Friday, March 21, 2014

What are the Austrian Objections to GDP?: A Critique

We have already seen in the last post that the vulgar Austrian or libertarian objection to GDP – merely on the basis of it being an aggregate per se – is utterly absurd, and indeed leads to the destruction of Say’s law and all private sector attempts to calculate costs, sales, profit and loss.

So what are the other Austrian objections to GDP? For clarity, let us remember that GDP is the following:
GDP = C + I + G + (X–M)
where
C = aggregate of the sale price of final consumer goods and services;

I = gross investment (new housing, replacement purchases, net additions to capital assets and investments in inventories);

G = government spending including final consumption expenditure by government and government gross capital formation such as infrastructure investment or research spending (transfer payments are not included in government purchases);

X–M = exports minus imports.
First, it is not even clear that all Austrians reject GDP at all. In fact, there is no universal and orthodox Austrian position on GDP.

Frequently, you find Austrians who cite and use GDP in a way that presupposes that they must accept it as a meaningful and valid aggregate.

At other times there is an implicit use of GDP made in arguments by Austrians. For example, when Austrians claim that the US recession of 1920–1921 and other recessions before 1929 ended “quickly,” they implicitly rely on real GDP data:
“… the 1920–1921 depression was short-lived that most Americans today are unaware of its existence” (Murphy 2009: 71).

“Generally speaking, most depressions (or ‘recessions’ as they came to be redefined after the New Deal) in U.S. history were over within two years, and all of them within five …. Krugman’s ‘explanation’ for the stagnant investment of the 1930s can’t explain why the U.S. economy managed to quickly recover from all of the earlier depressions in its history.” (Murphy 2009: 112–113).
If Austrians, however, think real GDP data is invalid, then they would need to defend such statements above with other data to justify the claims they make. But what real output measure can they use without GDP?

Rothbard’s objection to GDP was mainly that it included government spending, and in its place he proposed two aggregates called Gross Private Product (GPP) and Private Product Remaining (PPR).

Rothbard’s Gross Private Product is nothing more than GDP, with G removed. That is to say, Rothbard’s Gross Private Product is merely this:
GPP = C + I + (X–M).
This is an aggregate of aggregates too: the total money value of final consumer goods and total value of gross investment (new housing, replacement purchases, net additions to capital assets and investments in inventories), and exports minus imports. If Rothbard’s Gross Private Product is to be taken seriously, then it must be legitimate to aggregate the value of C, I, and (X–M).

But why does Rothbard exclude government spending?

The explanation is here:
“The Department of Commerce method fallaciously assumes that the government’s ‘product’ is measurable by what the government spends. On what possible basis can this assumption be made?

Actually, since governmental services are not tested on the free market, there is no possible way of measuring government’s alleged ‘productive contribution.’ All government services, as we have seen, are monopolized and inefficiently supplied. Clearly, if they are worth anything, they are worth far less than their cost in money. Furthermore, the government’s tax revenue and deficit revenue are both burdens imposed on production, and the nature of this burden should be recognized. Since government activities are more likely to be depredations upon, rather than contributions to, production, it is more accurate to make the opposite assumption: namely, that government contributes nothing to the national product and its activities sap the national product and channel it into unproductive uses.

In using ‘national product’ statistics, then, we must correct for the inclusion of government activities in the national product.” (Rothbard 2009: 1293).
At the heart of this is nothing more than an implicit moral argument: that government taxation is wrong and hence government spending covered by taxes is a “burden … on production” and a “depredation.”

That argument is utterly dependent on Rothbard’s natural rights ethics, which unfortunately is worthless, since even his foundational attempt to justify it is utterly unsound.

With the ethical basis for Rothbard’s critique of government in ruins, the economic ones need not detain us.

This economic objection consists of the idea that
(1) “governmental services are not tested on the free market” and are

(2) “monopolized and inefficiently supplied” and therefore

(3) “worth far less than their cost in money”.
But the “free market” that Rothbard invokes here, however, is a pure fantasy world of no interest to empirical economics. Rothbard’s belief that something monopolised by government will be inefficiently supplied is only based on his flawed theory that a free market will determine prices by supply and demand, tend to find an equilibrium (or market clearing) price, that price will tend to be equated towards marginal cost, and that free entry is available for competitors to enter and increase production and decrease prices.

But even for most private sector businesses, these things are untrue, since most of the private sector prefers mark-up pricing, shuns highly flexible pricing and shuns marginal cost as the basis of pricing or production. Use of inventories and excess capacity also severely deter free entry into many markets.

While taxes are certainly a cost to private businesses and individuals, the services provided in return for these taxes – such as law and order, justice, enforcement of contracts, property rights, and public goods in general – are the basis of any functioning market society.

In short, Rothbard’s whole economic critique of government services is just as worthless as his moral critique, and there is no convincing reason why government spending should not be included in GDP.

A second Austrian who has arguments criticising GDP is Mark Skousen. But his critique is even weaker than Rothbard’s, for Skousen needs to accept the validity of GDP for his own critique to work.

In The Structure of Production (1990), Skousen attempted to create a new output statistic: Gross Domestic Output (GDO), as his “Austrian” alternative to GDP. In a later version of The Structure of Production (2007), with a new introduction, Skousen proposed another such measure called the Gross Domestic Expenditures (GDE) aggregate (for details see his paper here).

Skousen defines Gross Domestic Expenditures (GDE) as:
“GDE is defined as the value of all transactions (sales) in the production of new goods and services, both finished and unfinished, at all stages of production inside a country during a calendar year.”
Skousen, Mark. 2010. “Gross Domestic Expenditures (GDE): the Need for a New National Aggregate Statistic,” Economics Working Paper No.113, November, p. 11
http://discovery.ucl.ac.uk/1370604/1/wp113.pdf
That is to say, GDE includes GDP and the former could not be a meaningful measure of output if its component GDP was not!

What Skousen proposes is, then, a second measure of real output in addition to GDP but including GDP, one which includes intermediate input, including factor inputs into capital goods production and consumer goods production.

The US government has apparently produced such an aggregate called Gross Output (GO) since 2001, and from 2014 this economic statistic will also be calculated on a quarterly basis (moreover, a basic statistic of this sort has been produced, or at least has been possible to calculate, since the 1940s via US benchmark input-output tables).

Yet Skousen admits the following:
“[Gross Output] … is a measure of the ‘make’ economy, while GDP represents the ‘use’ economy. Both are essential to understanding how the economy works.

While GDP is a good measure of national economic performance, it has a major flaw: In limiting itself to final output, GDP largely ignores or downplays the ‘make’ economy, that is, the supply chain and intermediate stages of production needed to produce all those finished goods and services.”


“Gross Output fills in a big piece of the macroeconomic puzzle. It establishes the proper balance between production and consumption, between the “make” and the “use” economy …. As Steve Landefeld, director of the BEA, and co-editors Dale Jorgenson and William Nordhaus state in their work, A New Architecture for the U. S. National Accounts (University of Chicago Press, 2006), ‘Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.’”
Skousen, Mark. 2013 “Beyond GDP: Get Ready for a New Way to Measure the Economy,” Forbes, December 16
http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/
While Skousen argues that GDP has the “flaw” that it ignores the productive side of the economy, nevertheless his position, as noted above, ultimately requires him to accept the validity of GDP as a measure of the final goods sector of the economy.

For Skousen the virtue of the Gross Output (GO) aggregate is that it shows that consumption is only about 40% of total annual output and that the value of private investment with intermediate inputs is around 50% of economic activity. Also, Gross Output and its private investment and intermediate input component show more volatility than GDP.

These findings, however, do not refute Keynesian economics or even necessarily contradict anything in Keynesian theory except vulgar misunderstandings and versions of it: for Keynes always argued that private investment is a fundamental part of the economy and more volatile than the consumption component of GDP.

Nor does the large size of the value of intermediate input in production refute the clear evidence that demand and expected demand for final output generally drive production and employment decisions in the private sector.

One could have a debate about the merits of GDP versus Gross Output (GO), but that would be a quite different debate from one rejecting GDP completely, and the new debate would already presuppose, as we have seen, that GDP is at least a meaningful and valid measure of the final goods sector of output.

And, finally, one must note the obvious point that all Austrian substitutes for GDP are themselves... aggregates. Rather curious indeed for school that supposedly dislikes aggregation.

Appendix
Robert Batemarco (1987) discusses Rothbard’s Gross Private Product, and on p. 183 gives a table of US GNP and Gross Private Product for the period 1947-1983.

BIBLIOGRAPHY
Batemarco, R. 1987. “GNP, PPR, and the Standard of Living,” Review of Austrian Economics 1: 181-186.

Rothbard, M. N. 2009. Man, Economy, and State with Power and Market: The Scholar’s Edition (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.

Skousen, Mark. 1990. The Structure of Production. New York University Press, New York and London.

Skousen, Mark. 2007. The Structure of Production. New York University Press, New York.

Skousen, Mark. 2001. “Beyond GDP: A Breakthrough in National Income Accounting,” Mskousen.com, April 1
http://www.mskousen.com/2001/04/beyond-gdp-a-breakthrough-in-national-income-accounting/

Skousen, Mark. 2010. “Gross Domestic Expenditures (GDE): the Need for a New National Aggregate Statistic,” Economics Working Paper No.113, November
http://discovery.ucl.ac.uk/1370604/1/wp113.pdf

Skousen, Mark. 2013. “My ‘Gross Output’ Statistic is Adopted by the Government,” December 5
http://www.eagledailyinvestor.com/13472/my-gross-output-statistic-is-adopted-by-the-government/

Skousen, Mark. 2013 “Beyond GDP: Get Ready for a New Way to Measure the Economy,” Forbes, December 16
http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/

37 comments:

  1. In any case, here is Rothbard chiming in on this issue (a bit you seem to have ignored).

    "The fallacies of the net product figures have led economists to include some “grossness” in their product and income fig- ures. At present the favorite concept is that of the “gross national product” and its counterpart, gross national expendi- tures. These concepts were adopted because of the obvious errors encountered with the net income concepts.19 Current “gross” figures, however, are the height of illogicality, because they are not gross at all, but only partly gross. They include only gross purchases by capitalists of durable capital goods and the consumption of their self-owned durable capital, approxi- mated by depreciation allowances set by the owners. We shall consider the problems of durable capital more fully below, but suffice it to say that there is no great difference between durable and less durable capital. Both are consumed in the course of the production process, and both must be paid for out of the gross income and gross savings of lower-order capitalists. In evaluat- ing the payment pattern of the production structure, then, it is inadmissible to leave the consumption of nondurable capital goods out of the investment picture. It is completely illogical to single out durable goods, which are themselves only discounted embodiments of their nondurable services and therefore no dif- ferent from nondurable goods." - MESPM, Page 401

    ReplyDelete
    Replies
    1. (1) That durable capital goods are generally "consumed" in production is true, but it does not follow GDP is illogical

      (2) "In evaluating the payment pattern of the production structure, then, it is inadmissible to leave the consumption of nondurable capital goods out of the investment picture. "

      Since GDP is mainly a measure of final goods, we already know it is not meant to be an exhaustive measure of intermediate goods: Rothbard just sets up a straw man.

      (3) Rothbard, as ever, simply does not convince.

      Delete
    2. " but it does not follow GDP is illogical"

      What is illogical is including durable capital goods spending and excluding non-durable producers' goods spending.

      "Since GDP is mainly a measure of final goods, we already know it is not meant to be an exhaustive measure of intermediate goods"

      And if it is not an exhaustive measure of intermediate goods, it is grossly deficient. Thus, it is nonsense.

      "Rothbard, as ever, simply does not convince."

      That it doesn't convince you could also mean that you are the one incapable of comprehending what he has said. In this case, frankly, it does.

      Delete
    3. "And if it is not an exhaustive measure of intermediate goods, it is grossly deficient. Thus, it is nonsense."

      Even that is a non sequitur, and shows such a shoddy grasp of logic by you.

      If some particular measure is incomplete, it does not necessarily or even probably follow that it is nonsense, e.g., a private business can calculate its durable capital spending and that statistic is both meaningful and useful.

      But, no, says Bala the idiot: if something is not an "exhaustive measure of intermediate goods, it is grossly deficient. Thus, it is nonsense."

      Tell that rubbish to millions of private sector businesses, Bala.

      Delete
  2. LK,

    It is rather curious that you cite Mark Skoussen who lists the very objections I have listed and then say something like this.

    "That is to say, GDE includes GDP and the former could not be a meaningful measure of output if its component GDP was not!"

    It is not GDP that is included in GDE. The data that is included in GDP is already included in GDE. GDE includes more but that does not mean GDE requires GDP for it to be meaningful.

    "What Skousen proposes is, then, a second measure of real output in addition to GDP but including GDP, one which includes intermediate input, including factor inputs into capital goods production and consumer goods production."

    Gross savings + Consumption expenditure. Just what I am talking of.

    Further, thanks to you, I now see that GDP is not even a good measure of the use economy because for that purpose, it wrongly includes I which is a part of the make economy.

    So far this post says nothing that establishes the meaningfulness of GDP. In fact, it condemns it further.

    ReplyDelete
    Replies
    1. (1) No, Bala, if it is not meaningful information to aggregate

      C + I + (E- I)

      then Rothbard's Gross Private Product and Skousen's Gross Output would be meaningless too.

      You cannot create an aggregate if one of your major components is invalid or meaningless. This is simple logic -- which quite clearly escapes you.

      (2) Gross savings does not even measure output. It is a measure of savings.

      You claim to propose a meaningful measure of "output" and include a statistic that does not even measure it.

      Delete
    2. "You cannot create an aggregate if one of your major components is invalid or meaningless."

      That GDP is meaningless is because it is a mish mash. Removing that flaw by reducing it to pure consumption spending or adding the missing elements to make it whole can make it meaningful. GO and GPP can be meaningful without GDP being meaningful. The "meaning" is in what they measure and what economic understanding that gives us.

      Delete
    3. "Gross savings does not even measure output. It is a measure of savings."

      It is the measure of total spending in the productive (non-consumption) sector of the economy because S = I (on durable and non-durable producers' goods).

      Delete
    4. Your view of saving is plainly wrong:

      Total spending on factor inputs need NOT equal total monetary savings.

      Why? Because business investment is often conducted by creation of credit money via our endogenous money system, and even historically negotiable debt instruments -- negotiable bills of exchange, negotiable promissory notes, and negotiable cheques -- have allowed investment without prior monetary saving.

      In short, more nonsense from you.

      Delete
    5. Bala, you can get S, monetary savings from the incomes measure of GDP (which logically must match expenditure GDP). Why is that not a measure of savings? The equation is

      GDP = C + S + T

      and S is usually a residual, T is taxation. S typically doesn't balance with I here however.

      Delete
    6. LK,

      When the newly created money is offered to producers to procure the services of factors, it has already been saved. It is this saved capital that is offered as investment in the production structure.

      Quite a poor attack from your side.

      Delete
    7. Nic,

      Gross Savings = Total payments to ALL factor owners. Payments can be made to factor owners only from saved capital.

      GDP does not include payments to all factor owners; only the durable capital goods owners. Hence, it would be a significant underestimate.

      You are mistaking net savings for gross savings.

      Delete
    8. "When the newly created money is offered to producers to procure the services of factors, it has already been saved."

      That statement is untrue. E.g., a man who buys factor inputs with a bill of exchange not due until a year from now need save no money now.

      Delete
    9. "Total payments to ALL factor owners. Payments can be made to factor owners only from saved capital."

      So says an idiot who sweeps nearly 100s of years history of negotiable bills of exchange, negotiable promissory notes, , negotiable cheques and private bank notes under the carpet.

      Delete
    10. A bill of exchange is not a payment. The guy who offers it is making a promise to pay, one the other guy is accepting. In normal terms, it is called credit, for which the other party earns interest income.

      Further, the payment due from the bill being offered under the bill of exchange was created by prior production. That money has a scheduled date of payment. The person offering it is offering not just an empty promise to pay but one backed by the proceeds of what has already been produced and sold. Since the person offering the bill of exchange has the option of receiving the money himself rather than offer it at a discount to his creditor in order to procure the services of future goods, he is in fact engaged in forsaking consumption to produce. Thus, the bill of exchange is what is being saved from prior production to make production for future periods possible.

      I wonder how this is an argument against what I said.

      Delete
    11. "Further, the payment due from the bill being offered under the bill of exchange was created by prior production."

      No, it was not at the time that the bill was written and factor inputs were bought with it.

      A negotiable bill can become a medium of exchange and means of payment and be used by several or more parties before being presented at a later date for redemption.

      Your understanding of credit instruments is woeful.

      Delete
    12. Also, a modern endogenous money system totally destroys this rubbish that "newly created money" being "offered to producers to procure the services of factors ... has already been saved".

      Delete
    13. LK,

      Does any of this mean that a bill of exchange is a final payment and not a promise to pay?

      This tells me that since it is an unconditional order to pay, it is not a payment by itself. So who's fooling around with the law of non-contradiction now?

      Delete
    14. Except nobody said the bill of exchange was the "final" payment: what was said is that the bill of exchange -- and importantly a negotiable bill -- can act as a medium of exchange and means of payment, by being a monetised IOU.

      If person A writes a negotiable bill and gives it to person B to pay for a factor input then a transaction has been effected: Person A has his factor input which he can use in production and Person B a credit instrument net/type of credit money that he can use in further exchange: If person B then uses the negotiable bill to buy a further good from Person C, then a further transaction has been made.

      In fact a number of further transactions might happen until Person E takes the bill back to Person A when it is due.

      Your knowledge of financial/monetary history is abysmal, bala.

      Delete
  3. "Rather curious indeed for school that supposedly dislikes aggregation."

    False. The school only states that the proper way to understand these aggregates is to start from their microeconomic foundations

    ReplyDelete
  4. I've seen Say's law represented in several ways but here's a wiki.mises.org simple definition: Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say, stating that there can be no demand without supply.

    Can you explain to me how you get from any statement roughly stating supply creates demand to GDP is necessarily a "meaningful" aggregate, without simply citing your previous post.

    It seems to me it is basically a definition. demand is not want. demand is relevant only as the supply up for trade, and is nonexistent without it.

    Personally I reject GDP for two basic reasons, 1, value is not quantitative. and GDP simply drives people to continuously attempt to quantify values. 2. Like any other statistic, the group in power will and most certainly does manipulate it (in the US via the actual method of calculation) to achieve political ends.

    And why the alias?

    ReplyDelete
    Replies
    1. "Personally I reject GDP for two basic reasons, 1, value is not quantitative. and GDP simply drives people to continuously attempt to quantify values."

      GDP aggregates money prices of output sales or government and private sector investment.

      So the Austrian claim that money does not measure value is not being made here. You are setting up a straw man.

      And if you think aggregation of C + I + (E - I) is totally invalid, then even Rothbard's Gross Private Product and Skousen's Gross Output would be invalid too.

      If you seriously think that, then do NOT claim that you supporting published theories of Austrian economists.

      You are peddling your own eccentric view: a vulgar Austrian view.

      Delete
  5. Based on just what you have pulled up, here is why GDP is nonsense and needs to be expunged from all economic literature.

    1. Does it measure consumption? No. The reason is that it includes I which is spending on production.
    2. Does it measure spending on production? No. The reason is that it omits a huge chunk of expenditure on production.

    So, in effect, it measures nothing that is useful. It is a confused number that is a random mish mash of real economic quantities. From the perspective of theory, it is therefore nothing short of nonsense.

    ReplyDelete
    Replies
    1. (1) Of course it measures consumption of final goods: it is included GDP. Strip out I, G, and E- I and one can see it.

      (2) it does not include many other factor inputs purchases because it is mainly meant to be a measure of final output and durable capital purchases.

      (3) If you seriously think it measures "nothing that is useful", then it follows logically that even Rothbard's Gross Private Product would measure "nothing that is useful" and Skousen's Gross Output would be invalid too by using something that measures "nothing that is useful".

      Juts like Patrick above, if you seriously think that, then do NOT claim that you supporting published theories of Austrian economists.

      You are peddling your own eccentric views: a vulgar Austrian view.

      Delete
    2. LK,

      The point is simple. GDP is nonsense. (GDP - I) is not. It is pure consumption spending.

      Similarly, GDP is nonsense. GO is not. It is total spending on factors of production. If GO includes consumption spending, it is still meaningful as long as you have consumption spending alongside. The combination is extremely meaningful, unlike GDP.

      Rothbard's and Skousen's aggregates measure something useful - total spending on production and consumption. GDP, in contrast, is a mish mash that is neither here nor there.

      "You are peddling your own eccentric views: a vulgar Austrian view."

      I knew you would say this. That's why I cited Rothbard. Now I guess you will say that Rothbard was peddling his own eccentric views and that his was a vulgar Austrian view.

      Try engaging the real objection if you can.

      Delete
    3. "The point is simple. GDP is nonsense. (GDP - I) is not"

      (1) Rothbard’s Gross Private Product:

      GPP = C + I + (X–M).

      It follows from your statement logically that
      Rothbard’s Gross Private Product is nonsense, since it includes (C + (X–M) + G) + I.

      (2) Skousen's Gross Output:

      GO = C + I + (X–M) + all other factor inputs purchases.

      It follows from your statement logically that
      Skousen's Gross Output is nonsense, since it includes (C + (X–M) + G + all other factor inputs purchases) + I.
      ---------------
      In short, your position logically requires you to reject Rothbard’s Gross Private Product and Skousen's Gross Output.

      Delete
    4. Rothbard's GPP - Yes. I will have to reject it because it seems to allow for the very confusion he is objecting to.

      Skousen's G) - No, because it is very meaningful since I is also a part of total payments for factor services and the total measures total expenditure (Consumption + Production). The mere presence of I does not corrupt it the way it corrupts GDP.

      Once again, the reason GDP is corrupted is that
      1. if you pretend that it measures consumption, the inclusion of I vitiates it
      2. if you pretend that it measures total output, the omission of payments to other factors vitiates it

      In any case, even Skousen's figure will have to be adjusted for the difference between payments for whole durable factors and payments for the services of those durable factors. Even that would leave it as an overestimate (to a minor extent) and not as nonsense (like GDP). It is not nonsense by design.

      Delete
    5. GDP measures both final output as (1) consumption goods sold/bought and (2) durable capital goods sold/bought or goods added to stock.

      The I component measures durable capital goods bought increasing the stock of capital goods and government additions to public capital goods like infrastructure.

      That is a meaningful, valid and useful statistic.

      Including all non-durable factor inputs involves massive double counting, and Skousen's GO while it could provide a useful complement to GDP (with the double counting issue made plain), is not necessarily superior to GDP.

      Delete
    6. It takes tremendous economic illiteracy to say that the inclusion of payments to all non-durable factor inputs involves massive double counting. The payments made at one and the same time are for the consumers' goods output of different periods. When a consumers' goods manufacturer pays his factor owners, that payment is for the production of output that becomes consumers' goods in the next period. A payment made in the 2nd stage at the same time is being made for that which becomes consumers' goods in the period after that. Hence, adding them together in this period is not double counting.

      Delete
    7. Should have read Skousen, idiot:

      "Several objections have been made over the years to the use of GO and GDE. Economists are especially fixated over the perceived problem of “double counting” with GO and GDE. I am the first to note that GO and GDE involve double counting. A commodity is often sold repeatedly as it goes through the resource, production, wholesale and retail stages. Why not just measure the value added at each stage rather than double or triple count? they ask. GDP eliminates double counting and measures only the value added at each stage."

      http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/2/

      Delete
    8. Skousen is clearly wrong on this.

      Delete
    9. There you have it, ladies and gentlemen: for the vulgar Austrian ideologue, even every Austrian economist who disagrees with him is wrong.

      So at this point, vulgar Austrians are not even advocating "Austrian economics", but some bizarre and eccentric version of it impervious even to what actual Austrians say.

      Delete
    10. And there is this bit that follows where it turns out that Skousen sees what he calls double counting as necessary to comprehend the economy.

      "There are several reasons why double counting should not be ignored and is actually a necessary feature to understanding the overall economy. As accountants and financiers know, double counting is essential in business. No company can operate or expand on the basis of value added or profits only. They must raise the capital necessary to cover the gross expenses of the company — wages and salaries, rents, interest, capital tools and equipment, supplies and goods-in-process. GO and GDE reflect this vital business decision making at each stage of production. Can publicly-traded firms ignore sales/revenues and only focus on earnings when they release their quarterly reports? Wall Street would object. Aggregate sales/revenues are important to measure on an individual firm and national basis."

      I wonder why you chose to omit it.

      Delete
    11. So now you admit that it **is** double counting (which contradicts your previous statement that it is not)? Ah, the joys of not being bound by the law of non-contradiction.

      Which is it? Is (1) Skousen "clearly wrong on this" or (2) does GO in fact involve double counting?

      Delete
    12. That means that I consider Skousen technically wrong on calling it double counting. I also take note of the fact that he does not see (very rightly so) what he calls double counting as a problem. Please take note of my use of "what he calls". Please also note that he has dismantled your objection based on double counting.

      So, there is nothing to admit. According to Skousen, it is double counting, though extremely necessary. As I see it, it is not double counting because economically speaking, the payments are made for consumers' goods of different periods. I agree with the concept of GO as proposed by Skousen though I disagree on the minor technical issue of whether to call something "double counting".

      So stop pretending like this is a major deal breaker.

      Delete
    13. (1) So you claim GO involves no double counting. Skousen and I disagree, and the plain truth is, as Skousen says:

      "A commodity is often sold repeatedly as it goes through the resource, production, wholesale and retail stages. Why not just measure the value added at each stage rather than double or triple count? they ask. GDP eliminates double counting and measures only the value added at each stage."

      On this point there is no need wasting any further time arguing with you since it is like arguing with someone who disputes the sky is blue on a clear day.

      (2) Your claim that because GDP aggregates C + I it is nonsense does not necessarily follow and as we have seen above is utterly unconvincing.

      In order to be meaningful the components of Skousen's GO must also be meaningful.

      GDP is a measure of final output as (1) consumption goods sold/bought and (2) durable capital goods sold/bought or goods added to the capital stock.

      This a meaningful, valid and useful statistic, and shows us the value of consumer goods bought and durable capital goods bought increasing the stock of capital goods and government additions to public capital goods like infrastructure.

      Delete
  6. This is good to read. http://mises.org/daily/2231/GNP-PPR-and-the-Standard-of-Living

    ReplyDelete