In a controversial statement on Sunday, U.S. Commerce Secretary Howard Lutnick announced plans to separate government spending from the gross domestic product (GDP) report, calling for greater transparency in economic calculations. Lutnick, during an interview on Fox News Channel’s Sunday Morning Futures, criticized the current inclusion of government spending in GDP, saying, “Governments historically have messed with GDP. They count government spending as part of GDP. So I’m going to separate those two.”
Lutnick did not specify a timeline for when the change might take place, but his proposal is certain to spark debate. He justified his position by pointing out that while government purchases, such as military equipment, contribute to GDP, government salaries and administrative functions do not. “If the government buys a tank, that’s GDP, but paying 1,000 people to think about buying a tank is not GDP,” he argued, calling the latter “wasted money.”
This proposal comes at a time when businesses and consumer sentiment are showing signs of deterioration, raising concerns of an economic slowdown. Despite these challenges, Lutnick dismissed fears of an impending recession, asserting that the U.S. economy remains resilient under President Trump’s policies.
However, economists have expressed concern about the potential consequences of removing government spending from GDP calculations. They argue that such a move would lead to increased volatility and create difficulties in assessing the overall health of the economy. Sung Won Sohn, a professor of Finance and Economics at Loyola Marymount University, warned that the decision would make it harder to compare U.S. economic performance with global peers. “Economic growth over time would become a lot more volatile,” he explained, as government spending typically increases during economic downturns, and removing it would distort growth measurements.
The idea of recalculating GDP without considering government spending also raises questions about how accurately it would reflect national output, given that government activities contribute to infrastructure, defense, and other sectors crucial to the functioning of the economy. Despite these concerns, Lutnick’s proposal underscores ongoing debates over how best to measure economic growth and its implications for policymaking.
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