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This is a paid advertisement for Mode Mobile Regulation A offering. Please read the offering circular and related risks at https://invest.modemobile.com/ | | | "A more accurate measure of GDP would exclude government spending." -- Elon Musk
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Elon Musk, who is regarded as the wealthiest man on earth, is making waves in the Department of Government Efficiency (DOGE).
In discovering billions in wasteful expenditures, he has now questioned the value of including government spending in gross domestic product (GDP), the traditional way to measuring economic growth and our standard of living.
He reminds me of the libertarian economist Murray Rothbard, who was the first to suggest that only private investment and consumer spending should be counted, since he regarded the state as wasteful.
In Econ 101, we memorize the GDP equation:
GDP = C + I + G, where
C = consumer spending
I = private investment
G = government expenditures.
According to Rothbard, the equation for economic growth should be:
GDP - G.
I have a copy of his magnum opus, "Man, Economy and State," which includes his inscription, "Man, Economy and Against the State!"
As Jeffrey Tucker wrote in Epoch Times, "It makes far more sense to subtract government spending from output." See this article.
Musk, whose DOGE is waging a crusade to shrink the federal government's workforce and its budget, recently wrote on Twitter (X), "A more accurate measure of GDP would exclude government spending… Otherwise, you can scale GDP artificially high by spending money on things that don't make people's lives better." | | Once Accessible ONLY to the Wealthy, Private Equity is Now Available to ALL! Ranked as one of America's Top Economists, Dr. Mark Skousen, has uncovered a way for regular folks to access private equity investments without being wealthy or accredited! No more lawyers or private bankers. In fact, this company is Mark's largest personal holding!
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Elon Musk isn't the only one questioning the value of government spending. Commerce Secretary Howard Lutnick suggested the administration might change how gross domestic product is tabulated.
"You know that governments historically have messed with GDP," Lutnick said on Fox News. "They count government spending as part of GDP. So, I'm going to separate those two and make it transparent."
My take: Over the years, many economists have criticized GDP as a proper measure of economic performance. I've been one of them. GDP leaves out black market activities, which can be considerable. It omits non-paying household work. It underplays trade (exports and imports) in a country. And most importantly, it leaves out the vital role of the supply chain!
However, I doubt if we will see the federal government's Bureau of Economic Analysis (BEA) removing the G from GDP. It's hard to separate the wasteful expenditures in Washington from the legitimate ones.
GO to the Rescue!
This is an ideal opportunity to introduce gross output (GO) to the Commerce Secretary and to Musk as a compromise statistic that includes government spending, but at a much lower level. In GO, it's only 8% of total economic activity. Under GO, business spending is over 60% of the economy, and proves that business -- not consumer spending or government stimulus -- is the key to a growing economy and a higher standard of living.
Unlike GDP, GO includes the all-important supply chain. It measures spending at all stages of production (GDP accounts for final goods and services only).
I've written a summary paper in the Social Sciences Research Network. Read it here: GO BEYOND GDP: INTRODUCING GROSS OUTPUT, THE "TOP LINE" IN NATIONAL INCOME ACCOUNTING - The Schumpeter Lecture by Mark Skousen :: SSRN.
It's been downloaded over 800 times and is one of the most popular searches on SSRN.
If you want a simpler layman's version, I suggest you read "Economics of Life Made Simple," the cover story I wrote for Skeptic magazine recently. It's available for only $3 each at www.skousenbooks.com (three order minimum).
The Debate Over Double Counting
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Get Immediate Access. | | | GO Comes Up in the Trade War Debate
This issue comes out in the trade war debate. The Wall Street Journal reported recently that semi-finished (intermediate) inputs for automobiles built in Canada cross the U.S.-Canadian border eight times before being sold as a retail (finished) product. Imagine the impact of a 25% tariff every time that input goes through customs!
Same for Mexico. Inputs can cross the U.S.-Mexican border a dozen times before being sold to the final user.
We need to count all the gross business expenditures required to produce these products, measuring all stages of production, to get the full picture of the economy. GO does that -- GDP (final output) does not.
GO and GDP are complementary and tell different stories. Thus, I came up with the idea of calling GO the "top line" in national income accounting, and GDP the "bottom line." Accounting and finance people and business majors love this distinction.
Who Supports GO?
Some academic economists get it. Sean Flynn, professor at Scripps College and the chief writer of the popular McConnell Brue Flynn econ textbook, is a big fan. He tried to fully integrate GO into their textbook but was criticized by many college professors who don't want to see any changes in their macro model.
As Peter Drucker once said, "Economists are the slowest learners" -- fortunately there are some important exceptions, including three Nobel Prize winners, and people like Steve Forbes, Steve Hanke and, of course, the professional economists at the BEA who support and publish GO along with GDP.
Steve Forbes says GDP is the X-ray of the economy; GO is the CAT-scan!
I suspect business leaders like Elon Musk will like GO because it supports the thesis that business and entrepreneurship are the key to economic success, while downplaying the role of consumer and government spending.
As former MIT Professor Shlomo Maital states, "The health and wealth of a large number of individual businesses -- small, medium and large -- determine the economic health and wealth of a nation. When they succeed, managers create wealth, income and jobs for large numbers of people. When they fail, working people and their families suffer."
Good Investing, AEIOU,
Mark Skousen
Doti-Spogli Endowed Chair of Free Enterprise, Chapman University
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FreedomFest | | Italy Applies Market Economics to Museums and Public Facilities By Mark Skousen
Editor, Forecasts & Strategies
"The prices set on the unhampered market correspond to an equilibrium of demand and supply. If the government decrees that buying and selling must be done at a lower price, then this equilibrium can no longer prevail." -- Ludwig von Mises
My wife Jo Ann and I have had a wonderful time over the past week taking our oldest three grandsons on a Grand Tour of Italy, visiting Milan (seeing Leonardo da Vinci's "Last Supper")...Venice (taking a gondola ride)... Florence (seeing Michelangelo's "David" and other great pieces in the museums)... Pisa (the leaning tower)... and Rome (seeing the Colosseum, the Forum and the Vatican).
Despite large crowds in March (partly due to Spring Break), we were able to see almost everything without waiting in long lines. Here's why.
With the world's population growing to eight billion, many more people have grown out of poverty and become rich enough to start traveling and visiting historic tourist attractions, all thanks to capitalism.
Given that most of the historical sights are limited, the number of tourists and student groups has grown dramatically in recent years. Even in March, the crowds were large and sometimes overwhelming.
The solution? More and more cities are instituting market pricing to ration demand and control the crowds.
In some cases, you can still enter one of the beautiful churches and museums in Italy for free, but the lines are long.
If you want to avoid the lines, you can pay an entrance fee that puts you in the front of the line. There's very little waiting, and these churches and museums now have a new source of revenue to keep their institutions up to date.
I also noticed that most cities charge one euro to use public bathrooms (WCs).
In my textbook, "Economic Logic" (now in its sixth edition, available at a discount at https://skousenbooks.com/, I call it the "benefit principle." It's also known as the "user pays" principle. If you use or benefit from a service or product, you pay for it.
And it's working in Italy. | | | About Mark Skousen, Ph.D.:
 Mark Skousen is an investment advisor, professional economist, university professor, author of more than 20 books, and founder of the annual FreedomFest conference. For the past 40+ years, Dr. Skousen has been investment director of the award-winning newsletter, Forecasts & Strategies. He also serves as investment director of four trading services: TNT Trader, Five Star Trader, Low Priced-Stock Trader, and Fast Money Alert. | | | | | |
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