Tuesday, July 30, 2013

Voila! GDP (the number that is) is better than we thought...

Concerned about our anemic economic growth rate? How about our debt-to-GDP ratio? Don't sweat it too much, things are about to look a little bit better. Not that the economy is about to get better mind you, it's how we look at (or measure) it that's been adjusted. It's pretty slick actually: Research and distribution (R&D) expenses are, voilĂ !, no longer costs of doing business. From this week forward the GDP calculation will consider R&D to be investment---which is the "I" in the formula:

GDP = C (private consumption) + I (gross investment) + G (government spending) + X-I (exports minus imports).

And to sweeten the number just a bit more, the Bureau of Economic Analysis (BEA) is also adding unfunded pension liabilities and creative works (like creating a TV series) to the economy's bottom line.

All this takes into account what the BEA deems to be 21st Century components---although they're rerunning the numbers all the way back to 1929. Brent Moulton, the manager of national accounts for the BEA, says "we are essentially rewriting history". Beautiful!

So if you're California, the land of creative works and unfunded government pensions, you're about to look a whole lot better on paper. And if you happen to preside over the world's largest economy, post the Great Recession, you're happy---the new calculation will add a few basis points to your recovery. Nice timing!

Conspiracy? The right say "Hell Yes! They're manipulating the numbers to make themselves look good". The left say "No Way! They're just updating the numbers to reflect an evolving economy". Now if the tables were turned (if a Republican were president)---make no mistake---the right would justify it till the cows come home and the left would be screaming bloody murder.

So again, conspiracy? Well, would any politician---presented with intellectual cover---conspire to improve how the economy looks (presuming he's on the side that would benefit) in the absence of an improving economy? Of course he would! Does that undeniable truth, itself, make these revisions a conspiracy of the current administration? Nope. They monkey with the formula every few years. And while we might call the latest a gorilla (compared to prior revisions), the BEA says they "come from a 2008 international agreement that has already been implemented in nations including Canada and Australia."

Stay tuned: I have an idea for a GDP revision that, unlike the latest, would be truly meaningful going forward. I'll crunch a few numbers and get back to you shortly...

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