April 15, 2004

Getting real with economic growth statistics. "if there is one thing the Austrian School teaches, it is the fundamental importance of the division of labor. Another is the crucial element of time and of the instrumentality of capital in mastering this. Yet another Austrian teaching is the key role played by individual entrepreneurs in disposing of scarce resources to meet current and prospective consumer demand. A final one is the function of saving in facilitating this role. On this basis, we can recast the official statistics, with all their provisos and precautionary notes, in a radically different way. We can maneuver them using an approach first outlined by Professor Reisman, to give us a feel for what Hayek depicted as a "right-triangular arrangement of production in the modern economy." To achieve this, we take the Bureau of Labor Statistics' (BLS) input-output tables that show, in addition to the now-familiar GDP numbers, all those intermediate business-to-business flows that are later simply cancelled out. Adding imports to the domestic total—to include total, not just net, exports—leaves the sum of business revenues from sales to other businesses, to end consumers, to government, and to foreigners. Subtracting depreciation and profits from this, we are left with above-the-line business costs. To these we can add the entries for net inventory accumulation and gross fixed investment, which represent below-the-line outlays. Thus, we have identified the total of all domestic productive spending. We can compare this to the sum of personal consumption and government expenditures and residential real estate "investment" to determine the scale of domestic exhaustive spending. In 2001, productive outlays came to a grand total of $18.2 trillion, against which was $7 trillion in personal consumption, $1.8 trillion in government spending, and just under $1/2 trillion laid out for real estate, for a domestic exhaustive use of $9.3 trillion. Thus, it could be argued, the circulation of money—hence also the transfer of goods and services—through the real economy amounted not to $6, not to $8, nor even $10 trillion, but to a whopping $27.5 trillion. Some two-thirds of this represented not the final consumptive exhaustion of wealth emphasized in the orthodox approach, but intertwined, mutually worthwhile, purposefully-undertaken, non-automatic entrepreneurial expenditures .. ". More "The Anatomy of Growth". Posted by Greg Ransom | TrackBack