Dr. Mark Skousen of Chapman University has accomplished a rare achievement in economics: he has created an alternative to GDP and persuaded the Bureau of Economic Analysis to track and report it along with GDP. The theoretical foundations of Gross Ouput (GO) were laid down in Skousen’s book, The Structure of Production and those themes were extended and expounded in his innovative textbook, Economic Logic. GO (which Skousen originally christened GDO, Gross Domestic Output) addresses the paradox of economics which rely on GDP, the paradox that most economic activity is hidden away, absorbed and embedded in GDP, the flattened final layer of the economic process. Our mutual friend Steve Forbes likes to say that GDP is an X-ray but GO is a CAT scan. That’s an apt analogy. Modern medical imaging is based on the recreation of 3D representations by capturing images in “slices” and then reconstructing the full organ on the computer. I recently had a session with my cardiologist, Dr. Arthur Agatston, inventor of the Agatston Score which measure calcification of arteries based on a CT scan. We went through the image 3 mm slice by 3 mm slice to see exactly what was going on. And he was able to show, and I was able to see, so much more than a single slice or a single statistic could. (Don’t worry, what we found was good news).
GO lets us go through the economy slice by slice and see where blockages or irregularities might be appearing. It shows us the whole economy, which it turns out is mostly found in business production, not in final consumption. Now one might argue, and some have, that GDP captures all the value, i.e. all the prior stages of production are represented in the final purchase. That the car I buy contains all the value created in all the stage before from the mind of iron ore, to the production of steel, components, assembly, transport. Yes, that’s true, but it misses the point. People work in mining, refining, manufacturing, assembly and transportation. Companies perform these functions and (hopefully) generate profits doing so. To flatten all of it into one final phase is to miss the actual story, because the nature of stories is that they unfold in time. Narrative is temporal. Economics is temporal. GDP is one frozen captured moment.
And one of the advantages of reading the story as story is that we have a better chance to anticipate the next chapter. GO leads GDP. Production comes before consumption. (My wonderful mentor, the late Dr. Kurt Rethwisch of Duquesne University used to say, “There is only one place where consumption comes before production – the dictionary!”) Gross Output with the government and the final stages of private consumption stripped out leaves us with the supply chain. There’s a lot of insight there. Business is more agile than the consumer, and varies production more than we vary consumption. Supply chain managers have a lot of skin in the game if they build too few, or too many, widgets. Yes, they can get it wrong, but in general, they tend to get the direction right, which means that business activity now correlates with GDP later.
Skousen and I recently sat across a Zoom connection to discuss GO and Say’s Law and other matters of economic theory and analysis. But we also talked about his own business venture, FreedomFest. FreedomFest is the largest gathering of freedom-oriented folks in the world. It happens every year in July and has been doing so for more than a dozen years. It’s aimed at an intellectually curious non-academics audience. It offers a rich variety of topics, not just economics and politics, but philosophy, health, leadership, and (with me speaking about my book about Jesus and economics) some theology as well.
If you prefer to watch, you may do so here: Mark Skousen on the Whole Economy and on FreedomFest - YouTube
Time cues are below:
0:00 – Intro
1:59 – Where does FreedomFest come from?
5:20 – The Anthem Film Festival
8:15 – Why FreedomFest goes to Las Vegas and South Dakota
11:23 – Bringing intellectual speakers to FreedomFest
15:15 – FreedomFest Debates
18:49 – Signing up for FreedomFest
19:31 – A festival for attendees, not donors.
20:23 – The Structure of Production
22:00 – The Economics of Profit and Loss
24:03 – Say’s law
29:00 – What Seattle’s success says about Say’s law.
33:35 – Consumer spending and gross output.
45:17 – Gross Output versus GDP
48:09 – Inaccuracies of consumer confidence
51:38 - Predicting GO