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2.2 Estimating GDP



		Table 2.1 U.S. Gross Domestic Product, 1998 ($ billions)

Consumption

5,808

68 %



		Durable goods

725



		Nondurable goods

1,662



		Services

3,421

Investment

1,367

16 %



		Nonresidential structures

247



		Nonresidential equipment

691



		Residential

370



		Change in inventories

Government

1,487

17 %



		Federal defense

340



		Federal nondefense

180



		State and local

967

Net exports

-151

-1%



		Exports

959



		Imports

1,110

———

Gross domestic product

8,511

100%

Source: Survey of Current Business, May 1999. www.bea.doc.gov



		Curiosity 2.2: Where Can These Numbers Be Found?



		Go to www.rfe.org to get to the "resources for economists" web site where you can find anything you ever wanted to know about economics, including a plethora of economist jokes! Click on "data" to find a cornucopia of web sites with economic data, both domestic and international.



		The Economic Report the President can be found here; its appendix B has gathered together data on all dimensions of the domestic economy, and because of its convenience is the source of most of the numbers graphed in this book. For more detailed information on specific measures the Bureau of Economic Analysis (BEA) publishes national accounts data is the Survey of Current Business, the Bureau of Labor Statistics (BLS) publishes price and unemployment data in the Monthly Labor Review, the Federal Reserve Board publishes interest rates and money supply data in the Federal Reserve Bulletin, and the International Monetary Fund (IMF) publishes international data in the International Financial Statistics and the World Economic Outlook. For most data, however, it is not necessary to find these publications in the library; searching the rfe web site should enable you to find them on the web. For example, the contents of table 2.1 can be found at www.bea.doc.gov , and the Organization for Economic Cooperation and Development (OECD) has international data on the main Western developed nations at www.oecd.org.



		Help interpreting many of these and other numbers can be found in A Guide to Everyday Economic Statistics by Gary Clayton and Martin Giesbrecht (New York: Irwin/McGraw-Hill, fourth edition, 1997) and in The Data Game, by Mark Maier (Armonk, NY: M. E. Sharpe, third edition, 1999). Help in interpreting financial data in the Wall Street Journal can be found in The Wall Street Journal Guide to Understanding Money and Markets by Richard Wurman, Alan Siegel, and Kenneth Morris (New York: Access Press, 1990).



		2.3— GDP as Gross Deceptive Product



		GDP is often used to measure an economy's level of well-being from one time period to another, and to compare one economy's welfare to another. A proper perspective must be brought to such uses of the GDP measure. Some examples follow.



		1. Some things are produced but never sold and so are not included in GDP. A classic example is the work of homemakers, an omission from GDP that has angered women's rights activists. Another classic example is the case of a lawyer marrying her gardener. Suddenly she does not pay for gardening done on her property, and so this service is no longer counted in GDP. Comparisons between countries with different portions of their economy appearing on formal markets are suspect for this reason. National accounts statisticians impute to homeowners rent implicitly paid to themselves (and include this rent as expenditure on housing), impute to farmers income in the form of home consumption of crops, and impute a value for in-kind wages such as room and board, but clearly many nonmarket activities are missed.



		2. Some expenditures are hidden from data gatherers—illegal activities such as selling drugs and prostitution, and underground economic activity such as services provided for unrecorded (and so untaxable) cash transactions. An electrician wiring a plumber's home in return for which the plumber plumbs the electrician's home does not find its way into the GDP measure. Some people feel that illegal activities provide considerable benefit to society (as evidenced by the fact that so many people are so eager to participate in them), so that their exclusion causes GDP to understate the benefit society derives from annual economic activity. The size of the U.S. underground economy is thought to be in the order of 15% of its GDP.



		3. Some items are included in GDP that do not reflect net benefits to society. The Exxon Valdez oil spill required over $2 billion of cleanup expenditure to bring us back to the pre-spill state. This expenditure is added into GDP, with no offsetting reduction of GDP to reflect the pollution cost to society. A crime-ridden country spends a lot more on police protection, all added into GDP, to obtain the same state of security as that enjoyed by a more law-abiding country.



		4. Government expenditure on goods and services is valued at cost, despite the fact that the benefit produced by this expenditure could be valued quite differently by the market forces used to value other components of GDP. On the one hand, if entry fees were charged to the Smithsonian museums, for example, the output thereby measured would probably exceed the museums' cost. On the other hand, everybody has a favorite example of what he or she considers to be wasteful government spending.



		5. GDP does not account for nonrenewable natural resources used up in production processes. In Kuwait, for example, because so much of GDP takes the form of oil exports, the GDP measure is misleading as an indicator of the economy's sustainable output level.

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