How to Read “Gross Domestic Product”

By David Stockman  |  January 31, 2019

Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics.’

– Mark Twain, “Chapters from My Autobiography,” as published in the North American Review (1906)

Last summer’s allegedly red-hot Trumpian Boom now looks to be heading for the showers.

And, no, it’s not just because of the Tweeter-in-Chief’s Shutdown.

It’s over – for now – and we have some numbers to describe what happened.

According to the Congressional Budget Office, real gross domestic product (GDP) was cut by 0.1% in the fourth quarter. The damage was 0.2% for the first quarter.

Ever-ready Wall Street Keynesians are already racing to mark down the annualized figure for the first quarter. Mark Zandi of Moody’s Analytics, who never saw an economic hiccup he couldn’t model and demagogue, had this to say:

We estimate (the shutdown) will reduce first quarter real GDP growth by approximately 0.5 percentage points. Of this, about half will be due to the lost hours of government workers, and the other half to the hit to the rest of the economy.

I won’t debate the point here… But I’d wager, bigly, that the implied 168 million “lost hours” of government work might well result in higher economic output in the real world.

But Zandi’s estimate typifies Keynesian GDP accounting.

I submit that government spending wastes economic resources and shrinks real wealth – especially the $720 billion or so we allocate for “defense.”

And the Warfare State produces no useful or monetized consumer or capital goods, even if it does, arguably, protect national security.

The bottom line is, GDP accounting is a bunch of spurious precision. I learned that lesson a long time ago from Secretary of State George Schultz during a White House budget briefing.

It was the end of what I thought was a detailed, compelling presentation.

Schultz – who by then had been a noted labor economics professor and had served as Secretary of Labor, Director of the Office of Management and Budget, and Secretary of the Treasury under Dick Nixon – commended our graphs and charts…

And then he insisted that in future presentations all budget numbers be rounded to the nearest $10 billion!

The Gipper was much relieved to hear that suggestion, even though he soon realized that even rounding wouldn’t minimize the tsunami of red ink his policies unleashed.

That’s why, when I hear the economy was “red hot” last summer and is now heading for the dumpers, I look at multi-year averages. And then I round them to the nearest integer that makes sense.

To do otherwise is to be just another Keynesian gummer.

Here’s what’s actually happening.

What will soon be the longest but weakest “recovery” on record is coming to an end. It’s collapsing under a heavy burden of public and private debt.

And all we have to show for $15 trillion of Federal Reserve-fostered financial engineering over the last 10 years is hollowed-out Main Street.

It’s as much about Obama as it is Trump.


There’s no material difference between the last 11 quarters of the Barry the Bomber’s administration and the Great Disruptor’s first seven quarters…

During the first seven quarters on the Donald’s watch, real final sales (GDP less inventory swings) have grown at just 2.69%.

That’s no material acceleration at all from Obama’s final 11 quarters, when the growth rate was 2.53%.

The Donald was right when he attributed that mediocre record to the functions of “a big, fat, ugly bubble.”

So, why did he so loudly take ownership of it?

That’s not merely short-sighted and dumb. It’s also profoundly insulting to the left-behind voters of Flyover America who elected him.

Indeed, the global breakdown of Bubble Finance is fast closing in on the American economy – and the Great Disruptor’s fragile hold on office.

A Fallout Shelter

The crash of 2008-09 was not some “once in 500 years” economic ailment that needed to be “healed” with “extraordinary” policies like “ZIRP” and “QE.”

To the contrary, the Great Financial Crisis was an intense but standard-issue bursting of a bubble. It’s the inherent result of monetary central planning and the systematic falsification of financial asset prices.

It’s going to happen again.

But it won’t be “all at once,” nor will it be a straight line down.

But we must prepare for a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…


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David Stockman

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR