Taking a another look at defining gross domestic product.

Should gross domestic product in part be a function of consumption? Professor Dave Collum argues that consumption is something you do after you have produced wealth; after you have produced something. My take on his position is that gross domestic product (output) would be equal to investment (capital) plus energy and effort.

Expanding on Professor Collum’s thoughts, what is produced can be consumed at some percentage rate from 0 to 100. What would that mean for liquidity entering the market for goods? A note issued in exchange for financing the production of a good that will be consumed in its entirety will be priced at a low interest rate. The less demand for the good produced, the higher should be the interest rate on financing.

Where government measures growth in the political economy, should that growth account for goods that society cannot do without? Also, should central banks take the same view on quality of product when setting reference rates?

There are rumblings by asset managers that some assets may be overvalued. If so, a fall in asset valuation may lead to less employment of human resources and physical capital along with a fall in taxable income.

What should be government’s response? And how does the construction of forward contracts account for potential overvalued markets?

Alton Drew

12 October 2024