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Financial Output as Economic Input: Resolving the Inconsistent Treatment of Financial Services in the National Accounts

Author

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  • Jacob Assa

    (Department of Economics, New School for Social Research)

Abstract

This paper investigates the inconsistent treatment of financial services in the national accounts. While net interest income from financial intermediation is netted out as input to other industries and thus does not affect the overall level and trend of Gross Domestic Product (GDP), fee-based net income from financial services is included as value-added, inflating GDP by the same amount. A new measure of economic activity which resolves this inconsistency is introduced, treating all financial income as a cost or intermediate input to the rest of the economy. The resulting aggregate tracks employment and median income far more closely than GDP.

Suggested Citation

  • Jacob Assa, 2015. "Financial Output as Economic Input: Resolving the Inconsistent Treatment of Financial Services in the National Accounts," Working Papers 1501, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:1501
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_012015.pdf
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    References listed on IDEAS

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    1. Nicholas Oulton, 2013. "Has the Growth of Real GDP in the UK Been Overstated Because of Mismeasurement of Banking Output?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 224(1), pages 59-65, May.
    2. Steven Pressman & Robert Scott, 2009. "Consumer Debt and the Measurement of Poverty and Inequality in the US," Review of Social Economy, Taylor & Francis Journals, vol. 67(2), pages 127-148.
    3. Deepankar Basu & Duncan K. Foley, 2013. "Dynamics of output and employment in the US economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(5), pages 1077-1106.
    4. Leonidas Akritidis, 2007. "Improving the measurement of banking services in the UK National Accounts," Economic & Labour Market Review, Palgrave Macmillan;Office for National Statistics, vol. 1(5), pages 29-37, May.
    5. David Colander, 2014. "Gross Output: A New Revolutionary Way to Confuse Students about Measuring the Economy," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 40(4), pages 451-455, September.
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    Cited by:

    1. Remzi Baris Tercioglu, 2019. "Rethinking growth and inequality in the US: What is the role of measurement of GDP?," Working Papers 1906, New School for Social Research, Department of Economics, revised Feb 2020.
    2. Richard E. Itaman, 2022. "The finance‐growth nexus enigma: Bringing in institutional context and the productiveness debate," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 504-527, April.

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    More about this item

    Keywords

    Measurement of real output; employment; national accounting; finance;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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