The overstated economy: Implications of positive public economics for national accounting

Current national income accounting, which is based on the ‘comprehensive production concept’, is criticized on the basis of the ‘modern transfer’ view of government activity, which is based on a positive theory of bureaucracy and representative government, and is shown as ‘overstating’ the size of the national economy. Such mismeasurement inevitably leads to misunderstanding the macroeconomic effects of nationalization, redistribution and stabilization policies. An alternative concept, the ‘restricted market production concept’, is shown as providing a consistent and economically meaningful measurement of the size of the national economy and of the relevant effects of various government policies. qu]The underlying assumption is that [government] services are worth their costs, i.e., that they are produced and supplied after a proper balancing by the authorities (or the electorate itself on given occasions) of their social advantages and social cost. [A footnote continues!] This assumption may be correct in societies that are well governed but would be incorrect in those that are not. Paul Studinsk; The Income of Nations, 1961 (bracketed words added)