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Get all the info here. | | | "How well the economy is doing is always going to be an important part of everyday politics, and we're going to need a better measure of 'the economy' than today's GDP." -- Diane Coyle, University of Cambridge
"Nothing tends so much to the advancement of knowledge as the application of a new instrument." -- Humphrey Davy, British chemist
Special Note: Yesterday, the federal government released its first estimate of real GDP in the third quarter, coming in at +2.8%. It was due mostly to higher government spending (+5%) and consumer spending (+3.7%). Private investment rose an anemic 0.3%. Not a good sign. As this column will show, business investment is the key to higher growth in the future.
In the most recent Forbes issue of 400 Richest People in America, there was a story about the evils of plastics when it comes to the disposal of recycled materials.
As a result, legislators have passed laws favoring the use of glass, aluminum and paper products because plastics are harder to recycle.
However, editor Steve Forbes pointed out that state officials and the media failed to take into account the impact of the entire cycle of a product -- from manufacturing to its end use -- in the debate on plastics. It turns out that production of paper, glass and aluminum uses up far more greenhouse emissions than the production of plastics. "Transportation, for instance, is a factor: A paper bag weights six times as much as a plastic one… The alleged environmental advantages of so-called renewable, for example, disappear when assessing them from start to finish." (Forbes October/November 2024, pp. 21-22).
This story points out the importance of taking into account the entire production process when it comes to good economic policy.
For years, I have advocated the need to measure economic activity at all stages of production, and not just the final stage. The supply chain matters!
What Is the Cause of Prosperity, Consumption or Saving?
Gross domestic product (GDP) has its own problems. Using GDP as "the" indicator of economic performance, many economists and journalists claim that consumer spending drives the economy because it represents 70% of GDP. As the New York Times recently reported with the headline, "Consumers Give Boost to the Economy," "Consumer spending makes up more than 70% of the economy, and it usually drives growth during economic recoveries."
This anti-saving Keynesian model suggests that individuals should save less and spend more.
The media happily reported yesterday that real GDP rose 2.8% due largely to an increase in consumption and government spending.
And yet all the evidence is that productive saving and investing are the real driver of the economy. It's because of technology, innovation and entrepreneurship -- the supply side -- that a higher standard of living is achieved. Consumption is the effect, not the cause, of prosperity (known as Say's Law).
As Harvard Professor Greg Mankiw states, "If the saving rate is high, the economy will have a large capital stock and a high level of output."
How to Resolve This Paradox of Thrift
How do economists resolve this issue of what drives the economy?
This paradox of thrift is easily resolved by noting that GDP leaves out the all-important supply chain. It measures final output only -- finished products and services bought by consumers, business and government. All intermediate goods-in-process are not included in GDP.
This four-stage diagram of the production process demonstrates the limitation of GDP.
Source: "Economic Logic," by Mark Skousen (Chapter 14).
In the above diagram, we see that all goods and services go through four general stages of production. GDP counts only the final stage and leaves out a whole lot of business activity that's required to provide the goods and services that people can actually use. | | Top 20 Living Economist Shares the Largest Position in His Personal IRA Investing legend Dr. Mark Skousen recently gave a talk to a small group in the heart of Washington, D.C. In it, he revealed the cornerstone of his retirement plan -- and the one investment that helped make him a millionaire. Click here to watch Dr. Skousen's presentation -- and learn about "the best way to become a millionaire in America." | | | Introducing Gross Output
In chapter six of my book, "The Structure of Production" (NYU Press, 1990), I introduced gross output (GO), which measures spending at all stages of production -- adding up stages one through four in the above diagram.
In 2014, the Bureau of Economic Analysis (BEA) in the Commerce Department agreed and began publishing GO along with GDP as the "top line" in national income accounting. As BEA Director Steve Landefeld stated at the time, "Gross Output provides an important new perspective on the economy and a powerful new set of tools of analysis, one that is closer to the way many businesses see themselves."
In 2014 I wrote my first Wall Street Journal op-ed on GO; the Journal cartoonist captured the essence of GO:
Gross output can be identified in many ways: The "top line" in national income accounting (GDP being the "bottom line")… the production indicator (GDP being the "consumption" indicator)… the "make" economy (GDP is the "use" economy).
Most importantly, GO demonstrates that it is business, not consumption, that drives the economy. It is THE supply-side statistic.
GO As a Supply-Side Measure of Economic Output
Using GO as a more complete measure of economic activity, it turns out that consumer spending is only about one-third of GO, and business spending is more than 60% of total economic activity.
This chart shows how business spending is almost double the size of consumer spending:
In GDP private investment represents only a small portion of the economy (18%), while in the GO model it represents over 60% because it includes private investment plus the value of the supply chain.
As Professor Steve Hanke (Johns Hopkins University) declares, "Now, it's official. With gross output, the U.S. government will provide official data on the supply side of the economy and its structure… The government's move provides a clearer, more comprehensive picture of the economy, with GO."
With GO measuring all stages of production, from start (raw commodities and resources) to finish (final goods and services), we get a full picture of the economy.
Gross domestic product is the standard measure of our standard of living, but it measures finished products only. It leaves out all the intermediate stages or what we call the "supply chain." Last year, the value of the supply chain amounted to $37 trillion, more than GDP itself ($29 trillion)!
As I noted earlier, yesterday, the federal government released its advanced estimate of third-quarter gross domestic product (GDP), announcing that the economy grew 2.8% in real terms (after taking into account price inflation).
We don't know yet what third quarter GO is -- it won't be reported until December 19 -- but in the past two quarters business spending has been in a decline.
I'm not suggesting that GDP be replaced or ignored -- it does a decent job of measuring our standard of living. It reflects how much goods and services we can buy as consumers, business and government.
But GDP can be easily distort how the economy works and lead to much mischief in economic policy.
Since consumption represents around 70% of GDP, many journalists report that consumer spending drives economic growth, implying that if only consumers spent more and saved less, we would be better off. Nothing could be further from the truth. Productive saving and investment are the key to economic growth; increased consumption is the effect, not the cause of prosperity.
Based on a naïve analysis of GDP, some people conclude that if government spends more and runs a deficit, the "G" portion of GDP rises and stimulates the economy. That, too, is a myth. Too much government or unproductive federal or state programs actually reduce our standard of living.
GO is a better, more accurate description of what is happening in the economy. It shows that business is the most important part, followed by consumer spending and lastly government spending.
Steve Forbes said it best: "GDP is the X-ray of the economy; but GO is the CATscan!" | | How to Avoid the Next 'Market Tsunami" The same Artificial Intelligence that predicted the Covid Crash and bank implosions weeks ahead can warn traders about the next Market Tsunami.
This potential move in the markets could have many corporations and everyday Americans pulling out of trades and running to their banks.
With just one swift stroke, billions of dollars on Wall Street could be wiped out.
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You can learn how predictive A.I. forecasting can not only help you predict such a market catastrophe… And all attendees will hear our 3 Top Stock Picks. | | | How to Learn More About How the Economy Really Works: 'The Best Brief in Economics I've Ever Read'
My 19-page essay, "Economics of Life Made Simple," includes a section on GO and its vital role in understanding the economy. It was last year's cover story in Skeptic magazine and can be read here.
I've had numerous requests for reprints of this essay to give out to students, professors and clients who want to know how the economy really works.
Copies are available at www.skousenbooks.com for $3 each. Minimum order is three copies. A lawyer called it "The best brief I've ever read in economics." And an accounting professor at Chapman told me, "Mark, I've always wanted to understand economics, so I read the book 'Economics for Dummies,' but I still couldn't understand economics until I read your essay!"
Several people have asked me to do a summary paper on GO, including all the pros and cons of GO and how to apply it in the real world. It is now complete and can be read online on the Social Science Research Network (SSRN) website here.
You can also read my latest press release on GO at www.grossoutput.com.
GO Endorsements
Here's what a few others in finance and economics have said about GO and my work:
"This is a great leap forward in national accounting. Gross output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy. He deserves the Nobel Prize for his breakthrough work." --Steve Forbes, editor in chief, Forbes magazine
"By integrating the vital role of the supply chain into national income accounting, Mark Skousen's development of gross output (GO) has created a more dynamic and broader view of the economy, and of the central role that business plays in national income, the business cycle and economic growth. I recommend that economists seriously consider his new approach to macroeconomics." -- Finn Kydland, UC Santa Barbara, Nobel laureate
"National income accounting has long been unfathomably flawed and worse by the decade, but Mark Skousen's introduction of gross output (GO) has been a big step forward in portraying a more total picture of the economy and where and when it's vulnerable. Kudos to Mark for it being adopted." -- Ken Fisher, CEO, Fisher Investments
"How did this counter revolution come about? There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen's book 'The Structure of Production,' which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government's move to provide a clearer, more comprehensive picture of the economy, with GO." -- Steve H. Hanke, Johns Hopkins University
"Congratulations on your work. It has been a long slog to get the national accounts to introduce innovative measures, and Steve Landefeld [long-time director of the BEA] has been a superstar in this respect… This will open up the potential for new insights into the behavior of the economy." -- William D. Nordhaus, Yale University (Nobel laureate)
"The more data the better, and your GO gives us valuable extra information. I wish you all the best with your new top-line measure of the economy." -- Jeremy Siegel, Wharton School of Finance, University of Pennsylvania
My priority now is to encourage the econ textbooks and the financial media to include GO in their reporting. Steve Forbes and Forbes magazine are strong supporters. The Wall Street Journal is a big fan, having published three of my op-eds on GO.
Several textbooks have included references to GO, but my "Economic Logic" is the only college textbook to fully integrate GO into macroeconomics (www.skousenbooks.com).
The BEA in the Commerce Department is halfway there by releasing GO every quarter along with GDP. But they need to publicize it more. Right now, they bury GO under "GDP by Industry," and release it two months after GDP is realized. It needs to be released at the same time as GDP.
Upcoming Appearances
Wisconsin Forum, Wednesday, Nov. 13: I'll be speaking on the "Outcome of the Elections" at the Milwaukee Yacht Club, 1700 N. Lincoln Memorial Drive, Milwaukee, Wisconsin, 5:30 -- 8:30 p.m. For more information and to register, to to www.wisconsinforum.org, or contact Tim Peterson at selfgov1959@outlook.com.
Liberty International World Conference, Nov. 15-17, Embassy Suites DFW, Grapevine, Texas: I'll be a keynote speaker on my popular speech "What's Better Than Democratic Socialism? Democratic Capitalism!" Other speakers include Ken and Li Schoolland, Tom Palmer, Ron Manners and Chase Oliver, the Libertarian candidate for president. For details and registration, go to https://liberty-intl.org/liwc2024/.
New Orleans 50th Anniversary Investment Conference, Nov. 20-23: I've been speaking every year since 1977 at the famous "gold bug" New Orleans conference and will give a unique talk, "My Life-Changing Highlights in New Orleans." Other speakers include James Grant, Gary Alexander, Robert Prechter, Mary Anne and Pamela Aden and Brien Lundin. It will be memorable. For more information and to register, go to https://www.eventbrite.com/e/2024-new-orleans-investment-conference-tickets-752296528167?aff= Skousen. Be sure to mention you are a subscriber to Forecasts & Strategies.
Let's GO!
Good Investing, AEIOU,
Mark Skousen
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FreedomFest | | The Ups and Downs of the American Dream: The Story of the 'Donut King' By Mark Skousen
Editor, Forecasts & Strategies
"No political life, no religious life, just work, work, work." -- Ted Ngoy, founder of DK Donuts in California
I had a hard time deciding whether this column should be "You Nailed it!" or "You Blew it!" Maybe both!
Anyone who lives in Orange County, California, knows about DK Donuts and Christy Donuts. They have over 50 donut shops in Southern California. They are so successful that Dunkin Donuts has had a hard time entering this market. Speaking from personal experience, they are the best donuts around.
Recently, I saw the 2020 documentary "The Donut King," the story of Ted Ngoy, the Cambodian refugee who came to America penniless with his wife Christy and family. He took several, jobs including working for Winchell's Donuts… and decided to start his own donut shop. His donuts were top quality at low prices, and within 20 years he was worth $20 million, lived in a million-dollar home and became a legend in the Asian-American community.
Here's the movie trailer:
The Donut King Trailer #1 (2020) | Movieclips Indie
Spoiler Alert: The Thrill of Victory and the Agony of Success
In Ted Ngoy's case, after his great success, he started going to Las Vegas to see Elvis and other performers, and while there became addicted to playing blackjack and other gambling games. Over time he lost everything and was forced to sell his donut shops… and then had a secret affair with a young woman… and his wife Christy finally divorced him.
In the film, he talks about his failures, a warning to all of us. As Ben Franklin once said: "Success has ruined many a man." ("Maxims of Wall Street," p. 202) | | | About Mark Skousen, Ph.D.:
 Mark Skousen is an investment advisor, professional economist, university professor, author of more than 20 books, and founder of the annual FreedomFest conference. For the past 40+ years, Dr. Skousen has been investment director of the award-winning newsletter, Forecasts & Strategies. He also serves as investment director of four trading services: TNT Trader, Five Star Trader, Low Priced-Stock Trader, and Fast Money Alert. | | | | | |
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