Macroscope | Time for GDP to GO as key economic growth measure
Gross output data can give a more accurate picture of the business cycle and help fill the gaps left by demand-side indicators
In late April this year, the Bureau of Economic Analysis at the United States Department of Commerce announced that it would start reporting a new data series as part of the country's national income accounts.
In addition to gross domestic product, the bureau will start reporting gross output. This announcement went virtually unnoticed and unreported. Yet gross output (GO) represents a significant breakthrough.
The classical school of economics prevailed roughly from Adam Smith's time (1776) to the mid-19th century. It focused on the supply side of the economy. Production was the wellspring of prosperity.
French economist J.B. Say was a highly regarded member of the classical school. To this day, he is best known for Say's Law of Markets. In the popular lexicon - courtesy of John Maynard Keynes - this law simply states that "supply creates its own demand".
But according to Steven Kates, one of the world's leading experts on Say, Keynes' rendition of Say's Law distorts its true meaning and leaves its main message on the cutting-room floor.
Say's message was that a demand failure could not cause an economic slump. This message was accepted by virtually every major economist before the publication of Keynes' in 1936, which changed everything.
Kates argues that Keynes had to set Say up as a sort of straw man so that he could remove Say's ideas from economists' discourse and the public's thinking. Keynes had to do this because his entire theory was based on the analysis of demand failure and his prescription for putting life back into aggregate demand - namely, a fiscal stimulus.
