Friday, April 25, 2014

"Gross Output:" Does It Matter?

Today, Friday April 25, 2014, the federal government's Bureau of Economic Analysis produced its first report on "Gross Output" as part of its report on GDP by industry. It is a computation of the economy's output similar to Gross Domestic Product, except that it includes as output all the intermediary stages in the production of the domestic product.  You can find the data here.

Does it matter?  Economist Mark Skousen argues that it does.  In the Wall Street Journal he writes:
Why pay attention to gross output? For starters, research I published in 1990 shows it does a better job of measuring total economic activity. GDP is a useful measure of a country's standard of living and economic growth. But its focus on final output omits intermediate production and as a result creates much mischief in our understanding of how the economy works.
And, Mark writes, it corrects "the misguided Keynesian notion that consumer and government spending drive the economy rather than saving, business investment, technology and entrepreneurship."

OK, Good.  But what difference does it make to, e.g.,  I pulled up the first numbers from the BEA to take a look.  Right now, there are only numbers going back to 2005.  I hope that this will change.  Here's what you get.

Gross Output vs. Gross Domestic Product
YearGross Output
$ billion
$ billion

OK. That's nice. You can see that Gross Output was tooling along at 1.8 times GDP until the Great Recession, and then it retreated back to 1.71 in 2009.  By 2013 still hasn't recovered to its pre-recession relation.

So what does it look if you run a chart of federal spending over at

Here's federal spending as a percent of GDP.

And here's federal spending as a percent of Gross Output.

What does it tell us?  Not much.  Maybe the Great Recession looks a little deeper with the GO numbers than the GDP numbers, but who cares?

What we really need is for the BEA to extend the data series back to 1930, like their GDP series.  You would think that  today's economy has more intermediary production than the economy of 1930.  But we can't be sure unless we get to take a look.

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