If you ask an economics professor about what GDP is, they will tell you that it is the total value of all goods and services produced by a country at a given time. That’s a simple enough definition, but how do you calculate that massive number? An economics professor will tell you that GDP is equal to the total spending by consumers, total investment, total government spending, and total net exports. The Trump administration, however, may be taking out the government spending part of the formula.
Trump Administration may exclude Government Spending from GDP Calculation
President Trump recently put Elon Musk in charge of the Department of Government Efficiency (DOGE). Musk plans on making massive cuts to government workers and budget in order to improve efficiency. Since this is Musks goal, it’s highly probable that government spending would decrease while Musk oversees DOGE, which would indicate an economic downturn. Commerce Secretary Howard Lutnick said Sunday March 2nd that he plans on separating the two. On Fox News, Lutnick said “You know, that governments historically have messed with GDP…They count government spending as part of GDP. So I’m going to separate those two and make it transparent.”
Many economists worry that by separating the two could complicate the way experts evaluate the overall wellbeing of the US economy. Government spending impacts GDP because changes in taxes or spending can impact the amount of spending power any individual may have. Since Musk plans on cutting federal jobs, the lost income of those who lost their jobs would impact those individuals spending power, and thus businesses and the US economy as a whole. In fact, Musk said “A more accurate measure of GDP would exclude government spending…Otherwise, you can scale GDP artificially high by spending money on things that don’t make people’s lives better.”
Lutnick Optimistic
Government spending represents about 20% of a persons income each year, or one fifth of the overall GDP. This includes social security, military veterans benefits, medicare, and other government programs. Excluding government spending from GDP wouldn’t calculate the spending of these individuals in GDP, even though their money is going into US businesses and the economy. Lutnick also said that spending cuts would balance the budget, reduce interest rates for consumers, and promote growth. He said “When we balance the budget of the United States of America, interest rates are going to come smashing down.” Lutnik also added that “This is going to be the best economy anybody’s ever seen. And to bet against it is foolish.”
