Your Survival Guy

Preparing your investments and family for when disaster strikes.

Disclosure

  • Home
  • Your Survival
    • EMP Threat
    • Tucker Explains
    • Newport Gas Outage
    • Water
      • Emergency Water Storage
      • Let There Be Water
    • Get Your Gun and Your Training Now
    • Satellite Phones
    • Navy SEAL Survival Kit
  • Your Money
    • Coronavirus Infects Stock Market
    • Looking for a Better America
    • You Invest, They Win
    • Where to Keep Your Cash
    • Paris
    • How to Buy a Boat
    • Dead or Alive? The Future of Long-Term Investing
    • Is Vanguard too Big?
    • Cryptocosm and Life After Google
    • The Last Intelligence Report
    • The Truth Behind the S&P 500
    • RAGE Gauge
    • How Many “Retirees” Will Keep Working?
    • Your Retirement Life
    • You’ll Love This if You’re Dreaming of an Active Retirement Life
  • Weapons
    • Self Defense
    • Every Family Should Own at Least One Shotgun: Here Are Three
  • About Me
    • Preparing for Times Like These
    • My Videos/Pics
    • Music
      • RIP Neil Peart: You Will Always Be Remembered as a “Modern-Day Warrior”
  • You
    • Our Cabin on Kodiak, Alaska
    • If You Are in Pain, this May Help. It Helped Me.
    • How to Save for a Grandchild
    • FIRE! Financial Independence, Retire Early
    • Compound Interest
    • Arithmetic of Portfolio Losses
    • Maximum Portfolio Withdrawal Rate
    • An Efficient Frontier
    • Retirement Compounders
    • Counterbalanced Total Returns
  • Survive & Thrive
    • April 2021
    • March 2021
    • February 2021
    • January 2021
    • December 2020
    • November 2020
    • October 2020
    • September 2020
    • August 2020
    • July 2020
    • June 2020
    • May 2020
    • April 2020
    • March 2020
    • February 2020
    • January 2020
    • December 2019
    • November 2019
    • October 2019
    • September 2019
    • August 2019
    • July 2019
    • June 2019
    • May 2019
    • April 2019
    • March 2019
    • February 2019
    • January 2019
    • December 2018
    • November 2018
    • October 2018
    • September 2018
    • August 2018
    • July 2018
    • June 2018
    • May 2018
    • April 2018
    • March 2018
    • February 2018
    • Welcome

Are We Measuring the Economy Wrong?

August 9, 2017 By E.J. Smith - Your Survival Guy

On his great blog, International Liberty, Dan Mitchell, a senior fellow at the Cato Institute, makes a great case for using Gross Domestic Income (GDI) as a measure of economic growth, rather than Gross Domestic Product, which is the mostly widely used measure today.

Dan makes the point that in the long term, the two numbers should be identical, but in light of their short term divergences, using GDI would support better policy making.

In simple terms, GDI measures how our national income is generated and GDP measures how it is allocated.

As the Bureau of Economic Analysis explains, the two numbers are basically different sides of the same coin.

In national economic accounting, GDP and GDI are conceptually equal. GDP measures overall economic activity by final expenditures, and GDI measures it by the incomes generated from producing GDP. In practice, GDP and GDI differ because they are constructed using different sources of information. …when one looks at annual data – where the timing differences are less important, the correlation between GDP and GDI is 0.97.

That correlation shouldn’t be a surprise. Indeed, over a longer period of time, the two numbers should be identical.

Both go up when the economy is doing well, and both go down when there is a recession.

But I want to make a more subtle point.

The reason I like GDI over GDP is because one the former is more likely to lead people to support good policy while the latter is more likely to lead people in the direction of bad policy.

Here’s some of what I wrote on the topic back in 2013.

GDP numbers only measure how we spend or allocate our national income. It’s a very indirect way of measuring economic health. Sort of like assessing the status of your household finances by adding together how much you spend on everything from mortgage and groceries to your cable bill and your tab at the local pub. Wouldn’t it make much more sense to directly measure income? Isn’t the amount of money going into our bank accounts the key variable? The same principle is true – or should be true – for a country. That’s why the better variable is gross domestic income (GDI). It measures things such as employee compensation, corporate profits, and small business income. …We should be focusing on how to increase national income, not what share of it is being redistributed by politicians.

And, on a related note, you can back to 2009 for a column I wrote explaining that consumer spending is a reflection of a strong economy, not the cause of a  strong economy.

Read more from Dan here.

 

The following two tabs change content below.
  • Bio
  • Latest Posts
My Twitter profileMy Facebook profileMy Instagram profile

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com
My Twitter profileMy Facebook profileMy Instagram profile

Latest posts by E.J. Smith - Your Survival Guy (see all)

  • Be Dangerous: Biden’s Progressive Puppeteers’ E.O. Gun Grab - April 9, 2021
  • It’s as Simple as 4%? No, Not Anymore - April 9, 2021
  • One Word Explains the Worth of Your Neighbors’ House - April 8, 2021
  • Your Survival Guy Stock: Witness This Dividend Miracle - April 7, 2021
  • Why Your Life Before COVID Isn’t Coming Back - April 6, 2021

If you enjoyed this post, email it to a friend:

  • Email
  • Print
  • Facebook
  • LinkedIn
  • Twitter
  • WhatsApp

Related Posts

Trending

  • Biden Tax Hikes: I’m Here to Help, But Only if You’re Serious
  • Be Dangerous: Biden’s Progressive Puppeteers’ E.O. Gun Grab
  • One Word Explains the Worth of Your Neighbors’ House
  • Constitutional Carry: Another State Chooses Second Amendment Freedom
  • Biden Prepares First Wave of Assault on Second Amendment With Executive Orders
  • April RAGE Gauge: Are Your Bond Funds Dead or Alive?
  • You Need To Be Dangerous: Democrats Want You Harmless
  • You're Telling Me Friends Ask You This Question
  • Your Survival Guy Stock: Witness This Dividend Miracle
  • It’s as Simple as 4%? No, Not Anymore

YOUR SURVIVAL GUY MUST READS

  • Do You Remember When You Purchased Your First Home?
  • The Great Reset: Meet the Climate Czar and His War: Part III
  • Your Retirement Life: Living Small and Saving Big
  • One Simple Way to Help Your Finances in Times Like These
  • Survive and Thrive December: Disaster Prep in Our Newport Bunker and Your Survival
  • Richard Young Reports: 50+ Years with Fidelity and Wellington
  • If You Flee Don’t Die Here
  • All She Wants is an America that Will Defend Her Freedom at Any Cost
  • 2020: College Is not What You Signed up For
  • Why Vanguard is too Big: Part VII: What Do You Have to Lose? A LOT
Only if You’re Serious
Second Amendment
See Who's Missing the Boat
Find Freedom in America
Great Reset
Financial Independence, Retire Early
Richard  Young Reports
Why Fidelity is Number One
The Best States for Survival
Pandemic Creates Virtual Panopticon
Emergency Water Storage
You Invest, They Win
Escape the City
How You Can Save Money for Your Grandchild
Why Vanguard is Too Big for YOU
Money 101
Island Life
Smith Family Robinson

Copyright © 2021 | Terms & Conditions

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.