National Accounting Should First and Foremost Support Voluntary Action
Decisionmaking by customers and businesspeople will be faster and more accurate if the national accounts feature current-year values added of raw materials and intermediates, and if the primary focus throughout data collection and reporting is to report in real time with no delay.
May 7, 2021
Customers and businesspeople make the lion’s share of economic decisions. Each decision is a control action.
Good Control Requires Minimum Delay
In control, conditions and goals normally change fairly often and fairly significantly. In these circumstances, the control that’s best is control that makes measured values move towards currently-desired values as quickly as possible, with maximum dynamic accuracy.
For maximum dynamic accuracy, what’s most critical is to measure, decide, and act with minimum delay . The importance of minimum delay is shown by an everyday example, control of motor vehicles. It’s possible to control a motor vehicle that’s of any size; but it’s not possible to control a motor vehicle using only the views out the side windows or rear window, even if these views are perfect. Information about the road ahead reaches the driver through these views eventually, but only after a delay. This delay makes these views unusable for control .
Control of economic activities can involve a sizable delay before people measure, decide, and act. Delay in actions—stickiness in wages , in prices , in government actions—stems mostly from government actions, and government actions can be reduced best by designing and building a good party as described elsewhere . Delays in deciding are minimized automatically by customers, who naturally select the products of businesspeople who add value better. Delays in measuring, and key associated opportunities in national accounting, are addressed here.
Measure Current Value Added, V
In reporting economic activity, the value that’s the most useful is the value that attracts capital. What attracts capital is investment returns. Investment returns depend, in the end, on profits. Profits correlate most closely  with the values labeled in national accounts as net value added, here called value added, V.
V values in all production stages currently are not reported as-measured, but instead are adjusted so the reported V values sum up to equal the reported GDP .
This means that the V values that currently are reported are a mixture of components that are dissimilar: the V values of various raw materials and intermediate products from various past years that were incorporated into the final products sold this year, together with the V values of the final products that were sold this year.
These numbers don’t add up. The tabulated V values have units of currency units per year; for instance, dollars per year. Summing values of V per year that are from different years is like summing apples and automobiles: the values have different units, so summing them is incorrect .
Reporting the unadjusted current-year V values instead will be correct.
The resulting values will potentially be more valuable. They should be made highly visible, so their potential value is realized.
Economywide V summaries—sums of the current V at all production stages—will provide better overall help: it will more-accurately indicate customers’ and businesspeople’s current earnings, future purchasing, and future V.
Stagewise V summaries—breaking out the current V resulting from producing materials, intermediates, and final products—will more-accurately compare current business-to-business material and intermediate economic activity to current business-to-customer final-product economic activity.
Industry-sector and product-category V breakouts—further breaking out current V, and also reporting the current V of the associated inventories (reported as currency units, not currency units per year)—will provide targeted help. These V breakouts will help businesspeople better anticipate and work around possible supply-chain bottlenecks, so businesspeople can reduce inventories. These V breakouts will also help businesspeople optimize production rates so businesspeople can further reduce inventories. When businesspeople reduce inventories, this will reduce the working capital they use, which will reduce the overall capital they use to achieve the same production. This will increase productivity.
Summarize Voluntary Value Added, VV, and Voluntary Value Added per Capita, VVC
Much-improved accuracy, understanding, and control will be achieved given two additional aggregate changes in reporting economic activity, and one systemic change.
First, given value added, V, subtract the government spending to reveal Voluntary Value added, VV. Every bit of value that government people spend is produced by customers and businesspeople, but then is coerced away by government people and is controlled by government people to benefit government people. Government spending is not voluntary cooperation that increases V, government spending is coercion that reduces how much V is controlled by individuals. The overall value that’s the most important to individuals is how much V is voluntarily controlled by individuals—that is, how much V is voluntarily controlled through the decisions of individual customers. That value is VV. VV growth is necessary for economic improvement to, on average, be experienced by individuals.
Second, given VV, divide by the number of people to reveal voluntary value added per capita, VVC. VVC growth reveals when economic growth exceeds population growth. VVC growth is sufficient for economic improvement to, on average, be experienced by individuals. Less economic growth is true recession; more economic growth is true growth.
Finally, from start to finish do the data processing described here automatically. The vision should be to collect data as soon as it exists inside businesses’ internal systems, thoroughly automate all processing, and make updated results available continuously. Eliminating all processing delays will make the data suitable for dynamically-accurate control, so the data will best support decisionmaking by customers and businesspeople.
This is feasible modern decision support: Minimize delays. Report current values of value added, V. Reckon growth and recession using voluntary value added per capita, VVC.
Reenvision the national accounts as first and foremost providing customers and businesspeople real-time decision support.
James Anthony is the author of The Constitution Needs a Good Party and rConstitution Papers and has written articles in The Federalist, Foundation for Economic Education, American Thinker, American Greatness, and rConstitution.us. Mr. Anthony is an experienced chemical engineer with a master’s in mechanical engineering.