Wednesday, July 11, 2012

Net Domestic Product


I don't know when to start or when to stop
My luck's like a button
I can't stop pushing it
--General Public

Rothbard discusses the fallacy of viewing the 'public sector' as a legitimate economic producer. He observes, as have we, that aggregate measures of output that include government spending do not accurately reflect what citizens value. Citizens value what they voluntarily purchase.

Government spending is not grounded in voluntary consumer behavior because government spends what it takes by force.

Moreover, as Rothbard observes, government may then spend those resources on outcomes that have no value in the eyes of citizens whatsoever. Insert Garrett's brilliant pyramid analogy here.

A more accurate measure of voluntary consumer spending in the aggregate would be obtained by netting out government spendings from GDP. This 'net domestic product' (NDP) would better reflect what citizens truly value when guns aren't pointed at their heads.

An interesting exercise would be to back calculate NDP for past years and observe the true value of output voluntarily purchased by US citizens.

Because the higher the government spending, the lower the NDP, a couple of things would likely become apparent. One is that standard of living has not been rising nearly as much as reflected by GDP. The other is what could have been had that fraction of national income remained in the hands of the citizenry.

1 comment:

dgeorge12358 said...

Formerly government was the responsibility of people; now people were the responsibility of government.
~Garet Garrett