They say it’s an improvement. And, it probably is, but it could make general comparisons to the past more and more difficult. What am I talking about? Economic Indicators.
The first and more familiar one is GDP- the gross domestic product. You have certainly heard this term, even if you don’t quite understand what it is and how it’s calculated. GDP is the value of all the finished (i.e. final) goods and services that are bought each year- by consumers (that’s you and me), by businesses (which means a lot of you, as well), and by governments. The GDP last year was around $ 17 trillion.
But, GDP is a measure of what is used (the “use” economy). It means we don’t efficiently monitor or measure what we produce- that measure is call the Gross Output. And, while you and I- and most of the general public- have little clue about this measure, we (that’s the US government) has been monitoring gross output since the Great Depression started to end (around the mid 1930’s). But, most of that work and analysis was devoted to various specific industries.
Actually, the GDP of a nation is closely related to the standard of living, the economic growth of a specific county. But, it provides no information about the production processes going on. This is akin to examining the cash income for a business- without every taking into account if they are maintaining the same inventory levels, increasing their inventory (which cuts their cash position right now), or decreasing their inventory levels (which increases their cash position, but may make it harder to meet the customer’s needs as demand increases).
Let’s examine these indicators more closely. In 2013, consumer spending was about 68% of our GDP. Government spending was a distant second at 18%, and business purchases comprised about 16%. Yes, that means 102% of our GDP came from these three sectors- How can it be more than 100% Because our net exports decreased that number by 2%, bringing us back down to 100%.
But, now, let’s consider Gross Output. All of a sudden the picture changes dramatically. With their capital spending and inventory buildup, the business sector approaches 50% of the total of almost $ 29 trillion. Not surprising when you realize that only 20% of the labor force is in consumer businesses, 15% in the government sector, with the rest employed by the service, mining and manufacturing sectors.
As you can see, gross output reflects inventory buildup or drawdown, which gives more information about the various business cycles and activities. So, it probably is a good thing that, as of last month, this data point will be provided to us along with GDP figures.
Good explanations. Would like to learn more about the GO.
Carolina HeartStringshttps://www.adjuvancy.com/wordpress/index.php?social_controller=auth&social_action=authorize&key=facebook&post_id=16313 recently posted..CYPRESS GARDENS: FLORA, FAUNA & HISTORY
I am sure more and more people will be discussing this “new” term, Alessa.
Both suck. Wars and natural disasters make GDP and GO look huge, as if we are getting rich. But fixing things that break doesn’t make us any richer. In fact, it means that we have had to use up huge efforts just to keep our current lifestyle.
So we have it that if a car lasts 10 years, two cars per person/household need to be produced every 20 years. If a car were to last 20 years, then only one would have to be produced per person/household need to be produced every 20 years. Both GDP and GO would calculate that we are richer if we have to make 2 cars. In fact, our material wealth would be exactly the same under the two scenarios, but our precious time wealth would be so much better under the scenario where we would only have to build the one car (Three-day workweeks!).
We need a system that reflects that the less work we do, the less we need to produce to maintain whatever lifestyle we seek, the better off we are. Being busy with little results is pointless. Getting great results with little effort should be the goal. That is called productivity.
David L. recently posted..How to Write a Best Man Speech
Yes and no, David.
First, does war look like we are better off? For us to maintain a standard of living, giving the fact that now a lot of what we make is being destroyed, our output would have to increase, yes. But, if we did not increase or maintain our standard of living, our country would have to stop the war campaign- because there would not be sufficient cash available to cover those expenditures. I do see your point- that in the short run, this is a way to seemingly augment the country’s production.
Now, regarding the car issue. If a car were to last 20 years, and if we did not care about having the latest and greatest, then unless there were other markets for the cars, the auto industry output would decrease. AND the number of its employees would decrease. AND the amount of steel and raw materials would decrease. So, the employees in those industries would find themselves without a job. So, you are right, output would decrease- but so would the number of jobs available, there would be more unemployment- and the overall wealth of the country would have take a big hit.
Is that a good thing? From your point of view- yes, because you could have a car last 20 years and you would not need a new one. From your neighbors point of view, who is now unemployed- it would be a crummy thing. Oh, and I bet you would be ticked off having to pay more in taxes on your wages so that a bare minimum of benefits would be available for your neighbor.
Ah, yes, there are other ramifications to your dream of a 20 year car.
Thanks for the explanation, Roy, while I am familiar with GDP, I haven’t heard of GO before.
That’s true for a lot of us, Suerae. And, I figured when we started hearing folks banter up our GO, we’d wonder what just happened. So, I tried to fill in the gaps.
Just like most comments, I was familiar with GDP, but not with GO. It will be interesting to see how the indicators evolve!
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Let’s hope it really provides us with some useful information, Muriel. Maybe a leading indicator- and that would be very helpful.