Coming up with ‘GDP – Government Expenditure’: ‘Trumponomics’ at its wildest best
- Post by: IPRR
- July 26, 2025
- No Comment
Sovik Mukherjee[1]
[1]Assistant Professor in Economics, Faculty of Commerce and Management St. Xavier’s University, Kolkata (INDIA), Email: mailtomesovik@gmail.com
| Title: | Coming up with ‘GDP – Government Expenditure’: ‘Trumponomics’ at its wildest best |
| Author(s): | Sovik Mukherjee |
| Keywords: | Government Expenditure; GDP; Statistical Agencies; USA |
| Issue Date: | 25 July 2025 |
| Publisher: | IMPRI Impact and Policy Research Institute |
| Abstract: | Trump administration officials are planning to come up with the idea of removing government production from GDP calculations. The administration is worried that measuring GDP inclusive of government expenditure (reflecting the spending cuts) might make Mr. Trump look bad. This is the leading cause of the current debate regarding the separation of government expenditure from GDP. Defining GDP to now be ‘GDP – G’ is a genuinely terrible idea as it is going to leave out the government’s value creation in the economy and make the GDP fundamentally incomplete. |
| Page(s): | 1-4 |
| URL: | https://iprr.impriindia.com/coming-up-with-gdp-government-expenditure-trumponomics-at-its-wildest-best/ |
| ISSN: | 2583-3464 (Online) |
| Appears in Collections: | IPRR Vol. 3 (2) [July-December 2024] |
| PDF Link: | https://iprr.impriindia.com/wp-content/uploads/2025/07/I1_Coming-up-with-GDP-–-Government-Expenditure_Sovik_Mukherjee-IPRR-V4I1-Jan-June-2025.pdf |
(January-June 2025) Volume 4, Issue 1 | 25th July 2024
ISSN: 2583-3464 (Online)
Background: Measurement of GDP
According to the Bureau of Economic Analysis (BEA), GDP measures the value of the final goods and services produced in the United States (without double counting the intermediate goods and services used up to produce them). The value that is being emphasized in this definition is the market value. GDP is a measure of a nation’s overall economic production, not its consumer surplus.
The key concept is that GDP measures final output. It does not matter who buys that output. It can be consumers, firms, the government, or foreigners. As long as it’s a final good or service produced domestically, it is counted in the GDP (Landefeld et al., 2008). That is what standard macroeconomics textbooks have taught us.
Recent reports by the Atlanta Fed suggest that the spending cuts proposed by Elon Musk’s Department of Government Efficiency may be one of the causes of the US economic slowdown. And Elon Musk has to defend that and do all the talking even if his economic understanding seems to be very poor. Musk argued that ‘a more accurate measure of GDP would exclude government spending.’ US Commerce Secretary Howard Lutnick echoed what Musk said and claimed that ‘governments historically have messed with GDP,’ suggesting the separation of the two components.
Spending by the government is an example of actual economic activity that uses real resources to produce goods and services that are available in the market. For example, any public good provision made by the government. It is indeed baffling to see how these people in the Trump administration are thinking of leaving out the government’s value creation.
Flawed GDP Critique
The new approach is consistent with the long history of criticisms labeled against the GDP that misinterpret the goal of the measure. Critics have argued for decades that the GDP metric ignores important facets of society, such as volunteer work, leisure time, and unpaid housekeeping (Van den Bergh, 2009). Others point out that GDP encompasses activities like cigarette manufacturing that are not always good from society’s point of view (Nargis et al., 2022).
These observations aren’t entirely incorrect. It is a fact that GDP as a metric has flaws. That does not, however, mean that we should arbitrarily start removing anything that we find objectionable. The approach Musk and Lutnick are intending to take. Spending by the government undoubtedly constitutes actual output using real resources, even though it may not reflect consumer preferences as much as private spending does. The most perplexing aspect of this plan is that all this is being discussed even when there already exists a metric that measures private-sector output and does not include government spending.
The BEA publishes this data alongside GDP in its national accounts to track private sector performance separately from government activity, which it can already do. The majority of the countries follow this structure, including India.
Also, government spending generates economic value irrespective of whether it is utilized to fund the construction of infrastructure or to pay for wasteful ventures. If it results in goods and services being produced, it has to be included. How optimally the funds are being utilized is not the criteria for inclusion in the GDP. Both Musk and Lutnick appear to be completely ignorant in this regard.
Instead of creating a new, politically driven indicator, already existing metrics have been designed specifically to analyze private sector activity. A new “GDP minus G” would be confusing at worst and superfluous at best.
The strangest part of this proposal is that it would make Biden’s economic performance look better and not worse, as per reports by FRED News. If government spending is removed from the GDP, the Biden economy would appear stronger. This illustrates why tampering with the measurement tools for political reasons is so dangerous.
Statistical Agencies Under Attack
There is much more to the plan to exclude government spending from GDP than a simple misinterpretation of economic measurement. It suggests a possible attack on the integrity of the statistical organizations and the unbiased economic data they generate. Additionally, this bodes ill for independent statistical agencies around the world. Over the years, the Census Bureau, the Bureau of Labor Statistics, and the Bureau of Economic Analysis have become the pillars on which America’s statistical data stands. The credibility of the priceless institutional expertise that a large number of professional economists, statisticians, and data scientists working in these institutions bring will now be questioned in light of attempts to tamper with measuring instruments like GDP.
In view of trying to tamper with measurement tools like GDP, the credibility of the invaluable institutional expertise that a large number of professional economists, data scientists, and statisticians working in these institutions bring will now be questioned.
Given that these modifications would constitute an unprecedented assault on the reliability of official statistics, there is cause to believe that Musk and Lutnick are foolishly serious about it. Two expert panels that collaborate with the government to generate economic data were dissolved by the White House earlier last month, according to Reuters.
Several countries have been accused of or shown to manipulate data and statistics, often for political or economic gain, with examples including China, Greece, and Argentina (Aragão & Linsi, 2022). The US has almost made up its mind to follow a similar line.
GDP should not be messed with
Because it encapsulates the total monetary worth of finished goods and services produced, GDP has persisted. Attempts to drastically deviate from the fundamental formula frequently still show a substantial correlation with the actual measure of GDP, indicating that GDP’s attraction has not been done away with.
For example, some argue we should focus more on measures of well-being, happiness, or social progress rather than raw economic output. Those are worthy goals, but in a developed country like the US, these tend to go hand in hand with GDP growth over the long run (Giovannini et al., 2007).
It is possible that Musk and Lutnick are overly concerned about the GDP estimates that the Atlanta Fed has come up with. Team Trump’s motivations seem to be simple: GDP numbers could make the White House look bad, and changing the way that GDP is calculated could make it look better. These people are not concerned about the underlying economic principles that define GDP.
J. W. Mason, an economics professor at the City University of New York, made a compelling argument. He has shown that the decline in GDP is driven by slower growth in imports and consumption and not because of government spending cuts. So, without going into the depths of the problem, it is kind of decided that GDP will be redefined in the ‘Trumponomics’ (Moore & Laffer, 2018) literature.
Conclusion
All said and done, GDP does not capture everything that matters to us. Despite its shortcomings, GDP captures a significant and fundamental aspect of how economies function and progress on the path of development. Proposals like eliminating government spending from GDP calculations are not honest endeavors to create better measurement tools; instead, they are just political gimmicks.
It is not about the US alone. Across the globe, a request to all the policymakers will be to keep the methodology followed for national income accounting both politically neutral and methodologically sound.
References
Aragão, R., & Linsi, L. (2022). Many shades of wrong: what governments do when they manipulate statistics. Review of International Political Economy, 29(1), 88-113.
Landefeld, J. S., Seskin, E. P., & Fraumeni, B. M. (2008). Taking the pulse of the economy: Measuring GDP. Journal of Economic Perspectives, 22(2), 193-216.
Giovannini, E., Hall, J., & d’Ercole, M. M. (2007, November). Measuring well-being and societal progress. In Conference Beyond GDP-Measuring progress, true wealth, and the well-being of nations, European Parliament, Brussels (pp. 19-20).
Moore, S., & Laffer, A. B. (2018). Trumponomics: Inside the America First plan to revive our economy. Macmillan+ ORM.
Nargis, N., Hussain, A. G., Asare, S., Xue, Z., Majmundar, A., Bandi, P., … & Jemal, A. (2022). Economic loss attributable to cigarette smoking in the USA: an economic modelling study. The Lancet Public Health, 7(10), e834-e843.
Van den Bergh, J. C. (2009). The GDP paradox. Journal of Economic Psychology, 30(2), 117-135.