Trump Advisers' GDP Gambit: A Recipe for Economic Muddle

As the Trump administration continues its quest to reshape the U.S. economy, a new proposal has emerged: stripping public spending from the Gross Domestic Product (GDP) tally. While the idea may seem appealing at first glance, it's a recipe for economic confusion and misguided policy. Let's dive into why this makes no sense.

First, let's address the elephant in the room: government spending is a significant driver of economic growth. In the fourth quarter of 2024, the federal government's component of the GDP report increased at 2.6%, contributing to overall economic growth. Excluding this crucial aspect of the economy would paint an incomplete picture of its health and trajectory.

Moreover, government spending can have multiplier effects, where each dollar spent by the government can lead to more than a dollar of additional economic activity. This is particularly true during economic downturns, when government spending can help to stabilize the economy. By excluding government spending from GDP, the administration may underestimate the impact of government spending on economic growth, leading to policy decisions that are not in the best interests of the economy.

Another concern is the potential undervaluation of public goods and services. Some forms of government spending, such as public infrastructure, education, and healthcare, provide significant benefits to society that may not be fully captured in GDP. By excluding government spending, these public goods and services could be undervalued, leading to a misallocation of resources and potentially underinvestment in critical areas.

The Trump administration's proposed change in GDP calculation also aligns with some traditional economic principles and international standards, such as the System of National Accounts (SNA). However, it deviates from other international standards and traditional economic principles in several ways. For instance, it ignores the role of government in providing public goods and services and may underestimate the impact of government spending on economic growth.

In conclusion, the Trump administration's proposed change in GDP calculation, which involves separating government spending from the overall GDP, is a misguided attempt to reshape the U.S. economy. By excluding government spending from GDP, the administration risks creating a distorted economic picture, misleading GDP growth rates, obscuring the impact of government policies, and potentially underinvesting in critical areas. It's crucial for policymakers, economists, and the public to recognize the importance of government spending in driving economic growth and to reject this ill-conceived proposal.

As investors, we must stay informed about the potential consequences of such policy changes and make investment decisions accordingly. While the Trump administration's proposed change in GDP calculation may not have an immediate impact on the stock market, it could lead to long-term economic consequences that affect our portfolios. By staying vigilant and maintaining a well-diversified investment strategy, we can navigate the potential challenges that lie ahead and continue to grow our wealth.