GDP – Myths, Fables, Distortions & assorted hocus pocus

1. GDP – Myths, Fables, Distortions & assorted hocus pocus Dr. Dennis Foster

2. GDP measures the value of output? • Market value of all final goods and services produced in an economy in a quarter, or year. • Market value is not the same as our value. • Value to the consumer > market price. • Value to the seller < market price. • GDP is only measuring $ exchanged in the market between buyers and sellers.

3. GDP measures market prices? • No – government valued at cost!! • Air force orders $7600 coffee makers. • Or, we could buy some insulated bottles. • Possible for value to exceed cost. • Likely that value is below cost. • Higgs: If we’re willing to pay to do without, the value is, in fact, negative! • Rothbard: Because the expenditures arebased on coercion (taxes), none of itshould be included.

4. Except for G, GDP measures prices? • No – many “expenditures” are imputed. • Rent for owner-occupied homes; free checking. • Employer provided health care. • Accounts for 15% of calculated GDP (BEA) • No – many “expenditures” are derived via hedonic adjustments. • Computers are better, so price out qualities. • Mises: 35% of GDP is not transaction based. • FT: other revisions adding 3% to GDP!! • R&D, art, music, et al. now in Investment!

5. GDP measures economic activity? • Well … no. • Non-market activity is excluded: • Household production. • The underground economy. • Illegal production. • Leisure. • It only attempts to measure final goods, not all of our economic production (e.g., GDE). [Presumably we are measuring “Real GDP” and not “nominal GDP.”]

6. GDP measures our well-being? • No, although it is used as a proxy. • No accounting for wasted spending. • No accounting for environmental damage. • Really, the BP oilspill helped our economy? • Leisure again. • Measures output, not consumption • How about C + G + (Im-Ex)? • What of the advantages of advanced tech?

7. If not GDP, then what? • Gross Domestic Expenditures • Gross Domestic Private Production • Private Product Remaining • MEW and ISEW:Measure of Economic Welfare andIndex of Sustainable Economic Welfare • GDP2 – GDP5 • Enlarged GDP – National Welfare Index • Quality of Development Index

8. Skousen – Gross Domestic Expenditures

9. Gross Domestic Expenditures - Skousen

10. Gross Domestic Private Product - Higgs

11. Rothbard – Private Product Remaining - = Gov’t. incomes Gross Product [GNP or GDP] = sum of all incomes - = Gov’t. spending* Gross Private Product - = Depreciation Private Product Remaining [Net] Private Product Remaining * Or, taxes, if higher. Batemarco: PPR/employ  1972-1983

12. The MEW (Nordhaus/Tobin)and ISEW (Daly/Cobb)

14. Beyond GDP – National Welfare Index

15. The Quality of Development Index

16. Can we make GDP unnecessary? • Yes, we can! • Problem – data collection rife with problems of what is collected and what it means. • Problem compounded – government policy is premised on the collection of this data. • Solution: • Make simple rules. • Enforce property rights. • Eliminate economic policies. • Stop collecting “official” data. “The purpose of government is to enable the people of a nation to live in safety and happiness. Government exists for the interests of the governed, not for the governors.”

17. GDP – Myths, Fables, Distortions & assorted hocus pocus Dr. Dennis Foster

18. Required reading: • Should we believe the GDP? • Mises wiki on GDP and problems • Higgs and Real GDPP • Rothbard’s Private Product Remaining • Counting what counts: GDP redefined • Beyond GDP – Enlarged GDP &FAQs • Skousen – Gross Domestic Expenditures