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“Total Spending” Is Not the Same Thing as NGDP

Summary:
Amongst my other problems with the market monetarist approach, is the frequent claim that they just want to maintain “total spending” or the “volume of the spending stream.” No, that’s not correct. Nominal GDP is smaller than total expenditures each year. I was reminded of this when I listened to Mark Skousen explain to Tom Woods why he (Skousen) thought economists needed to consider his alternative output measure, GO–Gross [Domestic] Output, which the BEA started tracking in 2014. Incidentally, even Gross Output is a sliver of “total spending,” when we consider how much spending occurs each day in the financial markets. I’m bringing this up (I think I’ve done it before) mostly just to remind ourselves of some basic facts about the real world, rather than

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Amongst my other problems with the market monetarist approach, is the frequent claim that they just want to maintain “total spending” or the “volume of the spending stream.”

No, that’s not correct. Nominal GDP is smaller than total expenditures each year.

I was reminded of this when I listened to Mark Skousen explain to Tom Woods why he (Skousen) thought economists needed to consider his alternative output measure, GO–Gross [Domestic] Output, which the BEA started tracking in 2014.

Incidentally, even Gross Output is a sliver of “total spending,” when we consider how much spending occurs each day in the financial markets.

I’m bringing this up (I think I’ve done it before) mostly just to remind ourselves of some basic facts about the real world, rather than parsing it according to our models. But I also think it cuts against one of Sumner’s ostensible virtues, since I think–though I admit I can’t find a good example* right now with just a little bit of Googling–that he is proud of NGDP being an objective, measurable thing “out there” versus real GDP which is an idea in our minds (since we need to deflate nominal spending by a price index to compute real GDP–it’s not directly observable).

* It’s not merely that I can’t find a good example, but I found this post where Sumner sounds like he’s saying almost the opposite. But I am 96% sure that Sumner has said that NGDP is something we can all observe, as opposed to real GDP which is more subjective by its very nature.

Robert Murphy
Christian, Austrian economist, and libertarian theorist. Research Prof at Texas Tech and author of *Choice*. Paul Krugman's worst nightmare.

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