Move Aside GDP, US BEA Introduces Austrian Economic Measure called “Gross Output”

The Keynesian demand side GDP statistical construct will now be counterbalanced with the introduction by the US Bureau of Analysis BEA of the supply side economic statistical measure called “Gross Output”. The Gross Output was long proposed by Austrian economist Mark Skousen. [Mark Skousen’s 2010 paper here]

Writes Mark Skousen at the Wall Street Journal [bold mine]

Starting April 25, the Bureau of Economic Analysis will release a new way to measure the economy each quarter. It's called gross output, and it's the first significant macroeconomic tool to come into regular use since gross domestic product was developed in the 1940s.

Steven Landefeld, director of the BEA, says this new macroeconomic tool offers a "unique perspective" and a "powerful new set of tools of analysis." Gross output is an attempt to measure what the BEA calls the "make" economy—the total sales from the production of raw materials through intermediate producers to final wholesale and retail trade. Valued at more than $30 trillion at the end of 2013, it's almost twice the size of gross domestic product, and far more volatile.

In many ways, gross output is a supply-side statistic, a measure of the production side of the economy. GDP, on the other hand, measures the "use" economy, the value of all "final" or finished goods and services used by consumers, business and government. It reached $17 trillion last year.

The follies of demand side GDP:

But its focus on final output omits intermediate production and as a result creates much mischief in our understanding of how the economy works.

In particular, it has led to the misguided Keynesian notion that consumer and government spending drive the economy rather than saving, business investment, technology and entrepreneurship

Thus journalists and many economic analysts report that "consumer spending drives the economy." And they focus on retail spending or consumer confidence as the critical factors in driving the economy and stock market. There is an underlying anti-saving mentality in this analysis, as evidenced by statements frequently made during debates on tax cuts or tax rebates that if consumers save their tax refund instead of spending it, it will do no good for the economy…

Although consumer spending accounts for about 70% of GDP, if you use gross output as a broader measure of total sales or spending, it represents less than 40% of the economy.

Read the rest here

I do not expect vested interest groups and the political class to immediately adapt this, which instead they are likely to dismiss or ignore. However such alternative economic metric, which is likely to be more representative of the real conditions of the economy, will likely pave way for more divisions in the sphere of politics as boom-bust cycles and other distortions from myriad government interventions will become more evident.

This reminds me of the Hayek versus Keynes rap theme: Fear the Boom and the Bust