In the midst of the current crisis we are having a national conversation about how to balance health concerns with economic concerns, and as of this point in many states large gatherings such as sporting events, concerts and movies are rescricted. I am not opining for nor against these policies, as it is outside my expertise. The economics of such restrictions is something I do know something about and it is that although these sorts of activities involved high levels of visibility, the economic output of them is not large in comparison with less visible industries.
First, let’s look at economic output. Although Gross Domestic Product (GDP) is often interpreted as though it describes all economic production in a nation, it does not. The economic statistic which attempts to capture all economic output is called Gross Output. The difference between these two numbers is that GDP tends to focus on the final steps of the economic production process. When you buy something from the store, that’s in GDP. But the steps which occur before goods are in inventory tend not to be captured by GDP. Buying a car? That’s GDP. Building a car? Not GDP. Building the components which get built into a car? Not GDP. Mining ore and refining it into the metals that go into a car? Also, generally not in GDP.
But those things are part of ‘the economy’. They create value. People get paid to do them. Companies make a profit doing them. Investors get returns by investing in the companies that do all of this pre-GDP stuff.
The graphic below shows roughly how large (based on the three year average) the steps before GDP are, the GDP itself is, and how these two aspects of the economy (which roughly correspond to production and consumption) add up to Gross Output.
Now, let’s take this Gross Output and break it down in subsections representing the various sectors and industries.
It is easy to see which sectors are doing the heavy lifting when it comes to economic output. Finance is almost 20%. Finance provides the capital for every other sector. Manufacturing is almost 17%, and adding construction to that puts the combined sectors at over 20% of output. Professional and business services are over 11%.
Now let’s look at a pie chart which highlights the parts of the economy most under pressure during shutdown conditions.
The whole world of electronic entertainment, broadcasting, film and television is only 5% of output. And the whole world of ‘events’, sports, concerts, culture, recreation, accommodation and food service is only about 4%.
And of that electronic entertainment slice, the part which is about producing films and television is less than one half of a percent. The whole zone of spectator activity, sports, culture, entertainment, gambling, and recreation is less than one percent. Empty stadiums and cavernous concert halls make for dramatic TV footage, but not for dramatic macro-economic shifts. The point is that it’s possible to get a lot of economic recovery even with theaters, etc. remaining closed for awhile.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.