Is Gross Output (GO) going to replace Gross Domestic Product (GDP) and are there any problems with this‪?‬ Finance & Fury Podcast

Welcome to Finance and Fury, the Say What Wednesday edition.
This week the question comes from Todd.
“Hi Louis, I just saw Steve Forbes talking about how Gross Output (GO) is going to replace Gross Domestic Product (GDP) as a measure of how well the economy is going? I was wondering if you agree with Steve on GO?
I had heard in the past that GDP was not perfect, but had been used because it was the best option available. Are there problems with GO that will also cause problems when trying to use this measurement to judge the health of an economy? Love to hear your thoughts?"
Thanks for the question Todd – is an important question – So in this episode – we will look at if the replacement of GDP with GO is a step in the right direction – to be upfront - its replacement isn’t a perfect solution as an economic measurements – but there is nothing that is perfect when talking about economics –as Economist Thomas Sowell says - “There are no solutions, there are only trade-offs; and you try to get the best trade-off you can get, that's all you can hope for.” As we cannot achieve a perfect outcome – we will look at if GO a better trade off to measure economic output when compared to GDP
 
First – go through the basics of GO and compare this to GDP
In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services It is a much broader measure of the economy than gross domestic product (GDP) GDP is limited mainly to final output (finished goods and services) that are consumed in the economy – not total output Most people are familiar with GDP – or at least have probably heard it mentioned – even though it might not have much bearing to their own lives – But indirectly it does – as it is the standard for what economists and policy makers focus on when looking at economic growth and deciding what policy responses to make – there is an increasing focus on it – especially now as it is the measurement of a recession Looking back – Following the Bretton Woods conferencein 1944 - Both GDP and GNP became the standard measure of economic growth that was implemented -   But it has its limitations – and this comes back to the reason why it is used - simplicity – relatively easy to measure – at it takes the net results of economic output – but because it is simple – it is a flawed way to look at economic output Covered the issue with Government stats earlier in the year – episode was called “How accurate are economic statistics and do they really matter in our daily lives?” If a computer is sold – then the end result is what is measured – minus all the components that went into making it – so those companies that produce processors or RAM for a computer aren’t included – as these are component parts of the final product – the final product and the component parts can often blur between one another – If your CPU breaks down and you buy a new component – then this isn’t added to GDP – even though it is technically an increase in economic output If this computer is then resold later by a business such as cash converters – it isn’t counted as part of GDP as it is not new output – even though it is an economic transaction GDP ignores other sections of economic output – these areas are known as the informal economy – making up about 60% of economic activity as an estimate – they aren’t included as it is hard to track down and these activities are normally not included in GDP figures GNP is a little more complete than GDP figures – adds the component of Z of net foreign income – so if you have a company that operates internationally – it counts the net balance of foreign income from operating internationally – while it might seem more complete – it is even more flawed – as it is influenced by the exchange rates and the health of other nations – performance of other n