Put out the FIRE (in GDP)! -- Jacob Assa

Recommended reading: Put out the FIRE (in GDP)! by Jacob Assa.

An excerpt:

By 2009 — even after the onset of the financial crisis — FIRE accounted for over a third of all economic activity included in U.S. GDP. Recent years have witnessed a growing divergence between the economic picture painted by GDP on the one hand, and one suggested by employment figures or standard of living measures such as median income, on the other.
The last three recessions in the U.S., for example, have been followed by “jobless recoveries”: GDP rose while unemployment rates remained high and job-creation stagnated, as shown in Figure 1:

Figure 1. Indices of GDP and Employment for the United States, 1987-2011 (1987=100)
© Jacob Assa

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Does the inclusion of all FIRE revenues in GDP explain these divergences?
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Unlike other sectors that produce goods and services, FIRE mostly creates and trades financial assets. In other words, FIRE creates and trades exchange value (money and credit) rather than producing use-value (a good or a service that can be consumed directly). In short, including FIRE in GDP provides an erroneous picture of the amount of goods and services that our economy creates.

Recognizing the error of including all FIRE revenue in GDP calculations also helps to explain why GDP growth in recent years has not translated into job growth...