Does Unreal GDP Drive Our Policy Choices?
John Mauldin
May 8, 2011
Este artículo no está disponible en español. Para su comodidad, aquí está la versión en idioma Inglés.
I am back from Rob Arnott’s
conference in Laguna Beach, and I must confess that if I had attended it before
I wrote last week’s e-letter I might have had lower odds on the US political
class solving the debt crisis, absent a real economic crisis forcing them to.
There were several presentations that made the problems quite clear. It remains
a tough issue.
This
week’s Outside the Box is a recent white paper by Rob, where he argues that the
traditional way we look at GDP is flawed, because it overstates what is
happening in the real, private part of the economy, which is the productive
part. Government spending is either money collected from the private sector in
the form of taxes or borrowed money that future generations must repay. While
not likely to become a mainstream economic view, this is very useful for our
own thinking about what constitutes productivity and investments. This is a
short but powerful piece from one of America’s most honored economic writers.
And let me note that I will
be speaking at the annual Agora Financial Investment Symposium, perhaps the
only conference in the country where I am the bull in the crowd. It is July
26-29 in Vancouver. You can find out more and register at http://www.agorafinancial.com/reports/vancouver/2011/afis2011b.php.
If you come, be sure and say hello.
Have a great week. It is good
to be home. I am off to see the Texas Rangers, after a happy hour with David
Tice of Prudent Bear fame. And I must say that watching the Mavericks-Lakers
game Sunday from the Admiral’s Club in LA, while waiting for my plane, was
quite fun. Not as good as being there, but fun!
Your trying to remember there is more to
life than economics analyst,
John Mauldin, Editor
Outside the Box
JohnMauldin@2000wave.com
Does Unreal GDP Drive Our Policy Choices?
Gross Domestic
Product is used to measure a country’s economic growth and standard of living.
It measures neither. Unfortunately, the finance community and global centers of
power are wedded to a measure that bears little relation to reality, because it
confuses prosperity with debt-fueled spending.
Washington is
paralyzed by fears that any withdrawal of stimulus, whether fiscal or monetary,
whether by the Administration, the Fed, or the...
Comments
John Seater
May 10, 2011, 4:59 a.m.
Arnott’s article is completely confused from beginning to end. I don’t have time to go into everything. That would take about an hour, and I have to leave the house soon. However, here are two big problems.
(1) Definition of GDP. Arnott gets it wrong. GDP is not expenditure. It is product. That’s why it is called the Gross National *Product*. Conceptually, it is what is *produced*. Now, there are three ways to measure GDP: direct measurement of production, measurement of income, and measurement of expenditure. The reason we can use expenditure as a measure of product is the income accounting identity, which is like the economic version of conservation of mass: people can spend only what they produce, and they must spend their production on something. Arnott seems unaware that the National Income and Product Accounts use both the income and expenditure methods and then compares them. There always is a very small difference between the two, called the statistical discrepancy, arising from minor errors in collecting each group of data. So right off the bat Arnott is off base in his complaints about the conceptual foundation for GDP measurement.
(2) We cannot, repeat *cannot*, increase or decrease GDP by changing the way government chooses to finance its current expenditure. Government debt has no effect at all on GDP. It does have implications for future taxes, which will affect the way future GDP is divided among consumption, investment, government, and next exports, but that is all. It most definitely does *not* have any bearing on the proper measurement of current GDP. As a result, Arnott’s “structural GDP” measure is misconceived.
Arnott’s article is shot through with errors and adds nothing but confusion to the discussion of either GDP or our current fiscal mess.