John Browne: 'GO' data expand picture
Keynesian, or “demand-side,” economists maintain that the pivotal measure of economic growth is the gross domestic product, which is the total goods and services produced by a nation.
“Supply-side” economists of the Austrian School favor production output as the key growth measure. On July 25, the Bureau of Economic Analysis (BEA) included “gross output” data for the first time in its quarterly publication. Largely unsung, this publication threatens to spark renewed and furious debate over the main target of Federal Reserve and government economic stimulation.
For centuries, in which undreamt economic wealth was generated, classical economists relied on Adam Smith's “Wealth of Nations,” published in 1776. Essentially, the Scotsman held that production was the source of prosperity.
In the early 19th century, the renowned French economist, Jean-Baptiste Say, stated in what became known as “Say's Law” that “supply creates its own demand.” He maintained that a fall in demand could not cause economic recession.
But, in 1936, John Maynard Keynes published his General Theory that dismissed Say, blaming the Great Depression on a lack of demand. He proposed the manipulation of interest rates, taxes and greatly increased government spending to stimulate aggregate demand. Although economists debate what ended the Depression, Keynes was awarded the accolade, some feel mistakenly.
Keynes' theory has dominated economic thought. As chair Janet Yellen's hero, his doctrine remains the mantra of Fed policy. However, Keynesian practice has seen the United States fall from being the richest country in history to being the world's largest debtor.
Despite the unprecedented stimulation of trillions in synthetic dollars, the economy splutters and unemployment remains worrisome. By following Keynesian demand policies, the Fed's attention is on boosting consumer confidence and spending with an anti-savings mentality.
Supply-side economists maintain that savings are essential to healthy business investment, technological advance and real wealth.
The BEA, a highly regarded bureau of the Department of Commerce, defines gross output as: “the market value of the goods and services produced, including commodity taxes. The components of GO include sales or receipts and other operating income, commodity taxes, plus inventory change.”
Gross domestic product is comprised of 68.5 percent consumption, 15.9 percent business expenditure, 18.6 percent government expenditures and -3 percent exports.
GO lends far more weight to business production as it is comprised of 38.4 percent consumption, 52.31 percent business expenditure, 10.55 percent government expenditures and -1.26 percent exports.
Although using GO can be criticized justifiably for double counting, it represents business production more fully than mere consumption and it is private business that ultimately adds profitable jobs — not government.
BEA's bold initiative to publish GO may offer the Fed an improved indicator to evaluate the economy more accurately and lead a return to production-led prosperity.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Contact him at email@example.com.