The Indicator from Planet Money Can you take government spending out of GDP?
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Mar 11, 2025 The podcast dives into the heated debate over government spending's role in GDP calculations. It highlights the Trump administration's stance on potentially separating government expenditures from GDP. Different opinions on the productivity of such spending are examined, alongside the complexities of measuring economic activity. The discussion also critiques GDP's limitations, including its neglect of the underground economy and overall well-being, while stressing the need for transparency in government finances.
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Government Spending in GDP
- Government spending is a significant part of GDP, accounting for nearly a quarter of the U.S. economy in 2022.
- This includes federal employee salaries and government purchases, demonstrating its integral role.
Lutnick's Tank Analogy
- Commerce Secretary Howard Lutnick wants to exclude government spending from GDP.
- He argues that paying people to think about buying a tank, unlike buying a tank itself, shouldn't count.
GDP Measures Activity, Not Productivity
- GDP measures economic activity based on whether someone got paid, regardless of perceived productivity.
- Whether building a tank or consulting on seat cushions, government-paid activities contribute to GDP.