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The Real Elephant in the Room


Mark Skousen has been the leading advocate for better measures of economic activity ─ measures that better reflect an Austrian-Say based perspective of how an economy actually works ─ measures that better reflects the importance of production and investment in driving the economy and employment. His preference, gross domestic expenditure (GDE), as highlighted in his The Structure of Production. With a strong nudge from Mark, such a measure, gross output (GO), which is not quite as comprehensive as GDE, has recently become available as highlighted here.

Steve Hanke reports on the development here. Per Hanke, “The announcement went virtually unnoticed and unreported─an unfortunate but not uncommon, oversight on the part of the financial press.

He adds, “Yes, GO [emphasis added] represents a significant breakthrough” and “GO is a big deal.”

The new data offers Austrians and fellow travelers who have emphasized the importance of production and investment; business planning to best meet consumer demands, both now and in the future, as the prime mover of the economy better data to support their historical analysis.

Hanke’s conclusion:

Even though the always clever Keynes temporarily buried J.-B. Say, the great Say is back. With that, the relative importance of consumption and government expenditures withers away (see the accompanying bar charts). And, yes, the alleged importance of fiscal policy withers away, too.

Contrary to what the standard textbooks have taught us and what that pundits repeat ad nauseam, consumption is not the big elephant in the room. The elephant is business expenditures.

It’s time to not only tout, but time to take advantage of this new data set to better advance and support the insights of a capital-structure based macroeconomics (See Capital in Disequilibrium: Understanding the “Great Recession” and the Potential for Recovery).

HT to Mark Skousen.

John P. Cochran (1949-2015) was emeritus dean of the Business School and emeritus professor of economics at Metropolitan State University of Denver and coauthor with Fred R. Glahe of The Hayek-Keynes Debate: Lessons for Current Business Cycle Research. He was also a senior fellow of the Mises Institute and served on the editorial board of the Quarterly Journal of Austrian Economics.

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