Measuring government spending in terms of added public value

July 8, 2014

 

"Golden Fiscal Rule": the size of the government should always be shrinking in comparison to the GDP. According to the article, this comparison is not meaningful.

 

- Government services are provided for free so they do not have a market value. Therefore, economists assume that the value of the government is equal to the amount of money the government spends. This does not account for the value of government spending in terms of public benefit.

 

-"in at least four critical ways, this G.D.P. framework ignores or obscures public value in our economy, leaving us ill equipped to fashion policy to drive national success in the 21st century."
1. Much of what the GDP deems private spending is actually financed from public sources or publicly subsidized private sources: for example, government benefits through social insurance (valued at $2.3 trillion in 2012) fund a large part of personal consumption.
2. Does not account for returns on private investments: for example, transportation infrastructure costs ~$185 billion but generates annual private gains of $800 billion.
3. Does not account for economic gains from regulations or "regulatory savings": for example, during the first 20 years of the Clean Air Act, compliance regulations cost $500 billion but generated health savings and other benefits valued at $22 trillion.
4. Does not account for "non-market capital benefits (human, intellectual, social, and natural capital)," which are highly reliant on government spending: for example education, public safety, research investments, and environmental protection.
*** Gains from education spending added $3.7 trillion to the national wealth in 2009, which is more than 4 times the value of public education as measured in GDP for that year.

 

CONCLUSION: "If we ignore public value in our economy, we will be unable to craft effective policies for a better economic future. If we ignore the economic contribution of regulation, we are less likely to want more of it, exposing our children to greater social risks and costs."

 

Lew Daly, “Our Mismeasured Economy,” New York Times Opinion Pages, July 6, 2014, accessed July 8, 2014, http://www.nytimes.com/2014/07/07/opinion/our-mismeasured-economy.html?_r=1.
based on
Lew Daly and Stephen Posner, Beyond GDP: New Measures for a New Economy, Demos, New York, New York, 2014. http://www.demos.org/publication/beyond-gdp-new-measures-new-economy

 

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