Should Government Spending Count as GDP?
When we cut government waste, end useless wars, or deport welfare-case illegals, government statistics count it as making us poor.
Which is retarded.
Last Sunday Commerce Secretary Harold Lutnick told Maria Bartiromo the Commerce Department — who produces most government statistics — will start counting GDP breaking out government spending.
Last week Elon Musk posted that government spending shouldn't be included in GDP at all because "you could shift everyone who is building cars to working at the DMV and GDP would appear the same."
Musk is right. In fact, it could go up.
Because GDP counts output -- the market price of the car.
But for government there is no output with a market price. So, instead, government statisticians just add up the salaries and other costs.
That means you could close every car factory in America, give them high-paid government jobs looking out the window, and your GDP goes up.
How GDP is Calculated
So in theory GDP counts the value of all final goods and services produced in a country.
Most people use this is a stand-in for prosperity. As in if GDP is rising we're getting rich, if it's falling we're in bad shape.
If it goes down for 6 months in a row -- 2 quarters -- it's the classic definition of a recession. Which people interpret as getting poor fast.
That's basically true for the private sector -- rising GDP means more production, which makes us rich. With the caveat that lots of valuable things aren't in GDP because they're not paid, like raising kids.
GDP and Government Spending
But when it comes to the government GDP falls apart.
Partly for the above reason that GDP counts government spending instead of output.
But there’s a second reason: What government does produce is so bad.
Wars in Afghanistan, of course.
But consider public schools in Chicago. They spend $28,702 per student -- a princely sum. Yet just 22% of Chicago 11th graders are "proficient" at reading. Just 18% are proficient in math.
So you could make a very good case that Chicago school GDP isn't producing anything.
In fact, you could argue it's subtracting. It's a machine for turning perfectly good kids into illiterates, and perfectly good school buildings into day prisons.
It gets worse. Because remember every dollar government spends it had to take first.
Meaning it's not production. It's redistribution. Just like if a thief stole it.
So theft creates wealth when government's keeping the score.
We don’t count robbery as doubling the money. And we shouldn’t when the robber works for the IRS.
What’s the Solution?
Milton Friedman suggested radically discounting government spending both for the low quality and for the redistribution.
Murray Rothbard wanted to fully exclude government from GDP since its coerced redistribution.
Or even count it negative by including the deadweight costs of the taxes, inflation, and debt it took to finance it.
This matters politically because it can hide a real recession with government spending.
For example, under Joe Biden government grew 3 times faster than the economy, accounting for nearly half of GDP growth.
Given population grew faster than that, it means Biden was a 4 year recession for everything but the federal government. Which helps explain the November election.
It's even more important for what's coming next.
Because if DOGE cuts -- or ending wars -- slashes government, this makes us rich -- less waste, less inflation and debt. But under current GDP definition all that wealth will show up as a paper recession that left-wing media will pounce on like a banker on a bailout.
We can still tally government spending, if only to know how much they’re wasting. But the real economy that pays the bills should be front-and-center. And that means reporting without government.
.
Every week I write an article on a top story in Economics and Freedom.
Subscribe for free to get it by email. Or choose $5 a month to help keep the lights on.
Also check out my weekly podcast that rounds up all the week’s videos with interviews of key figures in liberty.
And you can see my daily videos on economics and freedom, posted on:
It’s actually worse than that.
Government takes money from the actual producers of value and then spends it unwisely. They lower effective GDP and then make it harder for the producers to recoup the loss.
This is functionally the same as saying your household is magically richer by giving your kids an allowance.
And yes, I know it’s an accounting principle that makes government spending be recorded as a positive value. But that doesn’t mean it’s the actual value.
This is a perfect example of why a DOGE is needed, to offset the funny money and "creative" accounting politicians luv to use in defrauding Americans.