Why a Stove in the Kitchen Is Like the Government in the GDP

Economist Jared Bernstein tells us, “The government sector is part of the definition of GDP just like ‘stove’ is part of the definition of ‘things in my kitchen.’”

Because of recent suggestions that we change the government sector of the GDP, let’s take a look.

The Gross Domestic Product (GDP)

Definition

The GDP is the total dollar value of the goods and services a country produces in one year. To get the U.S. total of approximately $29 trillion (nominal, not inflation adjusted), we primarily add together what consumers, businesses and government spend. Then, subtracting imports from exports, we get our total:

Above and below, the U.S. Bureau of Economic Analysis (BEA) gave us a summary:

History

During the 18th century we had no GDP nor any economists. But still, politicians wanted to know their country’s wealth. The earliest records of attempts to gather national income data date back to 1665 and then 1695. The real goal was to see if tax revenue could finance and sustain a war.

However, for more accurate statistics, we needed to wait until the 1930s and the impact of a Russian immigrant. After getting a Ph.D in economics from Columbia University, Simon Kuznets joined the National Bureau of Economic Research (NBER). Eventually becoming a Nobel Economics laureate for his work at the NBER, Simon Kuznets (1901-1985) developed the national income accounting that led to the GDP.

Deciding what should be included, his key was real numbers. He wanted to be sure that we could quantify what was produced through market prices of legal goods and services. As a result, Kuznets’s new metric revealed the depth of the Great Depression and also helped us fight World War II. During the 1940s, national income numbers let planners reallocate civilian targeted land, labor, and capital to military weapons and vehicles. In addition to policy, the GDP lets us compare economic size and growth to the other nations that also use it.

Our Bottom Line: Keeping the GDP

Seemingly dry, the GDP has been a controversial statistic. Because we “treasure what we measure,” its critics (and Simon Kuznets) have pointed out it is not a metric of personal well-being. Twenty-first century critics suggest modifications that recognize environmental and income equality considerations. Their suggestions though are very different from what “DOGE CEO” Elon Musk and Secretary of Commerce Howard Lutnick propose. According to The Washington Post, they suggest that statisticians exclude government spending.

Government

By recording purchases of goods and services, the government component of the GDP keeps track of approximately 17% of all domestic production. Its numbers at the federal level reflect the submarines the Navy buys, the services judges provide, and the cost of building a highway. Equally important, it does NOT include Social Security because those payments do NOT indicate the production of a good or a service. Like the consumption and investment components, government spending is a record of the goods and services we produce. Its omission would skew our statistical accuracy.

And contrary to what its proponents suggest, excluding government minimally affects the GDP’s trajectory:

It is indeed like the stove in our kitchen.

My sources and more: For the basics, this BEA graphic is a good place to start. From there, The Washington Post did a good job of discussing the GDP and the Trump administration’s proposals for changing it as did Axios. Then, for some history, the World Economic Forum complemented what we have shared. However, most of all, I suggest Jared Bernstein’s Substack discussion of why we have to retain government in GDP. And finally, for an excellent book on the GDP, do read Diane Coyle’s, GDP A Brief But Affectionate History.

Please note that several of today’s sentences were in a previous econlife post.