GDP and The Descendents of Keynes

Veronique de Rugy cuts through the nonsense of the recent GDP numbers. A snippet:

the way the GDP accounts for government spending is totally biased: It assumes that if the government is spending $200,000 on a contractor to repave a road in the middle of nowhere that it will create $200,000 of genuine economic value. By contrast, GDP measures are tougher on private-sector spending. As my George Mason university colleague Garett Jones explained to me recently “So if Exxon Mobil pays an engineer $200,000 per year, that only shows up in GDP if the engineer finds an extra $200,000 of oil to sell, or builds a new machine that sells for $200,000, something like that. So our GDP measures of “government spending” are awful–and when the government is in a race to spend money as quickly as possible, these measures are going to be even worse than usual.”

Mario Rizzo does an even better job examining the whole of the White House's and Congress' spending strategies. His concluding paragraph:

In sum, at least 2.5 percentage points of the 3.5 percent increase are suspect on their own terms. And then there are the future costs to bear. As long as the stimulus-spending persists the “stuff index” (GDP) will look okay. And as long as the costs are hidden either in the future or in some other way, the politics will look fine for the stimulators.

Keynesian types want to spend as much as quickly as possible because they believe Depression 2.0 will arrive if we don't. Supply siders want the market to reallocate resources on its own to achieve equilibrium. The Keynesian argument is markets are driven by fear and greed, as Rob has pointed out a few times, and will spiral into oblivion without proper government intervention. The consequences of spending nor the creation of value/utility related to said spending do not matter to the Keynesian (though he may claim they do). Supply siders believe a reallocation would be long, tough and painful for many, but ultimately more appropriate and healthier than attempting to manipulate the economy on a grand scale.

GDP is a wonderful tool for the neo-Keynesian to frame and promote his story. But when you seperate the recipe from the final product, I don't think there is a whole lot to trust or like.