, another indication of the economy’s strong fundamentals and a positive outlook for continued growth is that the Durable goods sub-segment, which has a larger impact on long-term economic expansion, grew nearly 74%. At the same time, the Nondurable goods sub-segment expanded 27.6%.

The largest segment of the economy, Finance, insurance, real estate, rental, and leasing, which accounts for one-fifth of GO, grew nearly 12%. The finance and insurance sub-segment expanded more than 8% and the Real estate rental and leasing sub-segment performed even better with a 14.8% expansion that follows a 14.7% contraction in the previous period.

The Agriculture, forestry, fishing, and hunting sector expanded 32%. Spending in the Utilities sector advanced 11.4%. The Construction sector was the only sector that did not achieve a double-digit growth rate in the third period. This sector still expanded at 9.6%.

Transportation and warehousing, as well as the Retail trade and the Wholesale trade, grew in excess of 50%. Because of the devastating decline in the second quarter, the Arts, entertainment, recreation, accommodation, and food services rebounded nearly 160% in the third period.

After pulling back slightly in the second quarter, overall government spending increased 5% in the third quarter. State and local government spending expanded nearly 11%, which drove the expansion of the overall government segment.

Federal government spending contracted nearly 7% compared to the previous period. However, that contraction is slightly misleading. The reason for this contraction is that federal government spending spiked 16% in the previous period, which was the first double-digit increase for this segment in more than a decade.
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 not quite the same as the “bottom line” (profit, or net income) of an accounting statement, but rather the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP.

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 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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019:  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

GO-Day podcast discussion panel hosted Mark Skousen that included Steve Forbes, Sean Flynn, Steve Hanke, and David Ranson, September 30, 2020: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000

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

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

Mark Skousen, “If GDP Lags, Watch the Economy Grow,” Wall Street Journal, April 24, 2018:  https://www.grossoutput.com/2018/04/26/away-go-economy-growing-faster-expected/

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

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

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

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

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

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

To interview Dr. Mark Skousen on this press release, contact him at [email protected], or Ned Piplovic, Media Relations at [email protected]

# # #

________________________________________

[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 2020 3rd quarter is $36.94 trillion. By including gross sales at the wholesale and retail level, the adjusted GO expands to $45.11 trillion in Q3 2020. Thus, the BEA omits nearly $8.2 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.

Ideal Holiday Gift! New 10th Anniversary Release of “The Maxims of Wall Street”

Dear friends,

A hundred years ago, in 1920, the great author and poet Rudyard Kipling wrote a poem, “Gods of the Copybook Headings.”  He was referring to the proverbs or maxims often drawn from sermons, almanacs, and scriptures extolling virtue and wisdom that were printed at the top of the pages of notebooks used by British school children.

The students had to copy the maxims repeatedly, by hand, down the page.  The exercise served as a form of moral education and penmanship.

Kipling’s first stanza reads:

As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

Kipling bemoaned the fact that we no longer teach aphorisms to students or adults.

As a result, to quote another great poet T. S. Eliot, “How much wisdom have we lost to knowledge, and how much knowledge have we lost to information?”

But Kipling and Eliot would be happy to know that the age-old wisdom and timeless truths of the “copybook headings” are alive and well on Wall Street.

For years, I’ve been compiling these financial adages, ancient proverbs and immortal poems found in new and rare financial books and quoted regularly by investors, money managers, brokers and old timers.

Finally, I published them in a handsome volume in dark green leather and gold lettering with a ribbon.  “The Maxims of Wall Street” was first published in 2011, and has been a bestseller ever since.  Over 35,000 copies have been sold through seven editions.

Maxims

 

“Maxims” is the Closest Thing to Wall Street Scripture

The Maxims contains:

  • Over 800 adages by such notables as Warren Buffett (“The stock market can go from green to red without stopping at yellow”)….J. P. Morgan (“Troubled waters make for good fishing”)….Humphrey Neill (“The public is right during the trends but wrong at both ends”)….Richard Russell (“In a bear market, the winner is he who loses the least”)….and Steve Forbes (“Everyone is a disciplined, long-term investor….until the market goes down!”).
  • Old Timer’s stories like the “trading sardines”…where are the customer’s yachts?….the gold bugs….commodity traders….The origin of “blue sky”…
  • Famous lines from Baron Rothschild, Ben Franklin, John D. Rockefeller, Joe Kennedy, J. P. Morgan, Bernard Baruch, John Templeton, Jesse Livermore, John Maynard Keynes,and Ben Graham
  • All quotations are divided into categories, with sage advice on beating the market, diversification vs concentration, value vs growth, bulls vs bears…black swan events….day traders….doomsayers and casandras…plungers and the peacocks….hot tips and insider information…losing money and missed opportunities…Wall Street vs Main Street….chartists vs fundamentalists….leverage and debt….privacy and government….taxes and tax havens….inspiring “Rich Man’s Pearls of Wisdom.”

Providing A Shortcut to Financial Wisdom

The book has been endorsed by Warren Buffett, Jack Bogle, Dennis Gartman, Barron’s, and many others.

Alex Green, chief investment strategist of the Oxford Club, wrote the following last month:

“Wouldn’t it be great if someone collected the wisest thoughts of the world’s greatest investors, men like Jesse Livermore, Baron Rothschild, J.P. Morgan, Benjamin Graham, Warren Buffett, Peter Lynch, John Templeton and others?

“As a matter of fact, someone has, my good friend and colleague Dr. Mark Skousen. His book ‘The Maxims of Wall Street’ is a crash course in how to survive and profit in today’s volatile markets.

“A college economics professor, founder of FreedomFest and bestselling author, Mark has spent more than four decades reading, writing, teaching and lecturing about financial markets. Along the way, he has collected a treasure trove of proverbs, slogans, stories and juicy quotes.

“I found myself chuckling (and occasionally sighing) when I first read this book. And I still refer to it regularly. Over my 35-year career, I learned much of this investment wisdom by trial and error. Fortunately, you don’t have to. The Maxims of Wall Street is a pithy and indispensable guide.”

 

New 10th Anniversary Edition Released in Time for the Holidays

Last week my grandson Luke and I drove to Chicago to pick up the new 10th anniversary edition of “The Maxims of Wall Street,” hot off the press.  Then we drove to a suburb of Cleveland and delivered 175 copies to Carver Financial Services, whose president Randy Carver is a big fan.  He’s a broker with Raymond James.  Randy plans to give them to his clients as a holiday gift.

Maxims

Kelley Drumm, marketing director at Carver Financial Services, and I admire new 10th anniversary edition of “Maxims”]

I can’t deliver every copy in person, but I will be mailing out copies this week and next, in time for Christmas and the holidays.

In fact, there’s still time to order your own copies — for yourself and your investor friends, neighbors, clients and favorite brokers.  Order as many copies as you would like — I offer a special discount when you order more than one copy — half off!

The new edition is special — it’s 282 pages.  I’ve added 200 quotes since the first edition came out in 2011.

 

Cheaper by the Dozen!

I’ve kept the same low price.  The new edition retails for $24.95, but if you buy from Skousen Books, the first copy is just $20, and all additional copies are only $10 each. If you order an entire box of 32 copies, the price is only $300, less than $10 each.

As Hetty Green, America’s first female millionaire, said, “When I see something cheap, I buy a lot of it.”

To order, go to www.skousenbooks.com.

I number and autograph every copy and pay the postage if mailed in the United States (shipping to Canada or other foreign destinations requires additional postage). If you have any special inscriptions, please email Ned at [email protected].

We ship every day.  Order your autographed copy today!  Go to www.skousenbooks.com.

And let me know if you want a special inscription as a gift to others.  I’ll be glad to oblige.

Here’s to a very merry Christmas and happy prosperous New Year.

With all good wishes, AEIOU,

Mark

Mark Skousen
Presidential Fellow, Chapman University
Newsletter:  www.markskousen.com
Free weekly e-letter:  https://www.markskousen.com/signups/skousen-investor-cafe/
Personal website:  www.mskousen.com
Annual conference:  www.freedomfest.com

Ezra Taft Benson’s Remarks at FEE Headquarters in New York, May 1977

In 2001-02, I served as president of the Foundation for Economic Education (FEE), the oldest free-market educational institution in the United States.

When I arrive I felt at home immediately when I saw the photographs of three members of my faith who had served as members of the FEE board – Ezra Taft Benson (former Secretary of Agriculture), J. Reuben Clark, Jr. (former ambassador to Mexico), and Ernest L. Wilkinson (president of BYU).

Here is the story when Ezra Taft Benson came to FEE headquarters in May, 1977, and addressed supporters and then the board members.

Ezra Taft Benson

In May 1977 Ezra Taft Benson addressed the board of the prestigious Foundation for Economic Education (FEE), of which he had previously served on the board of trustees (as had J. Reuben Clark, Jr. and Ernest L. Wikinson).  He warned that while America had become the world’s richest nation because of free enterprise, today’s citizen was learning to depend on the state, thus jeopardizing personal freedom.

The following day he was invited by the president of the foundation, Leonard E. Read, to attend a trustees meeting.  “The first question [they asked me] was on the Church, and they never left that theme,” President Benson wrote that night, “so I spent an hour answering questions, telling them about the Church, bearing my testimony to them and telling of Church policies and my experiences in the Cabinet.”  One board member lingered afterwards and told him, “I want what you have.  When we go home, I’m going to look up your church.”

Shortly thereafter President Kimball received a letter from Leonard Read, who wrote, “Last evening we had some 160 freedom friends to hear President Benson’s lecture, ‘The Productive Base of Society.’ Imagine the audiences and lectures I have arranged during…more than 31 years as President of FEE….Well, last evening was the best of all.  Never have a witnessed such interest, approval, esteem.  This forenoon, however, even topped last evening—this being an hour’s discussion with 26 of our Trustees and many guests.  All were profoundly moved by Ezra’s economic, intellectual, moral and spiritual insights.  Among my acquaintances in this and 22 foreign nations, I have never come upon his equal.”

President Benson sent an engraved copy of the book, Meet the Mormons, and a copy of the Joseph Smith story to each trustee of the foundation.

–“Ezra Taft Benson, A Biography,” by Sheri L. Dew (Deseret Book, 1987), p. 451.

Elder Ezra Taft Benson Speaks in Communist Russia

 

Ezra Taft Benson in Russia

Elder Ezra Taft Benson Speaks at the Central Baptist Church in Communist Russia, October, 1959

 

“It was the most heart-rending and most inspiring scene I’ve witnessed.”  –News reporter

From the time he arrived, Ezra Taft Benson repeatedly requested that he be taken to visit one of the two Protestant churches in Moscow.  Finally, as his party was taken to the airport for their departure, he again asked to stop at a church.  Reluctantly, his driver swung into a narrow alley behind an old stucco building – the Central Baptist Church.  It was raining, but the chill left as the Secretary’s party entered the church which was filled to overflowing with mostly middle-aged and elderly people.  Ezra understood that Soviet citizens attended these services at some risk; anyone who looked to a career of any kind avoided the slightest suspicion of belief in Christianity.

The American group caused an immediate stir in the old church.  A newsman present described the scene: “Every face in the old sanctuary gaped incredulously as our obviously American group was led down the aisle.  They grabbed for our hands as we proceeded to our pews which were gladly vacated…Their wrinkled old faces looked at us pleadingly.  They reached out to touch us almost as one would reach out for the last final caress of one’s most-beloved just before the casket is lowered.  They were in misery and yet a light shone through the misery.  They gripped our hands like frightened children.”

Surprisingly, the minister invited Secretary Benson to speak.  Knowing there was some danger, Ezra turned to Flora and asked if she thought he should do it.  Without pause she answered, “You bet, T!”  And he made his way to the pulpit.

Never had he stood before an audience like this.  As he scanned the crowd of anxious faces, it took some moments for him to control his emotions.  These were good people, he felt immediately, subjected to a society that deprived them of unrestricted worship.  The emotional impact was almost more than he could bear.  Then he began to speak about hope and truth and love.  As he talked about the Savior and the hope of life after death, tears flowed freely throughout the church.

“Our Heavenly Father is not far away,” the Secretary promised.  “He is our Father.  Jesus Christ, the Redeemer of the World, watches over this earth…Be unafraid, keep His commandments, love one another, pray for peace, and all will be well.”

Women took out their handkerchiefs and nodded vigorously as they moaned “Ja, ja, ja!”  He looked down at one elderly woman, her head covered by a scarf and with a shawl about her shoulders, and spoke as though directly to her: “This life is only a part of eternity.  We lived before we cam here…We will live again after we leave this life…I believe very firmly in prayer.  I know it is possible to reach out and tap the Unseen Power which gives us strength and such an anchor in time of need.”  He concluded, “I leave you my witness as a church servant for many years that the truth will endure.  Time is on the side of truth.  God bless you and keep you all the days of your life.”

By this time teams were streaming down Ezra’s face.  When his entourage finally filed down the aisle, men and women waved handkerchiefs and grasped the visitors’ hands in an action that spoke more than words.  Spontaneously they began to sing “God Be With You Till We Meet Again.”  The language was foreign, but the tune and meaning were unmistakable.  The Americans entered their cars with not a dry eye among them.  Finally, a newsman broke the silence, commenting, “I believe they were the only really happy people we saw in Russia.”

“I shall never forget that evening as long as I live,” Elder Benson later wrote.  “Seldom, if ever, have I felt the oneness of mankind and the unquenchable yearning of the human heart for freedom.”  Others felt similarly.  Cynical newsmen who had complained about “going to church with Ezra” (and who had skipped out on LDS services in West Berlin) stood and wept openly.

Tom Anderson, editor of Farm and Ranch magazine, wrote, “Imagine getting your greatest spiritual experience in atheistic Russia!….The Communist plan is that when these ‘last believers’ die off, religion will die with them.  What the atheists don’t know is that God can’t be stamped out by legislated atheism….This Methodist backslider who occasionally grumbles about having to go to church, stood crying unashamedly, throat lumped, and chills running from spine to toes.  It was the most heart-rending and most inspiring scene I’ve witnessed.”

When they reached the airport, nearly all of the newsmen traveling with Ezra told him it had been the greatest spiritual experience they had ever had.

–“Ezra Taft Benson, A Biography,” by Sheri Dew (Deseret Book, 1987), pp. 342-344

10 LESSONS FOR 10-10-2020

This article was originally published on the FreedomFest Forum on October 10, 2020.

lessons

The year 2020 has been anything but a year of seeing clearly. It has been characterized by uncertainty, divisiveness, and conflicting views. In the January prediction issue of my newsletter, “Forecasts & Strategies,” I stated, “The outlook for stocks, gold and the dollar is positive as we enter 2020, but beware of a ‘black swan’ event that could derail the longest running bull market in history.” Indeed, the coronavirus not only derailed the bull market, but the entire economy and our society. Today, on 10-10 2020, I thought it would be appropriate to publish my top ten lessons learned from 2020.

  1. “Trust the science but not the scientists.” We quickly learned that medical experts are subject to biases and weaknesses just like the rest of us. As Steve Forbes says, “You can’t always trust the experts.” In early 2020, prominent epidemiologists in the UK and the US published convincing articles predicting that the new virus would kill “millions.” Indeed, people began dying at alarming rates. Other medical experts dissented from the alarmists, saying that the coronavirus was far less lethal than previous influenzas such as the Hong Kong flu of 1969. As doctors have learned more about the virus, treatments have improved and death rates have dropped. But the panic continues.
  1. “The cure turned out far worse than the disease.” Sir Harry Schultz has said, “Never underestimate the size of a panic or the power of a politician.” Government leaders overreacted to the virus scare by shutting down schools, sports, theaters, tourism, travel, churches, and business.   To use a metaphor from John Maynard Keynes, “We used a sledge hammer to crack a nut.” Only now are we finding out the devastating unintended consequences –bankruptcies and job losses, depression and suicides, domestic abuse and alcoholism, and permanent changes in our lifestyle and culture. Some studies suggest that more people are dying from the shutdown than from the disease itself. As I’ve traveled across the country over the past several weeks I’ve seen business after business closed down— whole areas of towns shuttered— no public bathrooms or places to eat— and I am appalled by what has happened to our country. What a tragedy! Sadly, none of the governors or mayors who imposed these draconian restrictions have apologized or taken responsibility for their blunders. Meanwhile, Sweden was one of the few countries that did not succumb to the scaremongering, and the virus is virtually finished there. It is becoming more and more apparent that locking down was the worst choice.
  1. “Technology made the lockdown easier to impose.” How it was possible for the government to shut down the economy and society so quickly? Why were Americans so compliant? Fear about the unknown properties of the virus were the initial reason, of course. But the months long shutdown was made more palatable because e-commerce and online technology made it easier for many to transition to working from home. College and university officials could shut down schools because it’s now possible to teach online and for students to be educated and entertained at home. White-collar workers could do their jobs online. Most products, even food and drink, could be delivered to people sequestering at home, largely because blue-collar jobs (manufacturing, retail and delivery) were deemed “essential” and the risk of the disease was deemed warranted.
  1. “How quickly we lost our liberties.” Milton Friedman said, “Freedom is a rare and delicate flower.” Despite the safeguards guaranteed in the Constitution and Bill of Rights, within days of the lockdown, we saw our First Amendment rights abridged, including the freedom of speech, peaceful assembly, worship, travel, and commerce. Education went online and borders were closed. In the past, quarantines were imposed on those who were actually sick and thus posed a threat, but now everyone was restricted by the fear that anyone could be a carrier, even without symptoms. Government officials in other countries imposed even more severe limitations on their citizens’ freedoms of movement and behavior. At the same time, certain groups were allowed to engage in mass protests without any limitation. But those who protested the lockdowns were cited, fined, and surveilled. Most law-abiding citizens were reluctant to defy the State and engage in civil disobedience, even when their new rules defy common sense.
  1. “The Rise of Irrational Behavior.” I am amazed how willingly citizens conform to State mandates and prohibitions, giving up their liberties so quickly in order to be safe. Masks and physical distancing are the most obvious examples. I can understand why many people wish to protect themselves; let them make their own decisions about safety and risk. But the government and the media have been so effective in scaring people that we see people wearing masks inside their cars when they are driving, walking alone on the streets, and exercising in the gym (which is downright unhealthy). Jokes have been made about how intelligent the virus is, avoiding people while they’re sitting in a restaurant but attacking when they’re standing. The governor of California seriously suggested that people put on their face coverings in between bites when eating at a restaurant. The chief medical officer in Canada said with a straight face that partners should wear masks during sex, or try positions where they aren’t facing each other. Meanwhile, most Swedes have adopted sensible distancing protocols, but they don’t wear face coverings everywhere they go, and their businesses have remained open.
  1. “Government at the federal and state level is out of control.” As a result of its own hysteria in shutting down the economy, governments at all levels face the worst financial crisis Americans have experienced in peacetime. States have used up their “rainy day” funds and many face bankruptcy if Washington does not bail them out. Of course, many municipalities were facing insolvency before the pandemic, but the shutdown has sped up and intensified the crisis as tax revenues lessen and demands for welfare and unemployment benefits increase. Major corporations and small businesses face the same dilemma. Lost revenues and increased spending have resulted in alarmingly high deficits. Central banks like the Federal Reserve are engaged in virtually unlimited buying of Treasury securities and other assets, generating fears of higher taxation and inflation in the future. In sum, Washington is like Humpty Dumpty – the egg has cracked, and it can’t be put back together again. As a result, socialism is on the march.
  1. “Government executives have been given way too much emergency power.” George Washington is alleged to have said, “Government is like fire, a dangerous servant and a fearful master.” Over the years, the president, governors and mayors have been granted almost unlimited power to use “executive orders,” powers intended to be used sparingly, only in times of war or natural disasters. In 2020, they began using executive order to impose virtually any prohibition or mandate they wish. As Jorge “Tuto” Quirado, the former president of Bolivia, once said, “Now more and more everything is either prohibited or mandated.” In 2020, we see that representative democracy has been replaced by dictatorship. A few states limit these emergency orders to 30 or 60 days, during which time the governor must consult with the legislature to get their approval before continuing their mandates, but many have simply issued new orders after the expiration date. The courts have started to rule against these overreaching mandates, notably in Michigan and Pennsylvania, but the damage has been done.
  1. “We need to encourage healthy living.” It seems the entire focus by medical and government authorities is to deal with the symptoms of the disease — to develop a vaccine to prevent the virus or medicines and treatments to make you better if you contract it. But the evidence is overwhelming that healthy and young people are not likely to get the virus. The most vulnerable victims are the elderly who suffer from obesity, diabetes, heart disease, or other diseases. Adding insult to injury (or hypocrisy to mandates), much of the rise in these conditions is a result of misguided and misleading federal nutrition guidelines since the 1980s, when fats were demonized and sugars were quietly substituted to create texture and flavor. The increase in sugar and processed carbs has weakened immune systems. It’s time for teachers and other leaders to encourage healthy living at all ages through proper diets, exercise, and a positive mental attitude. During the lockdown people have done more walking and biking, but the stay-at-home orders, coupled with the closing of gyms, parks, beaches and sporting events have led to a more sedentary and less healthy population. If herd immunity is the goal, having a healthy society is the best road to surviving this crisis.
  1. We have begun to live in fear, not faith.” In today’s Brave New World, masks have become a religious talisman, imbued with magical powers to ward off evil viruses even when they are often dirty and ill-fitting. Meanwhile, religious men and women who go to church are required to wear masks and not socialize—just hurry in and hurry out. Their pastors seem to have more faith in science and government leaders than they do in God. It saddens me when I see children recoil in fear as they pass strangers on the streets or in a store. What kind of message are we sending to our future generations when children are told that anyone could be a carrier—anyone could potentially kill them? Moreover, physical distancing requirements are repressing children’s ability to develop social skills and exercise their natural tendency toward play. Oh, ye of little faith!
  1. “Know the signs of the times.” Bertrand de Jouvenel wisely said, “A forecast is never so useful as when it warns of a crisis.” The pandemic scare offers an important lesson in how we conduct our lives, our friendships, our businesses and our investment portfolios. We need to be alert and prepared for the unexpected. The coronavirus not only derailed the bull market, but the entire economy, politics, and our society. However, forecasting is a difficult business. It’s easier to prepare than to predict. I urge all to save regularly, avoid unnecessary expenses, build a strong cash position in their portfolio and retain earnings and reserves in their business.

Admittedly, many people have learned different lessons during this pandemic—they’ve resolved to spend more time with family and less time away from home, even after the pandemic ends. They’ve reconsidered career choices and school options and reevaluated how they spend money. I applaud those who have chosen to use this time productively. But for many hundreds of thousands of people, the loss of freedom and livelihood has been devastating. Both sets of lessons must be learned so that we don’t permanently lose our freedom to choose our paths.

GO-Day Celebration

Dear friends,

Good news!  For the first time, the federal government (BEA) has released the “top line” gross output (GO) at the same time as the “bottom line” GDP.  For years, publicly-traded companies have simultaneously posted the top line (sales/revenues) and the bottom line (earnings/net income) every quarter.  Now finally the government is releasing GO and GDP every quarter in national income accounting.

Economics finally caught up with accounting and finance!

GO_DAY Celebration

I call GO the missing piece in the macroeconomic puzzle.

Several events mark the GO-Day Celebration.

1. The Wall Street Journal published my op on this milestone in national income accounting on Saturday, October 3. The WSJ op ed is published on line and in the print edition. This is the third time they have carried my articles on GO. See the article in full below.

2. Steve Forbes released his 3-minute “What’s Ahead” podcast on “Gross Output vs GDP: Which Measure is Better?” — it’s the best summary of GO I’ve ever watched. Watch it here: https://www.youtube.com/watch?v=WoYF-ous_mU

3. My press release offers more detail and useful charts at www.grossoutput.com.

4. In celebration of this special occasion (the first time the government has released GO and GDP on the same day), I hosted a 1-hour webinar on GO Day with panelists Steve Forbes, Sean Flynn (Scripps College and primary writer of the McConnell Brue Flynn textbook), David Ranson (chief economist, HCWE, Inc.), and Steve Hanke (Johns Hopkins University). The webinar was courtesy of Chapman University.

You can watch it here: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000

More economic analysts are now using it the forecast economic growth and the stock market, including David Ranson (HCWE, Inc.) and Jerry Bowyer, CEO of Bowyer Research. To read how they use GO in their forecasting models, go to “What Others Are Saying” at www.grossoutput.com.

New Stat Augurs Well for Covid Recovery

Gross output measures business confidence better than GDP. It’s fallen less than in past recessions.

By Mark Skousen
WALL STREET JOURNAL, Oct. 2, 2020

Wednesday was a big day for anyone with an eye on the economy. For the first time, the Bureau of Economic Analysis (BEA) released the “top line” gross output, or GO, at the same time as it published the “bottom line” gross domestic product. And the GO data brought a welcome surprise: It shows the economy is much more resilient than it looked.

Analyzing GO and GDP simultaneously is an essential way to know what is really going in the economy. The key is that GDP accounts for final output only: the finished goods and services bought by consumers, business and government. In contrast, GO measures total spending at all stages of the supply chain.

Steve Forbes offers a useful metaphor: “GDP is like an X-ray of the economy; GO is like a CAT-scan.” GO reveals a deeper level of economic activity and is therefore helpful in predicting the direction of growth, not only its current state.

GO is especially significant during downturns. In past recessions, GO declined much faster than GDP and gave an earlier view of the depth of the recession. During the financial crisis in the fourth quarter of 2008, GO fell 6.6%, compared with a 2% drop in GDP—more than three times as fast. The GO decline showed that even while consumer sales held up, businesses were slowing investment in future production.

In 2020, that trend is clearly reversed. In both the first and second quarters, GO fell slightly less than GDP. In the second quarter, real GO declined by 8.4% while real GDP decreased by 9% (in quarterly, nonannualized terms). GO didn’t collapse by multiples of GDP as it has in past recessions. The decline was close to 1-to-1, rather than 3-to-1.

What does this tell us? It’s clear that consumer spending dropped sharply in 2020 as a result of the lockdown, but businesses looked toward the long term, expected a recovery, and adjusted accordingly.

Jerry Bowyer, CEO of Bowyer Research, described the trend to me: “The lockdown was focused on sectors which were skewed towards final stage consumption, such as retail, entertainment and travel. Seeing that the shutdown was disproportionately skewed towards GDP world as opposed to the phases before that phase (GO), showed how the economy would be able to be more resilient in bouncing back than many anticipated.”

That’s good news, suggesting the recovery from this recession will be faster than most analysts thought. The sooner states open up their economies, the faster we will see a return to a dynamic American economy.

I do have one suggestion for the BEA: They need to report GO even more quickly each quarter. Have it come out the day the first estimate of GDP is released, not the third. Information is power.

Mr. Skousen is a presidential fellow at Chapman University, editor of Forecasts & Strategies, and author of “The Structure of Production.”

Online: https://www.wsj.com/articles/new-stat-augurs-well-for-covid-recovery-11601678216?mod=opinion_lead_pos7″>https://www.wsj.com/articles/new-stat-augurs-well-for-covid-recovery-11601678216?mod=opinion_lead_pos7

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved.
Appeared in the October 3, 2020, print edition.

Macroeconomics on the GO: How Wall Street Economic Analysts Use Gross Output (GO)

Here are two examples of how private economic research firms are using gross output (GO) to analyze and predict the future of the economy, growth and the markets.

 

1. David Ranson, chief economist, HCWE, Inc. (formerly H. C. Wainwright Economics). www.hcwe.com

Gross output (GO) is a potent but widely-neglected source of information about the national economy whose potential value has been championed and pioneered over many years by economist Mark Skousen in many professional contributions, including his book, The Structure of Production. Thanks to his efforts to bring it to the attention of the economics profession, GO is finally beginning to receive the attention it deserves. GO is a much more comprehensive measure of the size of the economy than GDP. Since GDP includes only ‘final’ goods and services, it leaves out a huge segment of the economy that consists of transactions among businesses that buy and sell intermediate goods to one another in the course of the supply chain of which GDP is the ultimate outcome.

This left-out segment, which might be called the ‘intermediate economy,’ is larger than GDP itself, and dwarfs personal consumption. Its most important feature is that it reflects economic vitality at an earlier stage in the supply chain. As a result it leads GDP by at least three months. It has more credibility than the many leading indicators of GDP for several reasons. Its quarterly growth is very highly correlated with GDP growth, and it’s a direct measure of economic activity rather than a mere indicator that tends to rise and fall in advance of GDP. Historically, GO is better correlated than GDP with financial prices in the capital markets, such as stocks.

GO portrays an economy that is substantially more cyclical than GDP portrays it. According to GO data, the recession of 2008-09 was much deeper than generally thought, and the recovery was slower.

The chief obstacle to using GO as a forecasting tool remains the delay in publishing it. Although the Bureau of Economic Analysis now gives GO more priority than it had in the past, the earliest estimate for any particular quarter is published three months after the quarter has ended – at the time that the third monthly estimate of GDP is released.

 

2. Jerry Bowyer, (Bowyer Research) publisher of Affluent Investor Daily (www.affluentinvestor.com), columnist at Town Hall Finance and contributor to Forbes.com and Forbes magazine

I was an early adopter of the idea of Gross Output after interviewing Mark Skousen over past two decades about economic theory. I’ve had a chance to watch and see how the idea developed and eventually became an official government aggregate.

I believe economists who use GO can enjoy a competitive edge over those who rely solely on GDP, which is only a slice of aggregate spending. My friend, Steve Forbes likes to call GDP the X-ray of the economy and GO as the CAT Scan. I would use a different analogy. GDP is like

Flatland in the eponymous Victorian novel, a place with only two dimensions. The Flatlanders only see a circle, not a sphere.  They see a square, not a cube.  GDP is of Flatland whereas GO is of Sphereland.  It shows an extra dimension ignored by virtually the entire economic commentariat.

I found GO particularly helpful in seeing how the pandemic and subsequent lockdown would affect the economy, by looking at various industries in terms of order of magnitude of their respective slice of GO as opposed to GDP.

The lockdown was focused on sectors which were skewed towards final stage consumption, such as retail, entertainment and travel.  Large swaths of consumption were temporarily suppressed, which cause GDP to collapse.

What is surprising is what happened to GO. In past recessions, GO and the supply chain fell far more than GDP, but in the latest GO/GDP data, we discovered that GO fell slightly less that GDP.  Thus, the supply chain was more resilient than the demand step.

In sum, GO showed how the economy is more resilient in bouncing back then many anticipated.

The supply chain in GO is a high volatility, high signal metric which tells us much more than the flatline of consumer spending.

As a citizen, I hope GO is widely adopted. But as an entrepreneur, I hope my competitors never hear of it.

 

For more information on GO, go to www.grossoutput.com.

Despite First Decline in More Than a Decade for Q1, Gross Output (GO) Might Still Offer Hope for a Robust Recovery in Late 2020

Washington, DC (Tuesday, July 7, 2020):  On July 6, 2020, the federal Bureau of Economic Analysis (BEA) announced that gross output (GO) – the most comprehensive measure of total spending in the economy, including the supply chain – slowed dramatically in the 1st quarter 2020.

Gross Output declined in the aftermath of current political unrests, as well as negative effects of the COVID-19 pandemic and government shutdown of the economy in response to the pandemic. However, GO might offer still some promise for a strong recovery, even over the short term. Business spending, which is a better indicator of economic recovery, declined significantly less than consumer spending. This might be an indication that the economy is more fundamentally sound than currently anticipated.

While some of the business spending was to fight the current epidemic, businesses also used a significant portion of that spending to transform and set up their operations for opening after government closing mandates are lifted. If that is correct, the economy might recover quicker than expected. The most recent jobs report also offered an indication that a relatively fast recovery is certainly a strong possibility.

After delivering steady increases over the past 42 consecutive quarters, first quarter 2020 Gross Output declined 4% in real-terms. Last time real GO declined — in the second quarter 2009 — was in the aftermath of the 2008 economic pullback. While still growing, GO had already slowed its growth rate to 1.1% in the fourth quarter 2019 from nearly 2.5% in the previous period.

This growth slowdown in the last period last year, and a decline in the first period 2020 offered a leading indication that the overall economy was already cooling. GO appears to have anticipated the pullback already in the first quarter even before the economy experienced the full effects of the COVID-19 pandemic and government-mandated shutdowns.

However, while gross output generally declines more than GDP during economic pullbacks, this period’s data presents an anomaly. Despite declining 4% on annualized basis, GO fell less than real GDP, which pulled back 5.1% in the same period.

One reason for this anomaly – and potential s positive sign pointing to a faster-than-expected recovery – is that business spending decreased at a slower rate than consumer spending. Businesses generally anticipate economic contractions and begin spending cuts earlier than consumers. Therefore, Gross Output, which includes business-to business transactions, generally offers earlier signs of pending economic contractions than GDP, which measures only final output.

While consumer spending fell 5.9% in the first quarter 2020, business spending contracted only 5.4%. Despite a relatively small magnitude, this is a significant margin as back-tested date indicates that business spending tends to decline at significantly higher rates than consumer spending during periods of “normal” economic contractions. The margin is even more significant in nominal terms where business spending fell just 4% compared to the 5.7% consumer spending decline. It appears that businesses anticipated the full impact of the COVID-19 epidemic based on just one month of information and adjusted their economic activity by reducing buying activities.

The disruptions in the domestic and global supply chain caused by the COVID-19 pandemic, as well as civic unrest in the U.S., have been in the news lately.  GO is the only macro statistic that includes the value of B2B spending and supply chain. “It deserves to be watched closely and updated frequently,” said Dr. Mark Skousen, presidential fellow at Chapman University and a leading advocate of GO as a better, more comprehensive indicator of economic performance.

 

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 business spending decline suggests that the economy began slowing down as a response to early signs that the COVID-19 epidemic’s impact could be significantly more serious than initially anticipated in December 2019. The U.S.–China Phase One trade agreement — signed on January 15, 2020, in Washington D.C. by China’s Vice Premier Liu He and U.S. President Donald Trump – went into effect on July 1, 2002.  However, there are accusations from both sides regarding the origin of the COVID-19 virus and new information that suggests Chinese government officials might have been aware that the epidemic began in China much earlier than they disclosed it in December 2019. Therefore this agreement might not have the intended economic impact as originally anticipated. Furthermore, protests and civil unrests in the U.S. create additional headwinds that the economy will have to overcome even after the COVID-19 pandemic is under control.

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 three quarters, a sign that the economy was slowing down as it entered 2020.

The federal government will release the advance estimate for second-quarter GDP on July 30, 2020 and a full release of second-quarter GO on September 30, 2020.

 

Report on Various Sectors of the Economy

In the first quarter 2020, 17 of 22 industry sectors groups contracted to drive the overall GO contraction. The second largest sector – Manufacturing – contracted 7.1% on an annualized basis. This pullback marked a third consecutive contraction after the sector declined 1.2% and 1.5% in the previous two periods of 2019. However, a bigger concern is that manufacturing of Durable goods declined nearly 10%. Durable goods, which include capital expense items by businesses and have bigger impact on long-term economic activity, declined considerably more than Nondurable goods, which contracted just 4.5%, less than half the rate for Durable goods.

Finance, insurance, real estate, rental, and leasing – the largest segment that accounts for nearly one-fifth of total Gross Output – was one of just few bright spots in the first quarter. After expanding 1.3% in Q4 2019, this sector more than doubled its growth to 3.2% in the first quarter 2020. The Finance and insurance sub-segment advanced 3.5% and Real estate rental and leasing still grew at a respectable 3.0%.

After briefly breaking a streak of declining for three consecutive periods in Q4 2019, the Mining sector posted a 42% drop in the first quarter 2020. While an important sector among the leading indicators in the early stages of production, the Mining sector only accounts for approximately 1.3% of the overall GO, which minimizes the impact of the decline on the economy overall.

Similarly to the Mining sector, the Utilities sector delivered a single-period increase in Q4 after two negative periods. However, in Q1 2020, the Utilities sector pulled back more than 21%. The Transportation and warehousing sector also suffered a large decline of nearly 16% after expanding 4.7% in the previous period.

Another positive contributor was the Construction sector. After increasing its expansion rate from 2.5% in Q3 to 4.4% Q4 2020, this sector expanded nearly 14% in the first period 2020.

Several other sectors, such as professional, business, educational, health care and social assistance, contracted between 1% and 5%. Under the lockdown directives, the    Arts, entertainment, recreation, accommodation, and food services sector declined more than 40%.

Another sector that continued its steady expansion was Government spending, albeit at a slightly slower pace. After expanding more than 4% in the last period of 2019, overall government spending rose 1.8% in the first quarter 2020. The main driver was a 3.7% growth of Federal government spending. State and local government spending increased at relatively small 1%.

 

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.  However, since then GO has slowed dramatically, threatening the economic boom.

Consumer Spending Declined Significantly More Than Business Spending in Q1 2020, Which Could Indicate That the Economy Has Solid Fundamentals and is Ready to Bounce Back as Soon as the COVID-19 Pandemic is Under Control and Government Restrictions Mandates Are Lifted

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 contracted 4% in the fourth quarter to $26.3 trillion. Meanwhile, consumer spending contracted 5.7% on an annualized basis to $14.6 trillion. In real terms, B2B activity decreased at an annualized rate of 5.4% and consumer spending declined 5.9%.

 

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 its growth in the fourth quarter at the end of 2019, business activity declined 5.4% in real terms during the first-quarter 2020.

After the initial decline in early-2020, the stock market continues to experience volatility. However, since the mid-March lows, the markets have rebounded strongly and recovered most of those losses. The S&P 500 has risen 40% and has already recovered nearly 90% of its losses between the beginning of 2020 and its year-to-date low on March 23.

While lower than in the previous period, total business spending indicates that the overall economy might surge back in the second half of the year. One stumbling block for the economic recovery might be renewed and continued interference by government officials, such as Governor Sisolak’s (D-NV) decision to extend the current shutdown phase through the end of July in Las Vegas, which forced a cancellation of our FreedomFest conference for the first time since it began in 2007. Similar decisions might put additional pressure on businesses across the country and suppress economic recovery deeper into the year.”

 

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 [email protected], or Ned Piplovic, Media Relations at [email protected]

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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 2020 1st quarter is $37.8 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to nearly $46.1 trillion in Q1 2020. Thus, the BEA omits more than $8.2 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.