I have a hard time keeping a straight face when reading the rubbish that money morning includes in this blog piece. It sounds convincing, but is really very far off the mark.
The author in money morning wrongly claims that GDP as measured wrongly values growth. By choosing another measure, he claims to remove or reduce a bias. The logic is very short term, but even then is silly!
The problem is associated with the valuation of the government sector at cost rather than a market value. Putting a market value on government spending would certainly alter the growth numbers, but the valuation if long term might be excessively high given that government spending often begins growth.
Should the private sector spend during this gestation and invention research period, it would lose money heavily so the private sector, eg pharmaceuticals, who rely on university and government subsidized research, does nothing but wait around for the basic research and the unprofitable costs to be covered by government.
For example, if the private sector spent money on welfare it would loose profit or income, but the poor person would continue living and add to a country's costs. Eventually the poor person who is educated might contribute to society and part of the income would need to be ascribed to the welfare provided by the private sector. Since firms don't do welfare much, nor even sustain pensions, the market valuation of growth by the private sector is markedly exaggerated.
This is only the tip of the ice berg for the lack of growth that would follow a shut down of government. There would be so little shared research that few firms would compete and negative grow might actually follow. Th Marxist prediction of zero profit would most certainly follow because without invention and sharing of information nothing new would happen. The autos would be like Russian Soviet era cars without design. Since the government supports the R and D of the military sector, the leadership of hat sector would be lost and the private sector would get even less of spin offs such as new materials and things like lasers. We would not see iPads.
But, there is no ideal method for valuing growth. The present GDP exaggerates the contribution of the private sector while understating that of the government sector. The system of measurement proposed by the writer for Money Morning below would exaggerate the growth contribution of the private sector beyond belief!
Read, and then give your view!
http://moneymorning.com/2011/08/23/gdp-lie-time-for-new-measure-of-economic-growth/
Twitter: @wuhlax
