The main insight of the mini-documentary is that Gross Domestic Product (GDP) is a useful measure, but it only measures how much of our national output is allocated to consumption, investment, and
government. If we want more output, however, we should focus on Gross Domestic Income (GDI), which measures how national income is earned.
Focusing on GDI automatically leads lawmakers to consider ways of boosting employee compensation, corporate profits, small business income, and other components of national income. Focusing on GDP, by
contrast, is misguided since any effort to boost consumption generally leads to less investment. This is why Keynesian policies only redistribute national income, but don't boost overall output.
"Keynesian stimulus schemes failed under Bush and now they are failing under Obama" said CF&P FoundationPresident Andrew Quinlan. "This
new video hopefully will prevent similar mistakes in the future by helping people understand the importance of growth rather than redistribution."
"Keynesian policy is based on the fallacy that you can become richer by taking money out of one pocket and putting it another pocket, but this is a zero-sum game that appeals to statists and other
redistributionists," added Dan Mitchell of the Cato Institute. "Real economic growth occurs when we figure out ways to increase national income, which is why good
policy means reducing the burden of government."
Politicians and journalists who fixate on consumer spending are putting the cart before the horse. Consumer spending generally is a consequence of growth, not the cause of growth. This Center for
Freedom and Prosperity video helps explain how to achieve more prosperity by looking at the differences between gross domestic product and gross domestic income.
This new video is part of CF&P's Economics 101 video series, which is designed to explain free market concepts, with
particular emphasis on reaching students and young people. This is the tenth video in the series.