An interesting thought piqued my economist mind:
What if we measured economic growth without the government component of GDP?
And so I did and the results on the face of it are "good."
You'll note that ever since recovering from the depths of The Great Recession, GDP without government (ie - the private sector) has been outpacing the component of growth coming from the public sector. This is good in the sense that the private sector is growing faster than the parasite that lives off of it. Theoretically, if this kept up, government would shrink relative to the rest of the economy, even to the point it would consume less than 1% GDP.
But there's a problem.
The government component of GDP does NOT include income transfers which account for the majority of the budget at both the state and national levels.
So here's the riddle intrepid aspiring, junior, deputy, and otherwise economists:
If GDP does NOT consider income transfers, how do you make an "economic argument" to incorporate income transfers into the calculation of GDP, primarily that they should be SUBTRACTED from GDP to measure the true economic production of a nation? Specifically, just because a bunch of old fogey Keynesian economists said GDP should not subtract income transfers, what is the argument and rationalization that we should?
I know the answer, but I'd be curious to see if you do.
(answer will be provided in the next post!)