Patterico's Pontifications

4/27/2013

Obama Manipulates the GDP Number to Manipulate You

Filed under: General — Patterico @ 12:01 am

The Obama administration is re-jiggering the numbers that describe our economy, so that the description of how we are doing will improve even when the reality remains unchanged. Shocker, huh?

The current change is to the method of calculating Gross Domestic Product (GDP). The Seeking Alpha blog explains:

In March 2013, the U.S. government invented a new way of calculating GDP. The Financial Times reported that starting from July 2013, U.S. GDP would become 3% bigger due to a change in statistics. [GDP] now includes R&D spending, art, music, film royalties, books, theatre. This change in GDP statistics has not been implemented elsewhere in the world. So the U.S. is the first to accomplish this rewriting of the GDP number.

Research and development (R&D) spending, which shouldn’t even be accounted for as investment, adds a significant amount to the U.S. GDP number. It accounts for around 2% of U.S. GDP. Art, music, film royalties, books and theatre add another 0.5% to U.S. GDP. Another adjustment has been made to pension accounting. Previously, pension spending was included in GDP. After this adjustment however, we also look at the “promise” to pay out pensions. So we are talking about imaginary numbers that are now included in GDP. A last example is found in real estate. Commissions, legal bills and expenditures on real estate transactions are included in GDP as “investment.” Obviously these expenditures aren’t associated with real production.

One of the consequences is that comparing the GDP number between other countries and the U.S. is not transparent anymore. It is like comparing apples and oranges. GDP should measure real production (like building a factory) and what the U.S. government added here is not real production. It is a measure of spending in the economy and there are items in the GDP number that don’t add real value to the economy (like writing books).

Bad enough. But the GDP number is already a joke in many ways. Let me describe one: the way that it favors government expenditures over private expenditures. As Peter Schiff recently pointed out on his podcast, when government hires someone, we count that as part of GDP, but when private industry hires someone, we don’t. The example given by Schiff is this: an engineer is fired from private industry, and takes a government job as a janitor at 1/2 his former wage. GDP now increases, because his private industry job did not count in GDP — but his government job does.

After hearing this, I sought out a link that would explain the concept. I found one here, at the Library of Economics and Liberty:

Today I’d like to draw attention to one of the peculiarities of GDP. For your consideration:

Scenario 1. Tomorrow, ExxonMobil spontaneously hires an unemployed petroleum engineer for $100K per year. She spends a year looking for new oil, finds nothing.

Scenario 2. Tomorrow, the federal government spontaneously hires an unemployed petroleum engineer for the same $100K. She spends a year looking for new oil, finds nothing.

So, how do these two alternative scenarios impact the official GDP figures?

Scenario 1 has zero impact on GDP: No oil to sell=no extra consumer purchases=no extra GDP. As the Bureau of Economic Analysis says, “Personal consumption expenditures…is goods and services purchased by persons…”

Scenario 2 raises GDP by $100K. As BEA says, “Government consumption expenditures…consists of…compensation of employees…”

That particular example is becoming moot, with the inclusion of R&D in GDP, but the distinction between most government and private jobs remains.

Hiring a worker who (through no fault of her own) accomplishes absolutely nothing raises GDP if the government does the hiring. Hiring a worker who (through no fault of her own) accomplishes absolutely nothing does nothing to GDP if the private sector does the hiring.

Why? Because GDP counts government salaries as “government expenditures” as soon as the government hires a person. But the “consumption” and “investment” parts of GDP only count genuine purchases by the private sector (leaving the oddities of imputed spending for the coda below).

(That particular example is becoming moot, with the inclusion of R&D in GDP, but the distinction between most government and private jobs remains.)

We’ve discussed on this blog how economic data and indicators are often flawed. The Dow Industrial Average is a joke. Unemployment numbers don’t begin to give an accurate picture of the true state of unemployment in the nation, and ignore the explosion of disability claims. And now, I learn, GDP is distorted to favor government spending, and is manipulated by politicians to make imaginary improvements in the economy appear real.

Thank God we have Big Media in our corner, at least, explaining these deficiencies to the general public at every turn, so that voters are not misled.

I’m OK! I’m OK! I’m not passing out, don’t worry, I’m fine. That was just a more pronounced eye roll than usual, that’s all.

44 Responses to “Obama Manipulates the GDP Number to Manipulate You”

  1. In USA, data massage YOU!

    Jcw46 (0af03c)

  2. They can claim “Happy days are here again” all they want, but we know how bleak things are out here in the actual world. 90 million Americans are out of work and nothing promising on the horizon.

    firefirefire (b0457e)

  3. Obama has left a stain on America that will never fade.

    mg (31009b)

  4. Obama can not even count who is really his father how in the heck can he do big time math like GDP.

    highpockets (9e8454)

  5. GDP created or saved!

    daleyrocks (bf33e9)

  6. When I majored in economics way back in ’73 some of the first things we were taught was how NEVER to believe the numbers. I had a professor who showed us how they manipulate everything from COLA to UE and every number and statistic in between.

    I’ve noticed since then that not only was my professor correct but things they can’t manipulate they screw with in “polls”. You know, like 90% of Americans are for X, or against X whatever the latest leftist angle is.

    Then we get the Correspondents Dinner where they offer favors and 20 pound Swag-Bags to the Fourth Estate hoping, No Buying, their continued loyaly and ignoring the lies of omission, statistics and general bull crap. Bengazzi shut up there’s swag. Fast & Furious nothing here there’s a job offer.

    Yep the Fourtrh Estate. Royaly, Clergy, Commoners and bought and paid for liars and enablers. That’s our Fourth Estate.

    Hoagie (3259ab)

  7. It’s all right. After all, it’s for our own good.

    We can’t handle the truth.

    Icy (dbf19e)

  8. The US government is becoming more like the central government of China. It is churning out numbers that one cannot and should not believe. This is like having a thermometer on which the only number on the scale is 98.6 degrees.

    LTMG (9138df)

  9. ‘thirty five grams of chocolate rations’ they see 1984, as an instructional guide.

    narciso (3fec35)

  10. It’s worse than that fellas. There is a great amount of our population who actually parrot these crap numbers as if they were sent from God. Not only do they believe them but they repeat them and use them in their economic and political arguements as gospel. I ask you: how often has Perry quoted some absurd number or poll to “prove” his point? Now mulitply him by 50 million. Scary.

    Hoagie (3259ab)

  11. Are we still at war with Eurasia?

    Winston (be0117)

  12. The capitalization of expenses is a running 500 year joke in accounting. Why should Gov.t be left behind.

    Rodney King's Spirit (ae12ec)

  13. Greetings:

    And what about the Rate of Inflation ??? I seem to have lost my Rate of Inflation. Has anyone seen my Rate of Inflation anywhere ???

    11B40 (15c70a)

  14. The extremely clever and heavy handed manipulation of numbers from the administration does seem to work in most areas of news and policy. But when it comes to the economy, working people (and people who genuinely want to work but can’t find it) who go to the store to buy food and gas and supplies–and who want to save a little for their retirement– recognize that most of what they read and hear about the recovery is all bs. Unfortunately, being aware of it and being able to do anything about it are two entirely different matters as the results of last November’s election demonstrated.

    elissa (2a9d77)

  15. While interesting this is nowhere near as manipulative as the great inflation calculation change. It took a real genius (or something) to come up with removing the price of things people buy (gasoline, food and such) from inflation because their prices are too volatile, and they’re too volitile because people buy them.

    max (131bc0)

  16. John Williams’ Shadow Government Statistics is a good site for keeping track of the manipulation. A lot of the analysis requires a subscription, but on the other hand a substantial amount of information is available for free to the public such as their charts and primers on statistics like GDP, CPI, unemployment, etc.

    http://www.shadowstats.com/primers-and-reports

    The bottom line is that a lot of businesses don’t relay on government statistics because they’re so subject to manipulation. For instance, the inflation rate. That’s easy enough to do. You just change the “basket” of goods. Manipulating it is attractive in it’s own right, but it also helps the government manipulate real GDP since nominal GDP – inflation = real GDP.

    Many administrations have deliberately distorted these stats, but I can’t think of a single stat from percentage of crime guns found in Mexico to the apprehension rate and deportation rates of illegal aliens and now to GDP that this administration hasn’t tortured into utter meaninglessness.

    Steve57 (da9e0e)

  17. Steve57, well, except for the now famous “90% of Americans want the senate gun control law passed”. That was prolly completely true, right?

    elissa (2a9d77)

  18. elissa, it’s right up there with Romney getting no votes and Obama winning nearly 100% of the vote in 59 Philadelphia precincts and in 37 Chicago precincts.

    http://www.nbcchicago.com/blogs/ward-room/In-37-Chicago-Precincts-Romney-Received-No-Votes-179135891.html#ixzz2CEos3OGe

    I totally believe that, too.

    Steve57 (da9e0e)

  19. Another example is government spending as a percentage of GDP. By increasing the GDP number, we will get a lower government spending number, which allows the government to increase spending.

    happyfeet (8ce051)

  20. Good point. Also tax revenue as a percentage of GDP goes down. So expect Obama to use the artificially inflated GDP figure to demand higher taxes.

    Steve57 (da9e0e)

  21. They are piggy piggies, Mr. feets.

    Icy (dbf19e)

  22. lying liars lie.

    what a surprise…

    not.

    redc1c4 (403dff)

  23. 1. On average, that $100k oil engineer working for Exxon is going to be responsible for producing $100k worth of oil, which does get counted in the GDP. For the private sector, we count outputs, not inputs to avoid double counting.

    2. I am willing to bet $100 that we don’t see a sudden 3% jump in reported GDP. I bet it is normalized.

    3. I am a California licensed attorney, broker and animal trapper. I am very confused as to when I contribute to the GDP.

    tomhynes (1c5721)

  24. I have long since ceased to believe anything coming out of the Federal government. Let me be perfectly clear: Every bit of information coming from the United States federal government is a bald-faced lie unless and until proven otherwise.

    Rusty Bill (e3b0ca)

  25. tomhynes #23 – you probably have to broker yourself into a job at the EPA, and then sue yourself for trapping animals – under this administration, that would have you contributing to the GDP …

    Alasdair (a28b33)

  26. Preserving the dignity of the presidency, Obama makes a joke about his college dope smoking at tonight’s nerd prom.

    Pure class!

    daleyrocks (bf33e9)

  27. 23. 1. On average, that $100k oil engineer working for Exxon is going to be responsible for producing $100k worth of oil, which does get counted in the GDP. For the private sector, we count outputs, not inputs to avoid double counting.

    Clearly there’s no danger in double counting when the USGS engineer is hired as they’re never going to be expected to produce anything.

    2. I am willing to bet $100 that we don’t see a sudden 3% jump in reported GDP. I bet it is normalized.

    Comment by tomhynes (1c5721) — 4/27/2013 @ 2:08 pm

    I expect the same. I expect the wondrous improvement to just show up in time for Obama to claim there’s an economic recovery in time for the 2014 mid-term elections.

    Steve57 (da9e0e)

  28. I don’t think it’s too early to congratulate the people of Kali on their new “Bill of Rights” for the homeless.

    http://blogs.sacbee.com/capitolalertlatest/2013/04/updated-homeless-bill-of-rights-passes-committee.html

    An amended version of a bill that would extend new protections to California’s homeless population cleared the Assembly Judiciary Committee on Tuesday morning.

    Assemblyman Tom Ammiano, D-San Francisco, framed Assembly Bill 5 as an attempt to create a statewide baseline of homeless civil rights, citing a proliferation of municipal ordinances cracking down on behavior like lying or sleeping on the sidewalk as examples of the “criminalization of poor people.”

    “Today numerous laws infringe on poor peoples’ ability to exist in public space, to acquire housing, employment and basic services and to equal protection under the laws,” Ammiano said at a Tuesday morning hearing.

    Read more here: http://blogs.sacbee.com/capitolalertlatest/2013/04/updated-homeless-bill-of-rights-passes-committee.html#storylink=cpy

    Ten rights as in the original Constitution are just way, way too many if you’re a taxpayer.

    But if you’re homeless you get extra.

    Steve57 (da9e0e)

  29. tomhynes might could be stupid

    just wanted to put that out there

    happyfeet (8ce051)

  30. Just in case you were thinking Amerikkka would collapse under the weight of its welfare debt:

    Spain’s unemployment rate is worse than Greece, and under austerity its deficit for the coming year is officially forecast at 10.6%.

    A Santa Clara power station was shot up with automatic weapons, a Texas fertilizer plant blows and now a Michigan refinery. Coal is financially infeasible as a source of electric power, yada, yada.

    gary gulrud (dd7d4e)

  31. Just in case you were thinking Amerikkka would collapse under the weight of its welfare debt:

    Spain’s unemployment rate is worse than Greece, and under austerity its deficit for the coming year is officially forecast at 10.6%.

    A Santa Clara power station was shot up with automatic weapons, a Texas fertilizer plant blows and now a Michigan refinery. Coal is financially infeasible as a source of electric power, yada, yada.

    gary gulrud (dd7d4e)

  32. Funny the squeester furloughs flight controllers when we’ve military exercises over Miami, Houston and now Chicago.

    Youse urbanites could use a refresher from the WWII statesiders on baking wood shavings in your bread for stomach filling comfort.

    gary gulrud (dd7d4e)

  33. tomhynes wrote:

    I am willing to bet $100 that we don’t see a sudden 3% jump in reported GDP. I bet it is normalized.

    There has been a rash of errant predictions by economists: even private economists seem to misoverestimate things like the GDP numbers or unemployment figures prior to those figures being released. Sometimes even the government can’t tell too big a lie, because too man of the bureaucrats working there know the truth.

    The real problems arise when we try to make policy based on the guesstimates of government-paid economists.

    The economist Dana (af9ec3)

  34. The real problems arise when we try to make policy based on the guesstimates of government-paid economists.

    Or whores. And sycophants. And cheerleaders.

    JD (b63a52)

  35. Or whores. And sycophants. And cheerleaders

    holding back again?

    E.PWJ (bdd0a6)

  36. Holding back and redundant.

    SPQR (768505)

  37. Unexpectedly !

    Elephant Stone (a59d01)

  38. Well, of course you’re right, JD, and it was silly or me to have held back with that.

    It’s kind of amazing that all of those Nobel laureate economists ran all of the numbers and told us what the 2009 stimulus plan would do, and got it all wrong, while us unedumacated rube bloggers — some of us even from Pennsyltucky! — said that they were wrong and that it wouldn’t do anything close to what was predicted, and we were right.

    How’d that happen? :)

    The Dana from Kentucky and Pennsylvania! (3e4784)

  39. Dallas fed announced today both the biggest drop in its Southern business survey and the worst miss over expert expectation ever.

    Recovery descends another flight.

    gary gulrud (dd7d4e)

  40. You know, I truly do not understand this. What I know, or used to know was that GNP (Gross National Product) which they used toi use before GDP was equal to GNI (Gross National income) and in fact iut was Gross National income that was calculated not Gross National Product.

    What the GDP is (it’s supposed to exclude exports) or how it’s calculated I don’t know, but from this it sounds like it is almost an arbitrary figure.

    Sammy Finkelman (d22d64)

  41. You want arbitrary, how’s this?

    http://globaleconomicanalysis.blogspot.com/2013/04/moving-ahead-with-pension-progress.html

    Fraud doesn’t get more blatant than that, children.

    gary gulrud (dd7d4e)

  42. Oh, Snap!

    welcome-back-recession-chicago-pmi-implodes-49-first-sub-50-print-septmber-2009

    gary gulrud (dd7d4e)

  43. “Hiring a worker who (through no fault of her own) accomplishes absolutely nothing raises GDP if the government does the hiring. “

    Well of course! Too many government workers have a large negative impact on the economy. Frankly I would consider a government worker who accomplishes absolutely nothing to be a plus.

    Tom (f48f8c)


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