Gross Output (GO) a Major Discovery as a Top Line in National Income Accounting

By Mark Skousen

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

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

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

2016 Q1 Adjusted Gross Output (GO*) versus GDP

2016 Q1 Adjusted Gross Output (GO*) versus GDP

Here is a short summary of my paper:

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

2016 Q1 Skousen B2B Index

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

 What Others are Saying about Gross Output

and “The Structure of Production”

Financial Media

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

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

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

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

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

Government Officials

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

 Academic Economists

“Now, it’s official.  With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure.  How did this counter revolution come about?  There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University.  Skousen’s book The Structure of Production, which was first published in 1990, backed his advocacy with heavy artillery.  Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.” – Steve H. Hanke, Johns Hopkins University (2014)

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

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

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

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

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

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

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

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

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

Professional Journal Publishes First Academic Article on Gross Output

“For forecasting, the new measure [Gross Output] may be more helpful than the GDP measure, because it provides information of goods in process.”  — David Colander (Middlebury College)

I am happy to announce that the first professional economics journal (Eastern Economic Journal) has published an article on Gross Output, the new macro statistic I’ve been advocating and now has been adopted by the federal government.

GO is an attempt to measure spending at all stages of production, the first statistic to be adopted since GDP was invented in the 1940s.  It is a way of measuring Hayek’s triangle, and I’ve found that the quarterly GO statistic a better, broader measure of the economy and a good predictor of final output (GDP).  In 2014, it has been rising faster than GDP, suggesting that the earlier stages of production are robust and predicting more growth ahead.

I consider the government publishing of a quarterly GO the greatest triumph in supply-side Austrian macroeconomics since Hayek won the Nobel prize 40 years ago.

The commentary is by the respected economist David Colander (Middlebury College), who, despite the headline, is largely positive about GO.  You can read his article here:

And my response here:

Austrian economists are now seeking to measure GO (or my own broader Gross Domestic Expenditures) in other countries, such as UK and Argentina.

Econologically yours, AEIOU,

Mark Skousen

U.S. Economy Doing Better Than Expected


Washington, DC —  Gross Output, a broader measure of  U. S. economic activity published by the Bureau of Economic Analysis, held steady at $30,210.6 billion in the first quarter of 2014.

“The GO data demonstrates that the economy is not as bad off as GDP figures initially suggested,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University, who champions Gross Output as a more comprehensive measure of economic activity.   He introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990).  Now the BEA publishes GO on a quarterly basis in its “GDP by Industry” data.

The GO data was released by the BEA on Friday, July 25, 2014: [Read more…]

Marx Madness is Back

“Capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine democratic societies.” — Thomas Piketty, “Capital in the 21st Century” (2014)

The Economist magazine rightly called French professor Thomas Piketty the new Marx, although a watered down Marx. His bestseller (rated #1 on Amazon and the New York Times) is a thick volume with the same title as KCapital in the Twenty-First Centuryarl Marx’s 1867 magnum opus, “Kapital.” The publisher, Harvard University Press, appropriately designed the book cover in red, the color of the socialist workers’ party.

Piketty cites Karl Marx more than any other economist, even more than Keynes. He barely mentions Adam Smith. Instead of the modern scientific name “economics,” he prefers the old term “political economy,” a favorite of radical professors. [Read more…]

Economist Makes Lead Story in the Wall Street Journal….Barron’s….and Forbes

I made the lead story in the Wednesday, April 23, 2014, edition of the Wall Street Journal.  The title:  “At Last, a Better Economic Measure.”  You can read it here:

The editors of the WSJ don’t allow the author to see or approve the headline or subhead, but they nailed it perfect.  And I love the cartoon graphics!  It’s a perfect rendition of my four stage model of the economy.

Many readers captured the essence of my message.  As economic forecaster Jim Hagerbaumer of Florida wrote:  “Skousen is introducing a whole new species. This is one of the most important WSJ op-ed articles in years.”

I also wrote about Gross Output (GO) in the December 16, 2013, issue of Forbes.  Here’s the online version, with charts and response to critics:

My original article in Forbes Magazine (December 16, 2013):

Mark Skousen, Beyond GDP: Get Ready For A New Way To Measure The Economy, Forbes

Additional Commentary by Steve Forbes:
Steve Forbes, New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal, Forbes

Gross Output Includes B-to-B….GDP doesn’t [Read more…]

A Personal Triumph 25 Years in the Making with Launch of New Macro Statistic

For the first time since World War II, the Federal government (Bureau of Economic Analysis) will begin publishing a new macro statistic Gross Output [GO] starting in spring 2014 at the same time it releases its quarterly GDP data. article has just published my article on this new statistic “Beyond GDP“:

A shortened version will appear in the Dec. 16 issue of Forbes magazine (circulation over 1 million).

I’ve been advocating this new national statistic since writing The Structure of Production (NYU Press) in 1990. Now it’s finally happening. Steve Forbes calls it a “real breakthrough.”

Steve Moore of the Wall Street Journal and Gene Epstein of Barron’s are looking into writing articles on GO.  So is The Economist.

Bill Nordhaus, professor at Yale University, writes, “Congratulations on the article and the work.  It has been a long slog to get the national accounts to introduce innovative measures, and Steve Landefeld [Director, BEA] has been a superstar in this respect…This will open up the potential for new insights into the behavior of the economy.”

GO goes a long way in providing the right balance in the production-consumption process that is missing in GDP data. As BEA Director Steve Landefeld and co-editors Dale Jorgenson and Bill Nordhaus state: “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.”

I think you’ll find the chart comparing GO and GDP of interest, how GO is consistently more volatile than GDP, and a better measure of the business cycle. (Click on the chart below to go directly to the article)

I’m excited — this is a personal triumph nearly 25 years in the making.

Most of the economics textbook writers are planning to include a section on GO in their next editions (McConnell, Parkin, Gwartney, Hubbard), and economic analysts are now starting to look at it.  In an email, Roger Leroy Miller, professor at University of Texas at Arlington, says that he has added a section on Gross Output for his 18th edition of Economics Today.  It is already part of my own Economic Logic textbook.

I hope you’ll check out the Forbes article, as well as Economic Logic and The Structure of Production for a more in-depth look at this important development.

Has Government Adopted My New Macro Model?

“How can I possibly put a new idea into your heads, if I do not first remove your delusions?” – Robert Heinlein

For several years now, I have been advocated the need for adding a new national aggregate statistic called Gross Output (GO) that measures total spending at all stages of production and not just the final stage (GDP).

I believe that GO fills in a major piece of the macroeconomic puzzle.  It establishes the proper balance between production and consumption, between the “make” and the “use” economy, and one that is consistent with growth theory.

Most importantly, GO and my 4-stage model of the economy are compatible with standard national income accounting and neo-classical macroeconomic analysis. You don’t have to rewrite the textbooks, just add it into the chapters.

Now for the good news.  I recently received a letter from Steven Landefeld, the director of the Bureau of Economic Analysis (BEA), the official government agency that releases GDP data every quarter.  He wrote me that starting next year, the BEA will begin publishing an expanded aggregate statistic that is similar to my own GO, every quarter along with GDP. [Read more…]

The Rise of the Commercial Society: The Business Leader as Hero

By Mark Skousen
Editor, Forecasts & Strategies

Keynote Address at Annual International Assembly for Collegiate Business Education (IACBE), April 18, 2013, Orlando, Florida

“It is business that creates wealth, not countries or governments.  It is businesses that decide how well or poorly off we are.”   —Shlomo Maital, MIT managerial professor

Tomorrow my wife Jo Ann and I celebrate our big 40th (ruby) anniversary. We were married on April 19, Patriot’s Day, in 1973 in Utah.

Last week we went to Hawaii to celebrate.  When we arrived at the Marriott Waikiki Beach Resort in Honolulu, we were given a small room with only a queen size bed and no view of the famous Waikiki Beach.  I asked the desk clerk if there was any chance we could have a room with a king bed.  He said nothing was available.

I suspect he knew that we used Priceline to get a discount on the room. [Read more…]

Video on “Maxims of Wall Street”

Here’s a new 4-minute video of my talking about my new book “The Maxims of Wall Street”: 

We’re making a special offer for those who want to buy additional copies for gifts:  You may $20 for the first copy and only $10 for each additional copy.  All copies will be autographed.  To take advantage of this half-priced offer, you need to call Eagle Publishing, 1-800-211-7661, and mention code MAXIME. 

“Maxims” makes a great gift to students, investors, stockbrokers, clients, and anyone interested in Wall Street.  As Rodolfo Milano of Dominick & Dominick in Miami wrote me last month, “Maxims is the perfect gift for my best clients.”  I’ve had subscribers buy 3, 4, and 6 copies at a time. 

For more information on how to order, click here.

Making of Modern Economics #2 in Ayn Rand Institute’s Top-Ten Must Read Books in Economics

Good news.  My book, The Making of Modern Economics, now in its second edition, won recognition from the Ayn Rand Institute, which published its first “top ten must-read books in economics,”  The Making of Modern Economics was ranked second, right behind Henry Hazlitt’s classic Economics in One Lesson. I’m not complaining, since Steve Mariotti, president of the Network for Teaching Entrepreneurship (NFTE), recently wrote that “Mark Skousen is the Henry Hazlitt of our time who can explain complex issues in a clear way.”

My book tells the bold story of economics, with free-market economist Adam Smith as the heroic figure who comes under attack by the Marxists, socialists and Keynesians, but triumphs in the end with the help of the Austrians, Chicagoans, and supply-siders. It recently won the Choice Book Award for Outstanding Academic Title, and is highly popular among students and intelligent laymen who love a good story with lots of anecdotes and pictures. As John Mackey, CEO of Whole Foods Market, says, “I’ve read Mark’s book three times. It’s fun to read on every page.”

It is available on Amazon, including an audio version, but you can get the book cheaper by calling Eagle Publishing at 1-800/211-7661. The price is only $49.95 for hardback (code ECONH3), $29.95 for paperback (ECONP3), plus $5 for shipping and handling ($10 if outside of the United States).