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Robert Higgs discovers Y = C + I – G + NX

Robert Higgs wants to re-write the GDP formula from Y = C + I +G + NX to a much more realistic Y = C + I – G + NX, where government is viewed as a liability and a negative contributor to the GDP calculation.

It was only a matter of time before someone noticed that changing the GDP calculation from Y = C + I + G + NX to Y = C + I – G + NX solves a whole lot of calculation problems on the cheap and makes a powerful statement, post Keynesian world.

Congratulations.

I have been writing about making this change for years.

The faster economists that push for this indefinably small but philosophically huge change in how nations calculated GDP the sooner we can get away from the insane notion that government contributes to the economy. So for me this is a good day, thank you Robert Higgs.

Before anyone thinks I came up with this idea it was Murray Rothbard that, to my knowledge, first understood the compete absurdity of the GDP equation as it is today. Rothbard is and always will be head and shoulders above the rest of us.

Here is Higgs blog as it appeared in Ludwig von Mises:

In the 1930s and 1940s, when the modern system of national income and product accounts (NIPA) was being developed, the scope of national product was a hotly debated issue. No issue stirred more debate than the question, Should government product be included in gross product? Simon Kuznets (Nobel laureate in economic sciences, 1971), the most important American contributor to the development of the accounts, had major reservations about including all government purchases in national product. Over the years, others have elaborated on these reasons and adduced others.

Why should government product be excluded? First, the government’s activities may be viewed as giving rise to intermediate, rather than final products, even if the government provides such valuable services as enforcement of private property rights and settlement of disputes. Second, because most government services are not sold in markets, they have no market-determined prices to be used in calculating their total value to those who benefit from them. Third, because many government services arise from political, rather than economic motives and institutions, some of them may have little or no value. Indeed, some commentators—including the present writer—ultimately went so far as to assert that some government services have negative value: given a choice, the people victimized by these “services” would be willing to pay to be rid of them.

Rest of blog here.

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