Thursday, December 05, 2013

Gross Output and GDP

Mark Skousen celebrates the fact that Commerce's BEA will soon issue quarterly reports on Gross Output (GO) -- in addition to regular GDP reports.

Most Econ 101 courses cover the various limits of GDP accounting which are well known.  The economy is huge and complex; efforts to sum it up in a single number are heroic.  Compromises are inevitable. "Accountants measure what they can."

GDP is crafted to avoid double-counting.  In the process some data are not reported.  In contrast, input-output accounting and modeling are now widely used and available.  These highlight gross output consequences that do include all inputs and all outputs -- even though the value of the latter may include the value of the former.

Businesses practice double-entry bookkeeping and that has never brought on double-counting worries.  GO and GDP serve different purposes.  GDP reports all of value added. But all of activity is greater than all of value added.

My friends and I have been interested in linking economic activity to infrastructure activity.  Here is an example.  Infrastructure services are required for all material inputs as well as all material outputs.  This is just one example where GDP cannot replace GO