What GDP Leaves Out: An Austrian Look

Consumption is not in fact the main source of spending, but GDP leads people to think it is. I recently spoke to Prof. Jeff Herbener about this issue. And here’s the resource page I refer to in the video.

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  • Anonymous

    It is not what the GDP leaves out, but what it leaves in, government spending. It is like adding your overhead to your profit instead of subtracting it.
    If gov’t paid us all $$ to sit at home and gamble with each other, we could have high GDP numbers as we starve.

  • http://tomwoods.com Tom Woods

    The video covers that as well.

  • Neal Provost

    As a possible addition to the resource page, Jesus Huerta de Soto writes about this in Money, Bank Credit, and Economic Cycles. There are two sections where it is specifically discussed. The first is a subsection in section 5.1 titled “Criticism of the Measures used in National Income Accounting”. The second is section 6.7 titled “National Income Accounting is Inadequate to Reflect the Different Stages in the Business Cycle”. Since I am not sure how the various editions differ, you can also find the material from the index under: GDO, GNO, and GNP.

  • steve

    Quick question: In the second half, when the professor discusses the flaw in GDP that it captures only the final goods and does not count intermediary steps (production to or towards that final good), is not the price of the final good information about all the production that occurs leading to it? Stated differently: Does not a price of a final good contain all (or at least most) of the value of the production resulting in existence of the final good?

    I understand the first part about government expenditure very clearly. The latter part regarding final goods is a little confusing.

    Thank you for a great video!

  • http://tomwoods.com Tom Woods

    I’ll do a separate blog post on this. Someone in the Liberty Classroom forums asked this exact question.

  • Niels Rademaker

    About leaving out government spending from accounts of a nation’s wealth output: does that mean that when, say, a private healthcare system is nationalized, the metric would cease to account for healthcare spending as an addition to wealth, as if just the fact that the government arranges the logistics and financing renders the healthcare services in question useless?

  • Jack

    “metric would cease to account for healthcare spending as an addition to wealth”
    Is it addition or detraction though? Situation fundamentally changes whe you put involuntary aspect to relations. Sure, public healthcare hase some utility. But how much? You can’t know that because it’s not bought and sold on the market by free actors. Actually, my opinion is that public helthcare has a disutility. Service provided (not so much service if you’re not being served but rather rationed) is being outweighted by negative effects it has. Like opportunity cost – level of progress very well correlated with local freedom in industry shown in the disparity of IT sector vs heavily regulated ones. Not to mention it could be bought for printed up or borrowed money – hardly an addition to wealth. Well, maybe in Keynesian topsy-turvy framework printing and borrowing equals wealth creation. Not in Austrian world – they always ask where did the money come from, and when they answer: nowhere, Austrians ask – so where does the puchasing power came from? At this point you get name calling: “you ideologue” or something. Like that’s some kind of insult :D