Since 2014, the US publish GO – Gross Output – as a complementary measure of GDP. GO is a broader measure of economic activity and serves as a complement to GDP. According to Mark Skousen, the 2017 Swedish Schumpeter Lecturer and one of the world’s most influential economists, who introduced the new measure in the United States, the business sector (entrepreneurship, capital investment, saving and investment) is considered far more important than consumer spending and government stimulus with GO.
There is a disconnection between what reporters are writing and what economists are saying regarding what’s going on in the economy, Mark Skousen, presidential fellow at Chapman University in California, USA, said when commencing his Swedish Schumpeter Lecture on October 3 2017.Mark Skousen
A broader measure of economic activity
What is missing from GDP, Skousen asked rhetorically. The supply chain, the B2B-spending is left out, he answered referring to his book The structure of production that laid ground for the BEA to release quarterly GO statistics as complementary to GDP, both measures are required in a complete system of accounts.
In his lecture Mark Skousen argued that gross output is (1) a broader measure of economic activity that more fully accounts for business spending in the economy, (2) a figure more sensitive to the business cycle, (3) a statistic more consistent with economic growth theory and one that resolves the “consumer spending paradox,” and (4) a potential forecaster of the economy. Both GO and GDP should be treated as equally important in measuring the economy, just as the top line and bottom line constitute a complete picture of a company’s financial condition, he said.
-Still many newspapers report when GDP numbers are released, but no one takes action when GO is published.
Consumer spending – the big elephant in the room
Skousen also referred to the big elephant in the room, consumer spending, that is almost two thirds of GDP but only one third of GO. GO shifts focus to the business sector and confirms Say’s law: Supply creates demand.
Relating to what Joseph Schumpeter said, consumer demand is critical for a continual production of the products you are used to. But for new products you need an innovator that comes up with an idea.Mark Skousen
Entrepreneurship, regulations and taxes in focus for GO policy
According to Mark Skousen GO is also a powerful leading indicator and is here to be developed. OECD measures the GO for a couple of countries and in 10 years all OECD-countries will be measuring GO quarterly publishing at the same time, he predicted.
When asked of policy outcomes of using GO, Skousen referred to the need of encouraging entrepreneurship that is going to create new jobs. He also mentioned a rational approach to regulation and a focus on business taxes instead of income taxes. Moreover he claimed GO provides solutions for business cycle policies. If GO is falling faster than the GDP, then there is a sign of recession. If GO is rising faster, the supply chain is really robust.
GO is published yearly in Sweden
First to comment on Skousens lecture was Erika Färnstrand Damsgaard, Head of division, Macroeconomic research, The National Institute of Economic Research (NIER). She explained that GO for Sweden is published by Statistics Sweden (SCB) on a yearly basis and lagging approximately two years. Färnstrand Damsgaard showed the development of GO in Sweden during the last twenty years for two different sectors – retail trade and manufacturing motor vehicles.
– forecasts fluctuations in manufacturing very good but the changes in retail trade is less obvious, said Färnstrand Damsgaard.
Erika Färnstrand Damsgaard
GO helps identify turning points
Lena Hagman, Chief Economist Almega, had three main observations about GO.
GO explains the structural changes in the economy and how different industries can be leading business cycles and fluctuations. The structural change is getting faster and GO can help identify where it is happening and how Swedish companies can be more competitive to answer to foreign businesses that are gaining market shares all over the world.
-GO helps identifying turning points in the economy better than GDP.
GO also gives us the possibility to follow the use of intermediates. This enables us to explain growth and identify which industries that generates growth. For a small open economy like Sweden this is even more interesting than a larger country like the US. Swedish industry depend a lot on imports to develop goods.Lena Hagman
Greater focus on supply side economics
Lastly Johan Eklund, Managing Director Swedish Entrepreneurship forum and Professor Blekinge Institute of Technology, claimed that the use of GO can improve macroeconomic research since it seems to have stagnated.
– In policy GO provides a shift from demand side economics to supply side economics. It becomes more important to look at the business climate and how businesses and entrepreneurs are doing instead of consumer behavior.
Johan Eklund (left) and Pontus Braunerhjelm (moderator, right)