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We’re Using The Wrong Measure (GDP) To Gauge The Economy’s Real Health: Mark Skousen

Here’s a conversation you must listen to. It will prove invaluable in determining what is actually happening to the economy.

We’ve long been led to believe that the best measure of an economy’s size and health is GDP—gross domestic product. Not so! says renowned economist Mark Skousen, who has authored a number of noted books, which includes a highly respected text for college students.

A more comprehensive and enlightening picture is GO, gross output, or as it is called in Britain, total output. It’s the difference between an X-ray and a cat scan. GDP is the value of all finished products and services produced within a country’s borders. It is the equivalent of a company’s profit, the so-called bottom line; but it ignores revenue and expenses. A security analyst who did that would be promptly fired! By contrast, GO includes the steps that go into producing those products and services. To make his point, Skousen uses the example of a cup of coffee. GDP leaves out the growing and harvesting of the coffee bean, its processing and shipping and finally the brewing that gives you that liquid. GDP is a very incomplete and indeed, misleading picture of how an economy actually operates. How often have we heard that consumption is 70% of the economy? In reality, business investment and production is the largest part. Consumption is the result of production.

This is why the sizable cut in the corporate tax rate and other investment incentives nearly two years ago sharply raised the growth rate of the US economy, cut unemployment to record low levels and led to an increase in wages, especially for low-income workers. But, Skousen warns, this boom could be upended by the ongoing trade skirmishes, which are increasingly harming the crucial production part of the economy. GO, which inexplicably is released by the government months after the GDP number is signaling trouble ahead.
Source: Forbes

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