Gross output

Last updated

In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services in an accounting period. It is a much broader measure of the economy than gross domestic product (GDP), which is limited mainly to final output (finished goods and services). As of first-quarter 2019, the Bureau of Economic Analysis estimated gross output in the United States to be $37.2 trillion, compared to $21.1 trillion for GDP.

Contents

GO is defined by the Bureau of Economic Analysis (BEA) as "a measure of an industry's sales or receipts, which can include sales to final users in the economy (GDP) or sales to other industries (intermediate inputs). Gross output can also be measured as the sum of an industry's value added and intermediate inputs." [1]

It is equal to the value of net output or GDP (also known as gross value added) plus intermediate consumption.

Gross output represents, roughly speaking, the total value of sales by producing enterprises (their turnover) in an accounting period (e.g. a quarter or a year), before subtracting the value of intermediate goods used up in production.

Starting in April 2014, the BEA began publishing gross output and gross output-by-industry on a quarterly basis, along with GDP. [2]

Economists regard GO and GDP as complementary aggregate measures of the economy. Many analysts view GO as a more comprehensive way to analyze the economy and the business cycle. "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." [3]

Historical background

In his work, The Purchasing Power of Money: Its Determination and Relation to Credit, Interest, and Crises (1911, 1920), Yale professor Irving Fisher introduced a theoretical measure of "volume of trade" with his equation of exchange: MV = PT, where PT measured the "volume of trade" in the economy at a specified time. [4]

In 1931, Friedrich A. Hayek, the Austrian economist at the London School of Economics, created a diagram known as Hayek's triangles as a theoretical measure of the stages of production. [5] Hayek's triangles formed the basis of gross output, before GNP or GDP were invented. However, Hayek's work was strictly theoretical, and no attempt was developed to statistically measure gross output.

Simon Kuznets, a Russian American economist at the University of Pennsylvania, did breakthrough work in the 1930s in measuring national income, "the size of the final net product." He defined net product as follows: "If all the commodities produced and all the direct services rendered during the year are added to their market value, and from the resulting total we subtract the value of that part of the nation's stock of goods that was expended (both as raw materials and as capital equipment) in producing this total, then the remainder constitutes the net product of the national economy of the year." [6] Thus, net product focused on final output only, and excluded business-to-business (B2B) transactions in the supply chain. He expanded his "net output" data to measure Gross National Product (GNP) starting in 1942. [7]

Following the Bretton Woods Agreement in 1946, GNP became the standard measure of economic growth. Wassily Leontief, a Russian American economist at Harvard University, followed with the development of the first input-output tables, which he regarded as a better survey of the whole economy. I-O accounts require examining the "intervening steps" between inputs and outputs in the production process, "a complex series of transactions…among real people" [8]

I-O data created the first estimates of gross output. However, Leontief did not emphasize GO as an important macroeconomic tool. He focused on gross output-by-industry, i.e., the inner-workings between industries, not the aggregate GO. The BEA began publishing GO data on an annual basis in the early 1990s, and was not updated on a quarterly basis until 2014. BEA director J. Steven Landefeld spearheaded the effort to bring gross output and gross output-by-industry up to date and released quarterly.

Mark Skousen introduced gross output as an essential macroeconomic tool in his work, The Structure of Production in 1990; [9] see also Mark Skousen, "At Last, a Better Economic Measure", Wall Street Journal (April 23, 2014). [10] According to Skousen, GO demonstrates that business spending is significantly larger than consumer spending in the economy, and tends to be more volatile than GDP. Earlier-stage and intermediate inputs in GO may also be helpful in forecasting the direction of economic growth. He contends that gross output should be the starting point of national income accounting, and offers a more complete picture of the macro economy. GO can be integrated into macroeconomic analysis and textbook economics, and is more consistent with leading indicators and other macroeconomic data. He makes the case that GO and GDP complement each other as macroeconomic tools and that both should play a vital role in national accounting statistics, much like top line and bottom line accounting are employed to providing a complete picture of quarterly earnings reports of publicly-traded companies.

Controversies

Economists have praised and criticized gross output. They include David Colander, [11] followed by a rejoinder by Mark Skousen, [12] Steve Hanke, [13] Gene Epstein [14] and Steve Forbes [15]

Skousen has also criticized the BEA's measure of gross output for failing to include a measure of total gross sales at the wholesale and retail level, amounting to more than $7.6 trillion of business spending (B2B) in 2014. [16]

See also

Notes and references

  1. ↑ "What is gross output by industry and how does it differ from gross domestic product by industry?".
  2. ↑ Analysis, US Department of Commerce, BEA, Bureau of Economic. "Bureau of Economic Analysis". www.bea.gov. Archived from the original on 2018-07-27. Retrieved 2015-11-03.{{cite web}}: CS1 maint: multiple names: authors list (link)
  3. ↑ Jorgenson, Dale W.; Landefeld, J. Steven; Nordhaus, William D. ed. (2006). A New Architecture for the U. S. National Accounts. Chicago University Press. p. 6.{{cite book}}: |first3= has generic name (help)
  4. ↑ Fisher, Irving (1920). The Purchasing Power of Money: Its Determination and Relation to Credit, Interest, and Crises. New York: Macmillan Co. pp. 27–29.
  5. ↑ Hayek, Friedrich A. (1931). Prices and Production. Routledge.
  6. ↑ Kuznets, Simon (June 7, 1934). "National Income, 1929-1932". National Bureau of Economic Research, Bulletin 49.
  7. ↑ Coyle, Diane (2014). GDP: A Brief but Affectionate History. Princeton University Press. pp. 13–16. ISBN   9780691156798.
  8. ↑ Leontief, Wassily (1986). Input-Output Economics, 2nd Edition . Oxford University Press. pp.  4–5. ISBN   978-0195035278.
  9. ↑ Skousen, Mark (1990). The Structure of Production . New York University Press. ISBN   978-0814778951.
  10. ↑ Skousen, Mark (April 22, 2014). "At Last, a Better Economic Measure". Wall Street Journal.
  11. ↑ Colander, David (September 2014). "Gross Output: A Revolutionary New Way to Confuse Students About Measuring the Economy". Eastern Economic Journal. doi: 10.1057/eej.2014.39 . S2CID   153830653.
  12. ↑ Skousen, Mark (March 2015). "On the Go: De-Mystifying Gross Output". Eastern Economic Journal. 41 (2): 284–288. doi: 10.1057/eej.2014.65 . S2CID   153784200.
  13. ↑ Hanke, Steve (July 2014). "GO: J.M. Keynes versus J.-B. Say" (PDF). GlobeAsia.
  14. ↑ Epstein, Gene (April 28, 2014). "A New Way to Gauge the U.S. Economy". Barron's.
  15. ↑ Forbes, Steve (April 14, 2014). "New, Revolutionary Way To Measure The Economy Is Coming -- Believe Me, This Is A Big Deal". Forbes Magazine.
  16. ↑ Skousen, Mark (2015). "Some Defects in BEA's Definition of Gross Output," in "Introduction to the New Third Revised Edition,". NYU Press. pp. xv–xvi. ISBN   978-1479848522.{{cite book}}: |work= ignored (help)

Related Research Articles

<span class="mw-page-title-main">Gross domestic product</span> Market value of goods and services produced within a country

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic health of a country or region. Definitions of GDP are maintained by several national USD international economic organizations, such as the OECD and the International Monetary Fund.

A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), Gross national income (GNI), net national income (NNI), and adjusted national income. All are specially concerned with counting the total amount of goods and services produced within the economy and by various sectors. The boundary is usually defined by geography or citizenship, and it is also defined as the total income of the nation and also restrict the goods and services that are counted. For instance, some measures count only goods & services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them.

<span class="mw-page-title-main">Bureau of Economic Analysis</span> US federal government agency

The Bureau of Economic Analysis (BEA) of the United States Department of Commerce is a U.S. government agency that provides official macroeconomic and industry statistics, most notably reports about the gross domestic product (GDP) of the United States and its various units—states, cities/towns/townships/villages/counties, and metropolitan areas. They also provide information about personal income, corporate profits, and government spending in their National Income and Product Accounts (NIPAs).

Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production process, i.e. output per unit of input, typically over a specific period of time. The most common example is the (aggregate) labour productivity measure, one example of which is GDP per worker. There are many different definitions of productivity and the choice among them depends on the purpose of the productivity measurement and data availability. The key source of difference between various productivity measures is also usually related to how the outputs and the inputs are aggregated to obtain such a ratio-type measure of productivity.

In economics, output is the quantity and quality of goods or services produced in a given time period, within a given economic network, whether consumed or used for further production. The economic network may be a firm, industry, or nation. The concept of national output is essential in the field of macroeconomics. It is national output that makes a country rich, not large amounts of money.

The national income and product accounts (NIPA) are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce. They are one of the main sources of data on general economic activity in the United States.

Value added is a term in financial economics for calculating the difference between market value of a product or service, and the sum value of its constituents. It is relatively expressed to the supply-demand curve for specific units of sale. It represents a market equilibrium view of production economics and financial analysis. Value added is distinguished from the accounting term added value which measures only the financial profits earned upon transformational processes for specific items of sale that are available on the market.

In economics, an input–output model is a quantitative economic model that represents the interdependencies between different sectors of a national economy or different regional economies. Wassily Leontief (1906–1999) is credited with developing this type of analysis and earned the Nobel Prize in Economics for his development of this model.

<span class="mw-page-title-main">Gross national income</span> Total domestic and foreign economic output claimed by residents of a country

The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign financial output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents.

National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting. By design, such accounting makes the totals on both sides of an account equal even though they each measure different characteristics, for example production and the income from it. As a method, the subject is termed national accounting or, more generally, social accounting. Stated otherwise, national accounts as systems may be distinguished from the economic data associated with those systems. While sharing many common principles with business accounting, national accounts are based on economic concepts. One conceptual construct for representing flows of all economic transactions that take place in an economy is a social accounting matrix with accounts in each respective row-column entry.

The net domestic product (NDP) equals the gross domestic product (GDP) minus depreciation on a country's capital goods.

The value product (VP) is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies. Its annual monetary value is approximately equal to the netted sum of six flows of income generated by production:

Intermediate consumption is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA), the US National Income and Product Accounts (NIPA) and the European System of Accounts (ESA).

Net output is an accounting concept used in national accounts such as the United Nations System of National Accounts (UNSNA) and the NIPAs, and sometimes in corporate or government accounts. The concept was originally invented to measure the total net addition to a country's stock of wealth created by production during an accounting interval. The concept of net output is basically "gross revenue from production less the value of goods and services used up in that production". The idea is that if one deducts intermediate expenditures from the annual flow of income generated by production, one obtains a measure of the net new value in the new products created.

Domar aggregation is an approach to aggregating growth measures associated with industries to make larger sector or national aggregate growth rates. The issue comes up in the context of national accounts and multifactor productivity (MFP) statistics.

In economics, gross value added (GVA) is the measure of the value of goods and services produced in an area, industry or sector of an economy. "Gross value added is the value of output minus the value of intermediate consumption; it is a measure of the contribution to GDP made by an individual producer, industry or sector; gross value added is the source from which the primary incomes of the System of National Accounts (SNA) are generated and is therefore carried forward into the primary distribution of income account."

The green national product is an economic metric that seeks to include environmental features such as environmental degradation and resource depletion with a country's national product.

<span class="mw-page-title-main">Net material product</span> GDP equivalent for the Comecon countries

Net Material Product (NMP) was the main macroeconomic indicator used for monitoring growth in national accounts of socialist countries during the Soviet era. These countries included the USSR and all the Comecon members. NMP is the conceptual equivalent of Gross Domestic Product (GDP) in the United Nations System of National Accounts, although numerically the two measures are calculated differently.

Sectoral output for an industry or combination of industries ("sector") is the value of its output sold outside that sector. It is usually calculated as the value of the sector's gross output minus the value of shipments within the sector from one establishment to another.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.