Governmental Domestic Product

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New York Times’ front page story on October 30, 2009, was headlined, “Economy Grew 3.5% .” It contained this surprise definition of Gross Domestic Product (GDP): “the broadest measure of the government’s total goods and services produced.”

I count three errors in that one sentence.

First, GDP does not measure “total” goods and services produced in a year, but only the value of “final” output. It deliberately nets out all intermediate production.

Second, it is not the “broadest” measure of national output. The Bureau of Economic Analysis at the U.S. Commerce Department also releases annual Gross Output figures, which measure output at all stages of production. Gross Output is almost twice the size of GDP.

Third, The New York Times may well like “the government” to produce the entire GDP, but it doesn’t – yet. Current government spending represents approximately 20% of GDP. Thank heaven, the remaining 80% is privately produced.

Maybe this is the point at which New York Times reporters should take a refresher course in Econ 101.

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