The last theres been a lot of talk about over last generation, the last 40 years really highlights the challenges of measuring economic values. A lot of people take the view that there hasnt been much progress, much growth in incomes, economic stagnation over that period of time. And i often try to put the lie to that assertion by asking people to whether theyre low income, middle income, high income, raise your hand if you wanting to back to 1975 and there usually arent a lot of takers. But one think is undeniable is we have been living through a period of economic stagnation and im peter and joined the Cato Institution a year ago as president and over that time brink linsey has done a job trying to explore growth slowdown, one is understanding the growth slowdown and another is reviving Economic Growth. For the first time in my life we had gdp growth hasnt reached 3 and at the time i joined cato 13 months ago i was hopeful i was actually hopeful because when we lived through economic stagnation or contraction, its created a lot of pressure, tension and anxiety that often has been the em impetus and i realized i was correct that economic anxiety will create sturm oil and stimulate change. I was wrong because its not the change that i had anticipated. Clearly. Really lucky to have three gentlemen here today that i dont think really need much of an introduction but i will try to provide one. Between them i think theyve written more books than i have ever read. But i think its a great opportunity for each of them to comment on, you know, their views on how we are going to restrive economic in the United States and prosperity that we enjoyed for a long period of time. And they each have books that have been released recently that actually speak to this. I spoke with a donor to cato recently and he has a son who will be starting college in the fall and he told me that he was considering attending Cato University this summer so that his son can be inoculated to flearn economics professors in college before he attended. When i was getting ready for college i didnt need such inoculation. And during the summer between high school and college i read it. Capitalism and critics. I think things have changed. Some havent changed. I felt that in my classes we were able to engage in debate and disagree without fearing as many students do today that it can hurt their grades and their transcript and disagreement is not permitted. So i actually thank you, george, for providing such ammo for using against fraternity, brothers, others who didnt agree in the case of enterprise and free markets. The ammo started at cato. Thanks so much for that. Thanks so much for that. Georges book is the scandal of money and we are delighted, i think one of the idea that cato has promoted for a long time is the fact that our money system and the power of the Federal Reserve is a great threat not only to economic willbeing but our freedom and thats the reason why cato has held prominent annual monetary conference coordinated by Vice President jim and started in the direction of george, monetary financial alternatives to highlight these risks and to promote free Market Alternatives to our current system. Georges book is very important and timely. In addition, steves last book i believe was of similar topic, highlighting the threat that the lack of sound money poses to our country. So those are both tremendous contributions to the popular literature. I told steve earlier that i had not been affiliated with any major party and i registered republican so in 1996 connecticut primary i could cast my vote for steve forbes for president. Steve replies that he wishes a lot more people register to vote and voted for him but even in defeat he made great contributions to the case for freedom and flat tax and hes still at work. The book that he wrote with elizabeth, how repealing obamacare will restore hope and prosperity. He does a fantastic job prioritizing three key areas, particularly areas such as health care and money where many of the problems are created by Government Intervention and for some reason the prescription that many people is more Government Intervention. Finally, mark who is an economist, economics professor and author but many know as em empresarios, world of free minds which take place in las vegas, we are delighted to have mark here. I mentioned at the outset while we can agree that theres been income and economic stagnation of late the measurement problems reflected in our economic aggregates i think do fool us because there are many things that arent captured in gdp and i reject the assertion that americans really of any income level have experienced stagnation in the last 40 years. Mark has proposed and now has an updated version, at least last year, the structure of production and alternative to Gross Domestic Product as a measure of our economy and has proposed an alternative called gross output. I will let mark explain it because one of the reasons, rational for it being an improved and accepted version of measure of the economys performance is that its not published quarterly but government alistening with the gdp fig chuirs which is quite an achievement by mark and remind him that as libertarian we dont take action as endorsement so im looking forward to his remarks, explaining some of the work hes done in developing and promoting more effective measures of Economic Performance and we will proceed with the speakers in the reverse order by which i introduce them. Please join me in a warm welcome to mark. [applause] 3 growth and sometimes reminds me of this program that george w. Bush set up called the 4 growth plan and when i talked to the organizer i said, 4 growth plan, now did he mean growth of the economy or growth of government . She didnt appreciate that comment. Under george w. Bush never did grow 4 during the entire period of full employment, so its kind of unfortunate. What i would like to talk today is what peter mentioned, gross output. I think its a very important statistic and, in fact, my main thesis is that gross, output or go offers a better more comprehensive picture of the economy is a powerful Unifying Force between accounting, finance and economics. It linkses micro with macro and it appeals to all the major schools of economics. In many ways go is the missing piece of what the latest economist calls the prosperity puzzle, which is their latest issue, they talk about the problems in gdp which im sure will come up in this discussion, but in any case my argument that this is a unifying approach that its a more comprehensive picture of the economy, its a tall order and i would like to get started. I actually see it as a paradigm shift in the way we treat economics. We start off with what is gdp, what is it supposed to measure . Annual spending is one way of looking at it in the economy, consumers, government and business, theres a problem with gdp, theres a lot of problems with gdp but the i want to focus in particular is according to gdp statistics what drives the economy . And so what we find out that when you break down gdp and c plus i plus g you see that it breaks into Consumer Spending as the biggest sector of the economy, Government Spending second and business business a poor third. And what does that say in terms of policy implications, you see, thats the issue. And of course, because Consumer Spending represents twothirds basically of gdp, you get the med icons media creating a myths. You get it from wall street journal, Household Spending generates more than twothirds of total economic output says the wall street journal. So steady spending gains should translate to Economic Growth. If only consumers would spend more thats all it takes. And, of course, you the New York Times, Consumer Spending makes up more than 70 of the economy and it usually drives growth during economic recoveries. And finally, another one from the wall street journal, consumers are the engine of the u. S. Economy. Consumers, not producers, not entrepreneurs, consumers accounting for about 70 of the economy. So you can see the problem thats inherent with using gdp as a statistic. Is this are we coming to accurate conclusion is our question . So we have to ask ourselves the question what is missing from gdp . Well, again gdp is c plus i plus g, 8. 6 trillion economy. 12. 4trillion investment, 3 trillion, in government 3. 2 trillion. What is missing in gdp . This is the surprise factor . The supply chain. Gdp does not measure the supply chain. It does not measure all the business spending, the b to b spending to bring the products to their final use, you see, gdp just measures the value of finished goods and services, your clothes, your shoes, the internet, all of everything that we are enjoying right now, the coup of water. Thats all counted in gdp but the spending by business to get you to the finished products is left out and that is, its a killie seal. Ive been measuring, the bureau of Economic Analysis, 20. 3 trillion, its more than Consumer Spending which is 12. 4. Its more than Government Spending, its more the i party is fixed investment. Now, who is gross output. Well, it can be for those who are economists and youre familiar with the equation of exchange, it measures total transactions. Its also a measure of high access triangles so this is taken from prices and production, this great book that Friedrich Hayek wrote in London School of economics and theres a picture of the triangle he used, its purely theoretical. It was pure theory and it has had a rough road of acceptance. But what im suggesting is that hayeks triangle is measured by the government. This is a fantastic break throw and i am pleased this this program is taking place in the hayek auditorium so appropriate considering the fact that the government is measuring hayekks triangle. We all know the background, i thought i would pose this up here and particularly hes known for the book and the constitution of liberty but also author of this Macro Economic work which form it had foundation of my own work and the structure production called prices in production published in 1931. I have a First Edition signed by hayek. Today ive come out or published in Business Cycle and asked me to write the introduction. But here is a modernday version of hayeks triangle, resources, production distribution and final output. You can see gdp is in there but so are the stages, the supply chain prior to that where we have stages one two and three. So this is a great way for students to capture what hayeks triangle, fourstage model of the economy. Every good in service that you and i use has gone through the resource states, the production states, the distribution or wholesale and retail stage and then to final use, which is represented number four by gdp. Well, the big news in april 2014, the bureau of Economic Analysis which puts out gdp statistics has now start to measure gross output and measure hyeks triangle. Gross out puts provides new perspective on the economy, and a powerful new set of tools and analysis and one that is closer to the way many businesses see themselves. Isnt that true . Business see themselves as producing, moving the product along the production process and thats what gross is measuring. Whenever the bea comes out with quarterly announcements release of gdp data which they did just recently, notice how they define, how they define gross, gdp, they define it in terms of gross output first and then they subtract out intermediate production. So gdp, plus intermediate input equals gross output or another way gdp is gross output minus intermediate input. Basically what theyre doing is getting you the audience, the consumer of gdp statistics to get used to the idea of what i call a top line of National Income accounting and a bottom line. The bea also for those of us who are austrians who look industry by industry and sector by sector, im delighted that bea has introduced gross output by industry which allows economist to desegregate the economy and based on stages of production. So based on this announcement i was i wrote a lead editorial comment air in april 2014 in the wall street journal. At last a better economic measure and it came out with a new third edition of my structure production. Basically my book the structure of production was had virtually disappeared, nobody was reading it, but suddenly when the government starts using this statistic it is come out of obscurity and now being used in being read and we have copies here for you to purchase after the presentation. What can we learn from the new go statistic, you may ask yourselves, so what, so what that theres a new statistic . Well, first of all, you can see the gross output from the statistic, its much more volatile, its a much better indicator of the Business Cycle. You can see here that gross output specially during the recession of 20082009 how it dropped. Is that accurate reflection of what happened during the great recession, not at all. You can see in terms of gross output but you can see what happened in the intermediate stages, there was a significant drop that is a better evidence of what is going on. So according to new model, new go model everything is in reverse. Remember gdp was number one and now suddenly business spending when you include the supply chain is nearly 60 of the economy Consumer Spending now down to 32 , instead of twothirds its only a third and Government Spending is 8. 2 . So when you see the two models next to each other what you see, essentially what you see is that the business sector is by far the most important sector in the economy and policy that steve forbes is talking about in his book and what George Gilder is talking about in his book focus on the business sector, supply chain, innovation, entrepreneurship, productivity, these are the factors and now we have a model thats consistent with Economic Growth theory. Its also a support steve says, monopoly will be broken as the u. S. Government will provide official data on the supplyside of the economy and its structure, so we as supply siders austrians, we have our own statistic,ia know a lot of you dont like aggregates but aggregates can tell you a lot and i love this quote by larry, not one in a thousand recognizes it, it is business, not consumers that is the heart of the economy. When businesses produce profitability they create incomeproducing jobs and then consumers spends, period of profitable firms purchase new equipment because they need to modernize structures and software. This is a new approach. I call it and im not saying replace gdp, im saying its complementary. Gross output, you know in a Financial Statement you have top line and bottom line, those of us in accounting, my business students love this. So we have top line and bottom line, top line is sales and revenue, bottom line is earnings, now finally economists have caught up after a 100 years behind the times, have caught up with the accounting in finance professions, now we have a top line and a bottom line, our top line is gross output revenue in sales and bottom is gdp value added. Similar to gross profits in Financial Statements. And this is a quote here from three great economists including steven former bea director and deal from harvard, net output gdp is appropriate measure of welfare. Both are required in a complete systems of accounts so theres a general model of the economy where you see the production side, the make economy reaching final and gdp and consumption when its used up and so this is again in my textbook a general model of the economy, i dont have time to go into that because i run out of time but if youre interested, by the way in my powerpoint because ive gone through pretty quickly, maybe we can send it to the attendees or they can give me your card or whatever, i would be glad to send you this powerpoint to give you my basic points. Go is being integrated in the textbooks, thises the sign of success, so its not just in my textbook which i was economic logic but also in the number one textbook in the country, although greg disputes that, and we have it in in john taylors textbook and roger leroy miller, and David Colander so its in all of the textbooks developing to be in all of the textbooks. Well, i have a few quotes here. What others are saying about it. Steve forbes have been supportive in Forbes Magazine feeling that its National Income accounting and george has suggested that vital learning accumulates through all of the processing of production measured in gross output. So i dont have time to read any of the other quotes but we have academic economists, we have business economists and so forth recognizing the value of the structure of production so my basic conclusion is simply the structure of production does matter. Thank you very much. [applause] we are going to wait for questions until the end, although i will say, mark, since you pointed out that the government now publishing go stimulated sales of books. Im assuming that didnt have anything to do with your desire for them to publish it otherwise we would probably count that as rent seeking. It saves a lot of supply, creates demands. Thats what i [laughter] mark, thanks so much, please join me in giving a warm welcome to steve forbes. [applause] thank you, thank you very much, peter, thank you cato, congratulations, mark on measuring the whole income instead of just part of the economy. But no matter how you measure the economy theres no getting around it today it sucks. [laughter] it just seems stuck in second gear, you get one