


There are a lot of misunderstandings about gross domestic product (GDP) and how it is calculated. I debunk some of the common ones, such as that imports reduce GDP or that government spending raises GDP, on the latest episode of my American Institute for Economic Research podcast Econception. Thomas Sowell, in his book Basic Economics, said good economists think in things, not in words, and thinking in words is a big part of why GDP gets misconstrued. The equation for measuring GDP is not GDP itself, and confusing the two is like confusing a thermometer and the actual temperature.
Also in this episode, I discuss why value-added taxes (VAT) are not tariffs, no matter what some in the Trump administration might say. They are trade-neutral and their existence is a poor reason to raise taxes on Americans with “reciprocal” tariffs. (There are hardly any good reasons to raise taxes on Americans with tariffs.)
Then, I talk about why a sovereign wealth fund for the U.S. is a terrible idea. U.S. public finances do not fit the arguments for a sovereign wealth fund, and U.S. wealth is best off in private hands. The last thing Americans need is another way for politicians and bureaucrats to channel money to cronies.
The Paper of the Episode is “Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms” by Youssef Benzarti and Alisa Tazhitdinova of UC-Santa Barbara. It’s exactly the type of paper economists should do more often: Test whether the predictions of economic theory hold up in real life. In this case, they do.
Please listen and subscribe to Econception by clicking here.