Friday, May 23, 2014

The Keynesians are Going to Hate This...

This past April 25th, an important development in the economics profession occured when the Bureau of Economic Affairs adopted a new statistical measure of economic activity.  This measure, known as Gross Output, represents an important new tool in determining macro-level economic activity.  But more importantly, at least from the perspective of OLS, it represents a major blow for reality since it's also a huge blow against the Keynesian economic worldview that has dominated US politico-economic policy for at least the last 20 years.  One of the major players in supporting this important new concept is Mark Skousen, an economist from the Austrian School of thought and a fellow at Chapman University.  Skousen had a nice article, written in laymen's terms, in the WSJ a few weeks back from which this excerpt is taken:
Why pay attention to gross output? For starters, research I published in 1990 shows it does a better job of measuring total economic activity. GDP is a useful measure of a country's standard of living and economic growth. But its focus on final output omits intermediate production and as a result creates much mischief in our understanding of how the economy works. 
In particular, it has led to the misguided Keynesian notion that consumer and government spending drive the economy rather than saving, business investment, technology and entrepreneurship.
This is potentially a very important development in economics and Skousen should be applauded for his efforts!