If you, like me, liked Arnold’s post today on the pitfalls of GDP, take a look at my piece titled “GDP Fetishism.” I explicitly address, among other things, the huge problem with valuing the G (government spending on goods and services) part of GDP at cost.

I’ll point out another major problem with the Mark Thoma approach that Arnold criticized. It isn’t just that G might not be worth much. It’s also that Mark throws out price theory. He looks at the various other components of GDP and says why there’s not much hope for them to improve. But with huge amounts of idle resources around, a way for things to improve with zero incremental G or even with a drop in G is for prices of these idle resources to adjust downward. To take just one example, imagine what kinds of extra goods and services might be produced if the minimum wage fell by just 20 percent.

Even though I’ve addressed the same issue that Arnold addressed, notice that I’ve put my post in the title “Microeconomics.” Microeconomics is what’s missing from Thoma.