Inflated GDP: The Real Story Behind the 'Recovery' is Just Now Breaking

[JCMach1]

Did anyone else see Jan Hatzius of Goldman Sachs on Squawkbox talking about how it was an "Inflated" GDP that was causing the job growth distortion in the economy.

It appears that the current computation of the numbers doesn't add up to the reality on the ground (something which I have been saying since a few months shortly into the Bush administration).

Here also is a related article:

If you believe the government's latest economic figures, you'd think the United States was on a growth spurt virtually unparalleled in history.

According to those same gross domestic product figures, factories should be well behind production schedules trying to keep up with demand, and there should be two jobs for every working-age American who wants one.

The underlying truth, however, is far different from the perception of reality, says New York Post columnist John Crudele. And you can thank Washington's politicians for the faux figures...

Remember the third quarter of 2003? The government said the economy, thanks to the Bush-inspired twin tax cuts, grew an astounding 8.2 percent — the largest-growth single-quarter GDP spurt in 20 years...

But economists are stumped, says Crudele, because those jobs haven't been created, despite the rosy economic picture being painted by Washington statisticians...

He explains that the third-quarter 2003 growth figure was an "aberration" caused by "tax moves" on Capitol Hill. And the resultant 50 percent fall in growth the very next quarter also "isn't real," he says...

That's because "Washington has dramatically changed the way it calculates inflation over the past decades,"... http://www.newsmax.com/archives/ic/2004/3/18/154613.shtml

[papau]

1. Agree - shopping for clothes - the inflation is huge but the gov says

no way-

Well - the gov is obviously wrong.

I feel sorry for the professional folks at DOL, census, BEA, etc.

I've never seen a group like these neo-cons who are willing to "re-structure" number gathering so as to get the result they want.

[JCMach1]

3. The economist from GSACHS noted the large difference

between the industrial production numbers and GDP. He noted that REAL GDP should be somewhere in-between the two points... i.e. 2-3%.

However, a note of warning is that industrial production is UP. This should start affecting the job market in the near future...

[seabeyond]

2. i keep saying economy is hollowed out

i dont care what the government says, i am hording my money. anyone else

[JCMach1]

5. not hoarding, but then again I live in a very different economy

where you realize the cheap plastic stuff Walmart is selling should cost about 50% less at REAL market value.

Companies like Walmart control the U.S. supply chain and artificially make a killing with their monopoly status.

[Renew Deal]

4. Are we in bizarro world?

How did this make newsmax and what are they up to?

[JCMach1]

6. Things occasionally slip at newsmax....

:)

[trotsky]

7. That's exactly what I was wondering.

NewsMax is disputing the "facts" put forth by the * administration?

Did I fall through a Sliders hole or something?

[jobycom]

8. Bush Daddy cooked the books, too. Didn't help him, because

People don't vote based on the stats they see on TV. People vote based upon what they see at their workplace, and in their bank accounts. People know whether their jobs are in danger, and whether their businesses are suffering. False figures don't trick people, they just create distrust of the government's figures.

Notice something else: The Republicans don't care, because they don't believe that anything the government does even affects the economy. They believe that business cycles just happen. They believe that the Great Depression was just a business cycle, not the result of government policies which favored the upper classes too much. So they don't believe that they can do anything about a recession except wait for it to end.

They do believe that someone is at fault, though. They believe it is your fault. You quit spending, you are insecure in your shopping habits, you caused it all. Bush Daddy once admitted he lied during his SOTU to calm people down, so consumer condfidence would rise and the recession would end. Bush Boy told us all to go shopping after 9-11, because our poor attitude was what caused the recession. It's your fault you aren't rich, and it's your fault when the economy struggles. Your bad attitude causes the "business cycle."

The Bushes are that blueblood wannabee class, who has to justify the fact that they are lazy and worthless by believing that wealth is a reward, so they are more rewarded. You are not rewarded, therefore you are less virtuous, less useful to society. And therefore your suffering is deserved, just as their comfort is.

So cooking the books just fools you into thinking the economy is hunky-dory, so you will start spending, and then the economy will be hunky-dory.

Since they have never actually had to work for a living, they don't quit get that people have to be employed to spend.

[stopbush]

18. Loved your post, jobycom. Kudos... n/t

[styersc]

9. I saw a talking head on a cable show in the last few months dispute

GDP by claiming that as much as 50% of the increased GDP is defense related government spending and not real growth. Does anyone know if this is true and have a link?

[JCMach1]

10. Here you go

http://www.epinet.org/content.cfm/webfeatures_snapshots_archive_08132003

[ProfessorGAC]

14. It's Sort of True

No, i don't have links. Part of what i do for a living is build predictive models of complex systems (like macroeconomies) using advanced statistical principles.

I extract data from the SAUS database, so it's the same data the gov't has. The growth rates are illusory for 2 reasons, and the one you remember is close, but not quite accurate.

1) The 8.2% increase of GDP in 3Q03 is not inflated, it's a lie. The number was based upon estimates of the expected trade imbalance, because those numbers are not available until a week to 10 days after the quarterly C, GS, and TP numbers are determined. It turned out that the trade imbalance was more than 100% higher than the predictions anticipated.

So, the supposed $820 billion dollar nominal growth rate (annualized from a $204 billion dollar quarter) was overestimated by more than $35 billion. That drops the annualized value to a little over 6.8%.

2) The initial $72 billion Iraq/Aghanistan appropriation (special off-budget money) had bills come due in 3Q03. That meant that another $51 billion of unbudgeted gov't spending occurred during that quarter, all in borrowed funds. Add to that the fact that the defense department spent 31% of its budget in that quarter (rather than 25%), meant the gov't propped up growth by a total of $76 billion.

Add these two together and the sustainable quarterly growth from consumption (true private sector) and transfer payments (true redistribution) drops to $103 billion of sustainable nominal growth. That's about 1.02%, or 4.1% annualized. At a population growth rate of 1.1%, and an inflation rate of 1.82%, this represents equivalent real growth of about 1.2% annualized.

Not exactly stunning, is it?
The Professor

[Jane Austin]

20. This should be a huge story

A stockbroker told me a particular stock had doubled because all the plywood the company makes is rebuilding Iraq.

DUH!

I think without their nasty war, we'd be in a depression.

[Stephanie]

11. What do you expect from the Enron Administration

These people have not told the truth once in three years. They lie as easily as they breath. Well, in Cheney's case, lying is easier than breathing.

[ProfessorGAC]

12. Gee, What A Genius!

I've been writing exactly how the figures were distorted, right here on DU since July of last year. Now, this guy gets around to figuring it out. And he's is still stumped about the jobs issue.

There is nothing to be stumped about. Job growth rate is not a regressing indicator of GDP growth. It's an independent effect from the various factors of the economy. There is stronger linkage that job growth and employment saturation are leading indicators of FUTURE GDP growth, not the other way around.

The value of middle class buying power is obviously lost on these academically credentialed, but analytically challenged folks at the shallow end of the thought pool.

Anyone of these nimrod economists who might read this, send me a PM and i will provide you with the appropriate mathematical approach to determining why GDP growth (even if these silly numbers were the truth) doesn't lead to jobs.
The Professor

[JCMach1]

13. Actually he has been saying it off and on since 2001 roughly

He JUST NEVER got MEDIA attention.

That's what is significant!

[ProfessorGAC]

15. With That I Can Sympathize

The only newspaper that's ever asked my opinion on the economy is the little weekly in my small town. Of course, like this fellow, the masses and the powers that be don't like what i have to say.
The Professor

[HydroAddict]

16. Hey Professor...I read some of your posts way back when.

Your words did not go unnoticed by me! I wasn't nearly as talkative last summer, my apologies.

So, I just wanted to say Thanks for your input and being here at DU in general.

[ProfessorGAC]

17. No Problem

The folks here at DU tend to listen, and most believe that i'm knowledgable about these things. (There's always some differences of opinion, and that's certainly fine. I wouldn't be here if it were a site of lockstep drones.)

But, here at DU, i'm sort of preaching to the choir. The trick is getting folks from my segment of the econ world, the technoeconomics group, (about 20% of us), to get heard by the public. Since our concepts fly in the face of some conventional theory (because the data of what actually happens are contrary to those hypotheticals), our views are not sought. What can ya do?
The Professor

[Jane Austin]

21. Well thanks for hanging in there with us.

It must be frustrating to know what they're doing and not get any notice for it. :(

[DeepModem Mom]

19. kick