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#9 The GDP UnTruth
The Intentional Mis-Measure of the Economy
Which of these was included in government regulators’ measure of annual U.S. GDP for the year 2021?
A. The amount of wheat produced in the U.S. in 2021.
B. The amount of money spent by U.S. government regulators in 2021.
If you answered A, you’re wrong.
The food produced by America is not considered to be part of the Gross Domestic Product. Nor are timber, cars, or oil, or any goods and services. The correct answer is B. Because “GDP” is a lie, and it has been a lie since it was invented by John Maynard Keynes and adopted by far Left government regulators, as we will see. GDP does not measure production, and it never did. It measures spending, including government spending. The truth is that GDP measures NO production of goods and services. Instead, the more money that government regulators borrow and spend, the higher they measure GDP to be.
Why does it matter? Let’s have a look.
The Truth About GDP
“Economic growth serves as the prominent standard for measuring the performance of an economy. However, what is published as the gross domestic product (GDP) does not represent production but reports overall spending... For governments, using the figure for GDP as an indicator of economic performance has contributed to some of the most severe illusions of fiscal and monetary policy...”
Antony P. Mueller, "What's Wrong with Economic Growth?", Mises Institute (2005)
According to Investopedia, GDP is calculated by adding:
• personal consumption
• private investment
• government spending
Not the goods or services produced.
GDP is a sum of spending. It was originally promoted as a direct measure of "economic health" by Keynesians... One of the greater Orwellian coups of all time is the media's success in getting people to conflate "GDP increased by 2%" with "The economy grew by 2%". No intelligent person should take that seriously.
comment to Patrick Barron, "GDP Tells Us Little about the Health of an Economy", Mises Institute (2021)
Why would Leftists want to lie about economic production and growth? Because they need “GDP” to make increases in government borrowing-and-spending look like actual economic growth, when what was really happening instead was that politicians were spending more and borrowing more. Without the GDP Untruth, Americans might have realized that what we were told about U.S. "economic growth" was a lie.
“GDP increased 10.1 percent (revised), or $2.10 trillion, in 2021 to a level of $23.00 trillion…” Bureau of Economic Analysis, U.S. Department of Commerce (2022)
That sounds like a healthy increase in American productivity, and maybe it would be, if it was what America really produced. But it wasn’t. For one thing, almost $7 trillion of the “GDP” was the production of more national debt, because about 30% of “GDP” was actually spending done by government regulators. Was the $352 billion spent by government regulators to pay interest on the national debt, for example, really economic productivity?
Leftists Put “GDP” to Work, as Political Deception
The most fundamental measure of economic performance is the rate at which the gross domestic product (GDP) grows. At the national level, the differences between how fast our GDP has grown during years when the Democrats have controlled both the legislature and the presidency…
“Which Party Is Better for the Economy?” Politics That Work (2019)
The GDP is “…the rate at which the gross domestic product (GDP) grows”? That is a lie. That quote was intended to make the reader believe that productivity grew more under Democrat government regulators. Instead, the truth was that GDP went up because government borrowed and spent more. It was a lie that Leftists had long used to make it look like they, not the Right, were the most productive segment of American society, when the opposite was the truth:
...blue states have a GDP of $11,1 trillion while the red states have a GDP of $5.6 trillion... This … makes it clear how ridiculous the Republican's contention that Republicans are generally "makers" and Democrats are generally "takers" is... These results are consistent with the general tendency for the economy to perform better under Democrats.
Politics That Work (2020) http://politicsthatwork.com/graphs/size-red-blue-economy Using GDP data from https://www.bea.gov/data/gdp/gdp-state
President-elect Joe Biden won 477 counties that together generate 70% of U.S. GDP.
"Democratic counties represent 70% of U.S. GDP, 2020 election shows" CNBC (2020)
GDP has grown due to Leftist government because Leftist government regulators borrow and spend more money, and, in various ways, transfer more money to Leftists, for them to spend.
The higher GDP in Leftist regions was evidence that Leftists were spending money, not earning it by producing goods and services. Leftists were spending money that Leftist federal government regulators borrowed, much of it from foreigners, or took as taxes from the people who really did produce goods and services.
Ilhan Omar, Adding "Equality" to the GDP
Leftists love their Equality Untruth, as we discuss in our article about it. GDP was always a political tool of Leftists, and in the 21st century they had ideas for improving it. In 2021, Rep. Ilhan Omar and five other Democrats introduced a bill in Congress called the "Genuine Progress Indicator Act" to change the GDP to add "…adjustments to gross domestic product that account for positive and negative economic, environmental, and social factors that contribute to economic activity."
What would those new “adjustments” be?
A Wall Street Journal article titled "Ilhan Omar’s Idea of Progress" reported that the new and improved GDP would measure things like, “inequality, regrettable defensive expenditures, uncounted environmental externalities, depletion of natural resources, and trade-offs with non-work uses of time”. An article titled "Ilhan Omar Just Introduced a Bill to Make People and the Planet Priorities for Economic Policy" by the Center for Sustainable Economy said, "It would also incorporate estimates of the ever-growing social costs of inequality, pollution, deforestation, climate change and a host of social ills including homelessness."
Lies, Damned Lies, and Keynesian Economics
At its very core, GDP is John Keynes versus Friedrich Hayek writ large. And their debate explains a great deal of the current tension between those who would make final consumption – or what we call consumer spending – the be-all and end-all of economic policy, and those who feel that productivity and income should instead be the focus. The very act of measuring GDP as we do gives the high and easy intellectual ground to those of the Keynesian persuasion.
John Mauldin “GDP: A Brief But Affectionate History”, Forbes (2014)
The origin of GDP as a Leftist untruth is easy to find and no surprise. In 1932, the far-left New Deal U.S. government regulators were looking for a way, “… to estimate national income over the preceding four years.” That was how it was described the origin of GDP, in a 2016 article in The Economist titled and sub-headed, “The Trouble with GDP: Gross Domestic Product (GDP) is Increasingly a Poor Measure of Prosperity. It Is Not Even a Reliable Gauge Of Production”.
The Economist article reported, “…the modern definition of GDP as the sum of private consumption and investment and government spending” was chosen by U.S. government regulators, instead of a proposed measure that treated government spending as a cost to the private sector. The GDP we got was proposed by John Maynard Keynes, using the rationalization that “…if wartime procurement by the state was not treated as demand, GDP would fall”. So GDP as spending came into existence.
GDP is Keynesian Economics, i.e. untruths used to justify more government borrowing and spending. GDP is an example of "Antieconomics", i.e. economics which is flipped into a lie, to reverse real economics. Leftist economics gets everything backward, it "...starts with abundance and works backward. It emphasizes redistribution not production...”, Jeff Deist "The New Antieconomics", The Austrian (2022)
In the End
So what are we to make out of the periodical pronouncements that the economy, as depicted by real GDP, grew by a particular percentage? All we can say is that this percentage has nothing to do with real economic growth and that it most likely mirrors the pace of monetary pumping.
Frank Shostak, "GDP Provides a False Reading of the State of the Economy" Mises Institute (2022)
Government regulators borrow and create $trillions. That money is spent by government regulators, or is transferred to corporations getting handouts, or goes to recipients of government entitlements, and so on. To some extent, GDP is a measure of the printing, borrowing, and spending of money by government regulators. But to no extent is it in any way directly correlated with the amount of goods and services produced by the people of the nation.
As the Shostak article concludes, “The GDP statistic provides an illusory frame of reference to assess the performance of government officials. Movements in GDP however, cannot provide us with any meaningful information about what is going on in the real economy. If anything, it can actually provide us with a false impression.” In the end, GDP is just destructive Leftist untruth.
Links in this Article
• "What's Wrong with Economic Growth?" https://mises.org/library/whats-wrong-economic-growth
• "GDP Tells Us Little about the Health of an Economy", Mises Institute (2021)
• “The trouble with GDP” https://www.economist.com/briefing/2016/04/30/the-trouble-with-gdp
• "Genuine Progress Indicator Act" https://www.congress.gov/bill/117th-congress/house-bill/4894?s=1&r=5
• Wall Street Journal article titled "Ilhan Omar’s Idea of Progress"
• "Ilhan Omar Just Introduced a Bill to Make People and the Planet Priorities For Economic Policy" Center for Sustainable Economy
• Frank Shostack, "GDP Provides a False Reading of the State of the Economy" Mises Institute (2022)