By Llewellyn H. Rockwell, Jr
The Gross National Product grew at an annual rate of 4.4% for the first quarter of 1987,” the Commerce Department recently said. But corporate profits and people’s earning dropped. We’re all supposed to be better off when the GNP grows. Why aren’t we? The reason, as shown by Professor Murray N. Rothbard, is that the GNP is a phony statistic.
The GNP records the dollar amount of goods and services produced in the economy during a period. But it equates government spending with private spending. And it ignores the wealth and potential growth destroyed by taxation.
Imagine that the economy consisted of two small, productive towns. The government decides to destroy one of them—a hotbed of tax resistance—by aerial bombardment, and to tax the other to pay for the clean-up. After a year, the destroyed town is restored. Calculating the net effect of this process, the Commerce Department would say that the GNP of the two-town economy grew by 50%.
GNP records the money spent on goods and services, not the wealth destroyed by bombs, taxation, regulation, or other government activities. So GNP would act as if a third town had been added to the economy, when in fact one had been deducted.
As Professor Rothbard has pointed out, subtracting government spending from GNP, and then adjusting for taxation, gives us a much better idea of the real economy. His “Private Product Remaining (to Producers)” or PPR does exactly that.
Working from Professor Rothbard’s thesis, Professor Robert Batemarco of Manhattan College computed the PPR from 1960 to 1985 for an article in the first issue of the Institute’s Review of Austrian Economics.
The gap shown on the chart between GNP and PPR represents the horrendous growth of government. And the gap is huge and growing, despite promises to get Washington off our backs.
The growth in GNP is almost all attributable to increased government spending, which represents capital consumption, not progress. As shown by the PPR the economy has barely moved, thanks to the government’s incredible taxation, deficits, welfare, borrowing, subsidies, and controls.
Real growth in the U.S. registered a mere 1.3% last year. On the average, the GNP figure is about 52% higher than real growth. And the more government grows, the higher that percentage.
Always be wary of government statistics. They are usually designed to mislead, and GNP is part of that game.