US Economic Output – “Ugly, but Fleeting”?
On the Uselessness of Aggregate Economic Statistics
We actually hate talking about GDP. It mainly measures consumption and leaves out the bulk of the economy’s production structure – which has led to the completely erroneous, but often repeated notion that “the consumer represents 70% of economic activity”. In reality, consumption represents somewhere between 35% and 40% of all economic activity. The manufacturing sector is actually not the “smallest sector of the economy”. It is stillthe by far largest sector in terms of total output.
Moreover, “GDP growth” is really not informative with respect to whether or not the activity measured is profitable and therefore indicating that wealth is created. Given that government consumption is a major component of GDP, there is obviously a lot of wasteful spending that is counted as “growth”.
Furthermore, in a bubble era, when credit expansion ex nihilo is running wild, a lot of investment in fixed assets will eventually be discovered to have been malinvestment. Such spending is also added to “growth” while it occurs, but in reality, it is just a waste of scarce capital. Simply put, there isn’t much worth measuring, because the truly important things cannot really be measured anyway. Even so, it makes a lot more sense to occasionally look at the gross output tables per industry rather than GDP.
Now let us think for a moment about Wednesday’s quarterly GDP report. What does it even mean that the economy has allegedly grown by “0.2%”? This strikes us as a completely absurd number. Given that it actually represents quarterly growth annualized, it means that “real growth” last quarter was 0.05%. Really? Someone has measured the economic output of the entire country and found out it grew by 5 basis points? This sounds like a tiny fraction of the margin for error rather than a meaningful number.
…click on the above link to read the rest of the article…
