A Triumph for Supply-side “Austrian” Economics and Say’s Law

The almost total inability of economists of the mainstream to make sense of the macroeconomy is because they look only at final demand. To them, the rest of the economy is a black box about which they know next to nothing. And emphasising how little they even understand about what they need to know, the most important statistic for the past seventy years has been the national accounts which measures how much final output is produced. It is why there are still economists who think that our economy is 60% consumption, when that part of the economy is around 5% at best. The rest is that vast hinterland of productive efforts that move resources from the ground and the forest through various stages of processing to the distributors and then, but only then, to retail outlets for final sale. The man who has done the work of Hercules in overturning this shallow and narrow approach is Mark Skousen. Do you wish to know more about this approach and how better to understand how an economy works, this is the go-to book, now released in its third edition. The title of this blog post is also the title on his own press release, so for a change it’s not just me.

Mark Skousen, The Structure of Production. New York University Press

Third revised edition, 2015, 402 pages. $26 paperback. Available on Kindle.

From the cover:

In 2014, the U. S. government adopted a new quarterly statistic called gross output (GO), the most significance advance in national income accounting since gross domestic product (GDP) was developed in the 1940s. The announcement comes as a triumph for Mark Skousen, who advocated GO twenty-five years ago as an essential macroeconomic tool and a better way to measure the economy and the business cycle. Now it has become an official statistic issued quarterly by the Bureau of Economic Analysis at the U. S. Department of Commerce.

To buy the book: NYU, Amazon
Quarterly data for Gross Output can be found at the BEA site here.
For Skousen’s latest quarterly report on GO, see this.

Since the announcement, Gross Output has been the subject of editorials in the Wall Street Journal, Barron’s, and other financial publications, and is now being adopted in leading economics textbooks, such as Roger Leroy Miller’s new 18th edition of Economics Today. Economists are now producing GO data for other countries, including the UK and Argentina.

In this third printing of Structure of Production, Skousen shows why GO is a more accurate and comprehensive measure of the economy because it includes business-to-business (B2B) transactions that move the supply chain along to final use. (GDP measures the value of finished goods and services only, and omits most B2B activity.) GO is an attempt to measure spending at all stages of production.

As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in “A New Architecture for the U. S. National Accounts,” “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen concludes, “Gross Output fills in a big piece of the macroeconomic puzzle. It establishes the proper balance between production and consumption, between the ‘make’ and the ‘use’ economy, between aggregate supply and aggregate demand. And it is more consistent with growth and business cycle theory. Because GO attempts to measure all stages of production (known as Hayek’s triangle), it is a monumental triumph in supply-side ‘Austrian’ economics and Say’s law.”

Using GO, Skousen demonstrates that consumer spending does not account for two-thirds of the economy, as is often reported in the financial media, but is really only 30-40% of total economic activity. Business spending (B2B) is over 50% of the economy, and thus is far larger and more important than consumer spending, more consistent with economic growth theory, and a better measure of the business cycle. (See chart below.)

About the Author

MARK SKOUSEN is a Presidential Fellow at Chapman University in California. He has taught economics and finance at Columbia Business School, and is a former economic analyst for the Central Intelligence Agency. He received his Ph. D. in economics at George Washington University (1977). He is the editor-in-chief of the investment newsletter Forecasts & Strategies, and author of several books, including The Making of Modern Economics.

Reviews

“Now, it’s official. With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure. How did this counter revolution come about? There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen’s book The Structure of Production, which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.” — Steve H. Hanke, Johns Hopkins University (2014)

“This is a great leap forward in national accounting. Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy.” –Steve Forbes, Forbes magazine (2014)

“Skousen’s Structure of Production should be a required text at our leading universities.” (referring to second edition) –John O. Whitney, Emeritus Professor in Management Practice, Columbia University

“Monumental. I’ve read it twice!” (referring to first edition, published in 1990) — Peter F. Drucker, Clermont Graduate University

“I am enormously impressed with the car and integrity which Skousen has accomplished his work.” — Israel Kirzner, New York University

Anonymity on the net

I don’t often find myself disagreeing with Mark Steyn about things, but on this one I am completely on the other side. I will let Mark present his case:

Kathy Shaidle and Gavin McInnes have been discussing online anonymity. I agree with them. You’re not in the battle unless you put your name to it – and don’t give me that Scarlet Pimpernel stuff: you’re not riding out after dark on daring missions, you’re just reTweeting some bloke’s hashtag.

Mr McInnes is withering about the cyber-warrior ethos – the butch pseudonym, the graphic-novel avatar. But, cumulatively, it’s making the Internet boring and ineffectual for everyone other than Isis. Speaking of which, notice how few of their followers have reservations about enthusiastically liking and favoriting and reTweeting their Islamic snuff videos, apparently indifferent as to whether Twitter, Facebook or the NSA know their IP numbers.

Let me say that I am sensationally grateful when people take on serious anti-PC issues and use their own names. It is crucial that someone like Andrew Bolt is identifiable and that their blogs, columns and media presentations allow those of us in more vulnerable positions to see these views presented in public. It is important for each of us to understand that we are not alone. We are not at the samizdat stage of our cultural development but we’re not that far away either. The police will not come for you in the middle of the night, and you are very unlikely to be shot down in the street by those who disagree with your views. But for all that, there are large risks for which there is no compensation to any of us in being identified as holding unpopular opinions. With the left, they will come after you to deprive you of your job and your income, and for them, there will be no holds barred. They are not debaters, they are haters. They want to shut you up and they have no qualms about it. There is no value to them in free speech and open debate. They are totalitarians who value nothing but their collective power which they ruthlessly use to do harm to others who step outside their predetermined bounds of acceptable opinion. No one on the left is permitted to be heretical on so much as even a single oissue. You are either all in or you are out.

Think about the testimony offered by Laura Rosen Cohen, who runs a blog I admire, in which she describes the kind of reality most of us are not prepared for. First she writes this:

Having written professionally for a number of years, I also blogged anonymously.

I was scared that I would be harassed at work (or worse) for having “controversial” opinions. So, I published a lot of articles in “mainstream” publications under my own name, and saved my more raucous, obnoxious, super-Jewy stuff for my anonymous blog.

Then, some evil, anonymous and cowardly twerp, sitting at a computer somewhere in the world made a comment on my blog that was mildly threatening. An ‘I know who you are’ kind of thing, kind of threatening to ‘expose’ me. It freaked me out, despite the fact that I was becoming less and less comfortable with anonymity.

Shortly after that, Andrew Breitbart died suddenly of a heart attack. I remember the exact moment when I read about his death and decided right then and there that I was not going to be scared anymore of putting my own name to everything I write. Within a week or so, I had closed the anonymous blog, and started a brand new one with my own name on the masthead, front and centre.

That was also my way of telling that anonymous troll to shove it up his (or her-who knows) ass.

As Gavin, Kathy and Mark say-if you don’t put your name on it, you have no skin in the game.

Excellent. Brave. Forthright. But after all that comes this immediately after:

I have been passed over for many opportunities because my views are not mainstream. I’ve been eased out of jobs, rejected for others, and even asked off-record questions at interviews about my ability to “get along” with ‘people of diverse backgrounds’.

So you see, free speech of unpopular opinions – meaning opinions that are unpopular on the left – is not so free after all, but comes with a huge potential cost. The anonymity of the net allows many of us to say things in public that we are very aware may have us receiving modern versions of being burned at the stake or sent to the gulag. The same people who will sniff at the Catholic Church for arresting Galileo and preventing him from repeating that the sun was at the centre of the solar system are now prepared to jail people who are sceptical about global warming. There are some people who have made a career out of expressing unpopular opinions (of which there are literally none on the left), and I say again how grateful to them I am. But the dangers remain to us folk in the trenches who do not have fame and position to protect us. Anonymity is crucial for many of us and should be protected at all costs by everyone on the net.

The stupidest generation in history that has brought down the Western world, that’s who they are

st sophia

There is an article posted at Powerline from National Review in 1967 with the title, Who are the Hippies? Having been one amongst them, I know only too well who they are. They are the same people, now all grown up, who have opened up Europe to a barbarian horde that Europeans had been able to keep out for 1500 years. They are the idiot last generation of a Europe of Europeans. Next time you go to Europe, drop by St Sophia in Constantinople Istanbul to see the future of Notre Dame.

As to the article, I was personally more New Left than Hippy but I was both. If anyone has ever repudiated an earlier incarnation of themselves, that person is me. But I have also always thought that if there had to be such a time and place, I was glad to have been part of it, for no other reason than just because. The article – and you must keep in mind that this is from the famously right-wing National Review – compared these people to a second century small Christian sect known as the “Adamites”. This really is how they were portrayed, and this is not intended to show what a dangerous and unworldly crew of dimwits they were, but to criticise them for their misunderstanding of the proper ethos of love. If you don’t believe me, read the article from which these come.

1. A sense of primal innocence, without “knowledge of good and evil.”
2. Antinomianism, rejection, in principle, if not always in practice, of all restrictive law imposed from the “outside.”
3. Hostility to all authority, as in fringing upon their paradisal freedom.
4. Pacifism, since there can be no hurt in Paradise.
5. Sexual freedom, and no sense of shame, like Adam and Eve in Paradise.
6. Community of goods.
7. Free-floating fantasy-thinking: impatience with critical thinking as the product of man’s fall.
8. Emotional self-indulgence: resentment at demands for inner restraint and emotional self-discipline.
9. A comprehensive cult of love, as appropriate to the sinless life in Paradise.

For myself, I was there because I was genuinely unsure how I should lead my life. I was not prepared to embark on a career unless I felt those early steps were in the direction I truly wished to travel. If you were there then, the one thing that was open to all was a marriage, job and family, more or less as a carbon copy of the generation that came before. I now know that there is little else to life, but it looked too easy for those of us there at the time. The result has been that every possible obstacle has been placed in the way of each of these by a society that seems to have a death wish. What looked easy in 1967 now feels difficult beyond imagination.

The ABC wing of the Liberal Party

It used to be my view that it was the Senate that was the largest obstacle to getting things done, but now I can see that the ABC-wing of the Liberal Party played its fair share as well.

How much internal infighting did Tony Abbott have to put up with? He says today that his legacy is the key to a future Coalition win at the next election, so obviously true that only someone as narcissistic as the PM could deny it. But the scale of things, large and small, that Abbott had a fight on his hands over, on issues that ought to have been obvious and uncontroversial within his own side, is shown by the story right next to the one on Abbott: Tony’s Demise Opens Door to UN Top Job for Rudd. The idea of Kevin as Secretary General of the United Nations is such an idiocy, that only because we know that the PM and Mark Scott are ideological identical twins that we have no doubts about what the policy was and how it has now been changed. No doubt there is much more we will find out in the days to come, along with much else we will never hear a word about as Tony’s legacy is undermined bit by bit as best they can.

Not the six o’clock news

The world changing right in front of us but virtually none of it will be mentioned in any heated way by our journalist class. This is from Drudge:

EU chief fears union will collapse…
Migrant stream shows no sign of slowdown…
Rape, child abuse ‘rife in German refugee camps’…
Poll: Most U.S. Muslims would trade Constitution for Shariah
Dem mayors ask Obama for more refugees…

It is the first story that is the oddest. It begins:

THE European Union has lost control of its borders and risks total collapse if they are not sealed, a senior Brussels diplomat has warned.

Donald Tusk, president of the European Council, warned the EU was now facing a “critical point” and that the migrant crisis hadn’t even reached its peak.

As he chaired an emergency meeting of EU leaders in Brussels last night Mr Tusk painted a bleak picture of the EU’s future, saying the 28-member bloc was on the verge of breakdown with “recriminations and misunderstanding” pitting nations against one another.

The future of free movement was at stake, he said, as the continent had lost control of its borders as well as a “sense of order”.

He added: “The most urgent question we should ask ourselves…is how to regain control of our external borders.

“Otherwise, it doesn’t make sense to even speak about common migration policy.”

He appeared to lay much of the blame with Germany, accusing Chancellor Angela Merkel of exacerbating the problem by sending the signal to desperate Syrians fleeing their war-torn homeland that Germany had no limit on the number of migrants it would accept.

It’s not “the EU” that is on the point of collapse but European civilisation. The narrowness of the perspective is what gets me, not to mention the madness of Merkel’s policy of open borders. Do they have any idea at all what they are doing?

These people are idiots

Look, the Government has finally cut some of its spending: Greg Hunt says he killed off Tony Abbott’s weather bureau inquiry.

Environment Minister Greg Hunt (1) has claimed responsibility for having “killed off” the Abbott government’s proposed investigation into the Bureau of Meteorology’s climate modelling, as he (2) also stepped back from plans to erode green activists’ legal standing to challenge major projects.

The weather bureau has sustained heavy criticism over its “homogenisation” of climate records to account for artificial changes in the environment, such as rapid urbanisation, that critics say has exaggerated the impact of global warming.

Documents obtained under Freedom of Information have revealed Tony Abbott’s department last year canvassed establishing a taskforce to carry out “due diligence” on the bureau’s climate records to ensure public confidence following a series of critical articles in The Australian.

Mr Hunt confirmed the question was raised with his department by Mr Abbott’s officials.

“My answer was very clear: we have perhaps the best or one of the best meteorological organisations in the world. I have full confidence in their data and the idea was killed at that point,” the Environment Minister told the ABC’s Lateline program.

This business about the weather bureau being one of the best in the world may even be true, which is all the more reason not only for us to have gone and looked but for others to look as well.

Two articles on immigration

As everyone knows, open borders leads to a more harmonious happier more contented and prosperous world. Here are two articles published today that you might therefore read to confirm your views on how bizarre those who oppose immigration are. One is from the US by Ann Coulter. The second is from Australia by Peter Baldwin.

First Ann, whose article is titled, Useless Idiots. You’ll have to read the article for yourself to see who she means, but she really does go over the top.

The second is titled, Migrant crisis: Europe must close borders to refugee influx. An obvious hysteric with no credibility. You’ll again have to read the article for yourself to see just how off the planet he is.

AND LET ME JUST ADD THIS: Of course I’m a migrant and so the last thing in the world I would be against is migration. I was, however, amongst that first tranche in 1975 who needed a migrant’s visa to move to Australia from Canada. This entailed an embassy official to come down to Toronto from Ottawa for an hour-long interview to which he brought a professor of economics from the University of Toronto to ensure themselves that I was up to the mark for teaching at the College in Bendigo. This is what I understand about migration. The country decides on who comes and who does not, and they also decide on how many in any given year, and they ensure as best they can that the migrant is likely to become a productive member of the community. However, what I do not accept is people just wandering in as they please where the host country does no sorting and assessing. That I don’t get, which is why I was very keen to ensure that the boats were stopped, as was most of the country. These are not fine distinctions, but the very minimum requirement if we are to remain a nation state in a world of other nation states.

YOU CAN NOW ADD A THIRD ARTICLE TO THE TWO ABOVE: This is from that nitwit Mark Steyn who never quits talking about migration and demographics. This one is called The Emperor’s Moral Narcissism which even comes with a photo showing a crowd of sensible people holding up a sign reading “Refugees Welcome”.

The Enlightenment and everything the Left claims to value is unquestionably on the line

It is probably too late to do anything about it, but this is an article of astonishing insight and depth. I agree with everything he says and I have seldom seen it said better: Migrant crisis: Europe must close borders to refugee influx. The sub-head in the actual paper reads: “A flood of Muslims into the continent could lead to civilisational catastrophe”. There is no could about it, and it is probably already too late. The article is by Peter Baldwin, a Minister in the Hawke and Keating governments, that is, a Minister when Labor was still reasonably sane. There is no single best bit, but this gives you some of what is said. You should read it all.

Any suggestion there might be any problem intrinsic to Islam has to be made with extreme care to avoid being accused of “Islamophobia”, an ill-defined term that is routinely conflated with racism. The penalties for transgressions in this area can be severe and may become more so — before Britain’s general election this year Labour leader Ed Miliband undertook to make Islamophobia an aggravated offence.

A realistic debate needs to acknowledge that Islam is not a race but a belief system, with tenets that many of its followers take extremely seriously. Key among those tenets is the requirement Muslims fight to make Islam dominant over other creeds and belief systems, the latter to survive only with an acknowledged subordinate status.

Islam does not recognise separate civil and religious spheres. The modern notion of diversity is ­utterly foreign to it, at least in the sense of different belief systems coexisting as equals. How many, if any, of the several score Muslim-majority countries grant genuine civil and religious liberty and equality to non-Muslims? How many more severely persecute followers of other belief systems? Anyone who asks what this would mean for Europe’s Judaeo-Christian tradition is branded a right-wing nativist, but the Enlightenment and everything the Left claims to value is on the line too.

There is such visceral hatred on the left, built out of massive levels of ill-will, envy and bile that there truly is a wish to pull our civilisation down found across left-side parties everywhere. Anyone who loves our way of life, with its openness, freedom and prosperity, long ago abandoned the left side of politics, who are now perfectly represented by Barack Obama.

This is what we are told so you have to wonder what the real story is

Millions of people heading for Europe with no European language skills, and possibly no marketable skills of any kind, and listen to how the President of Hungary reacts:

Hungarian prime minister Viktor Orbán warned European life and its established laws were under threat from huge numbers of people heading through the continent from war-torn states in the Middle East.

In a defence against criticism of the aggressive stance against refugees taken by the country , he said yesterday: “Our borders are in danger. Our way of life where we respect the law is in danger.

“The whole of Hungary and Europe is in danger.

“The migrants are blitzing us.”

Hungary and Serbia have constantly been at each others’ throats over the issue, with Budapest urging its non-EU neighbours to do more to help tackle the growing neighbours migrants.

It is now sending troops armed with rubber bullets and tear gas to the border with Serbia to protect the country’s frontier.

Pinter Bence, a Hungarian political journalist for the mandiner.hu website said the situation with growing tensions between nations was reminiscent of the international scenario from just over 100 years ago.

Leaders who don’t love the countries they lead are becoming more common. The darkness of this century may yet overwhelm what we experienced in the last one.

There are alternatives and we will find them

I am still unable to read The Australian in the morning with all the happy news about our new Prime Minister. The fact is, I don’t see it that way at all. I look at our new Prime Minister as a shallow lightweight whose only merit is that he leads a Coalition with the 44 of good sense plus the Nationals. If he decides to lead the Labor Party against the will of people like me, he will find himself the preferred PM only among people who will never vote for the party he leads. The alerts from Andrew Bolt today about how potentially disastrous the government Malcolm is leading may turn out to be. Here are the examples he lists. You should go to the links to see the full stories:

1) Green rentseekers get sniff of Turnbull cash:

Environment Minister Greg Hunt says the renewables industry should feel “very supported” under Prime Minister Malcolm Turnbull, after they complained of investment instability fuelled by Tony Abbott’s hostility towards the sector.

Mr Hunt has also said he would seek ways for Australia to “do more” on climate change with Mr Turnbull after the United Nations conference in Paris, and said the appointment of five new members of the Climate Change Authority board was delayed by the leadership spill.

The former prime minister was frequently scathing of wind turbines and the renewable energy target…

In a change of tack, Mr Hunt told The Australian Financial Review, “I think [the renewables industry] should feel that with myself, Malcolm Turnbull and Josh Frydenberg, they will be in a very, very supportive environment.” …

Mr Hunt also revealed he was about to appoint five new members to the Climate Change Authority board before last week’s leadership change delayed the decision…

“Malcolm is passionate about the global climate challenge, and I am passionate about it.”

2) ABC wants reward for backing Turnbull:

The ABC is hopeful the installation of Malcolm Turnbull as Prime Minister will allow it to claw back some of the $250 million slashed from the broadcaster last year as tension between the government and broadcaster cools off.

The shift from Tony Abbott to Mr Turnbull represents a change at the top of the government from one of the Coalition’s biggest critics of the ABC to one of its biggest supporters.

“There will be no more culture wars,” a Liberal source said, flagging an end to the open hostilities between the government and the ABC during recent times.

3) Credlin’s critics can’t hurt her like she can now hurt them. So back off:

Liberal MPs have warned that ongoing commentary from Peta Credlin about her time as the former­ prime minister’s chief of staff risks triggering a bitter “slanging match” and disclosure of negative stories about her conduct in the job.

Ms Credlin vented her frustration at what she believed were the unhelpful feminine stereotypes in which she had been characterised as chief of staff to Tony Abbott at an event hosted by The Australian Women’s Weekly on Tuesday night. Some Liberal MPs took issue yesterday with a statement in which she noted the role she played in engineering the ­Coalition victory in 2013.

They warned that she was just as responsible for leading the government “into oblivion” and questioned why she did not do more to elevate women in the Abbott government…

North Queensland MP Warren Entsch warned Ms Credlin against playing a spoiling role following the departure­ of Mr Abbott and raised the prospect of retribution against her.

4) African and Arab media report Turnbull softer on border policies:

New Prime Minister Malcolm Turnbull said on Wednesday he was concerned about the plight of asylum seekers in Australia’s offshore detention centres, and hinted at changes to the policy of his predecessor Tony Abbott…

Abbott’s “stop the boats” policy was criticised for being too hardline, but also touted as one of the successes of his administration.

In an interview with Sky News on his ninth day in office after ousting Abbott, Turnbull acknowledged the detention policy was “controversial”.

“I have the same concerns about the situation of people on Manus and Nauru … as I think all Australians do,” Turnbull said.

“All policies change, but when we do make changes we will do so in a considered way and they will be made by the minister, myself [and] the cabinet.”

5) Turnbull has to cut this waffle:

He pauses, he stutters, he umms and he ahhs. Hesitant moments as his hands wave meaninglessly in the air; awkward body shifts and gestures attempt to make up for the lack of substantive comment. No, it’s not Tony Abbott on a bad day: it’s Malcolm Turnbull. Not since Kevin Rudd last graced our TV screens have we had a prime minister who a) has so many words to deploy and b) has so little to say with them.

6) Turnbull gets credit for Abbott’s domestic violence package because he’s more enlightened, you see:

In fact, Abbott had already decried the rate of family violence deaths, put the issue on the national agenda, raised it with the Commonwealth heads of government meeting, appointed an inquiry and put together this very package, which he was due to release in the week he was toppled.

7) Fairfax still reports falsehoods on the Prime Minister, but not yet to destroy:

Now that Malcolm Turnbull is prime minister, Fairfax political writers still write false stories – but as yet not with hostile intent.

Malcolm, you will also not be able to fix the economy without really annoying all of your latest fans who think public spending only enriches us. That, unfortunately, is how I think you think. No apology for and criticism of the NBN you oversaw convinced me your economics is no deeper than a first year Keynesian economics text.