
Is GDP Wildly Underestimating GDP? - d4nt
http://www.asymptosis.com/is-gdp-wildly-underestimating-gdp.html
======
yummyfajitas
I don't even think that it is only the non-traded sectors (e.g. Wikipedia,
Facebook, online dating) where we've gained massive utility that is not
tracked in GDP.

Consider medicine. In the official statistics, medicine drastically drags down
(real) GDP by contributing heavily to inflation. But I propose that medicine
has suffered _deflation_ which is just not captured by existing inflation
measurements. Note that absolutely no hedonic adjustment is applied to medical
costs in official statistics - if we move from dying a painful death (cost
$10) to taking a magic pill that solves all the problems (cost $100), that's
treated as 900% inflation.

Ask yourself - 1970 medicine at 1970 prices (i.e. you can't use anything that
reached the market in 1971 or later), or 2015 medicine at 2015 prices. If you
choose the latter then medicine has suffered deflation.

It's a very interesting exercise to re-compute standard statistics based on
CPI measures which simply exclude medical inflation (let alone recognize
deflation).

~~~
jack9
> non-traded sectors (e.g. Wikipedia, Facebook, online dating) where we've
> gained massive utility that is not tracked in GDP.

The GDP is overestimated (but not because of the non-traded sectors). Remember
2013 when the fed needed to show some...ANY... growth? Start the padding! -
[http://seekingalpha.com/article/1368001-u-s-governments-
new-...](http://seekingalpha.com/article/1368001-u-s-governments-new-way-of-
calculating-gdp) \- Which almost every administration has been doing in their
own way, since Nixon. But Commissions, legal bills and expenditures on real
estate transactions are included in GDP? Our GDP has been in a negative slide
for awhile. The Fracking miracle was a light in the tunnel, but steel is dead,
cars are dead, aerospace is dead (in the context of the US GDP).

~~~
jazzyk
The manipulation of government-published data is not specific to Democrats or
Republicans, and seems to be getting more and more shameless:

1\. "Seasonal adjustment". This year, the 1st quarter GDP had to be
'seasonally adjusted' TWICE to finally show (meager) positive growth, instead
of initially reported contraction.

2\. The inflation rate used by the government to calculate the GDP is
unrealistically low. It is debatable how much higher real inflation is, but
most independent ( and supported by numbers) analyses I have seen typically
estimate inflation rate to be at least 3-4 percent higher than the one
reported. If the real inflation rate were to be used to calculate the GDP,
there would be no or negative growth.

3\. In 70% or 80% of cases, the initial, headline-grabbing news are later
revised lower and published quietly (usually Fri afternoon)

[http://www.cnbc.com/2015/07/30/us-government-revises-
earlier...](http://www.cnbc.com/2015/07/30/us-government-revises-earlier-gdps-
to-fix-anomalies-in-reporting.html)

TL;DR: We need non-government, independent economic agencies to calculate
vital economic growth indicators.

~~~
Symmetry
Speaking of official versus independantly measured inflation data, the CPI is
actually matching up with the Billion Prices Project pretty well.

[http://bpp.mit.edu/usa/](http://bpp.mit.edu/usa/)

I'm not sure why you think seasonal adjustment is such a big deal since the
pluses and minuses are conserved - it can't have any effect on year over year
GDP figures.

------
nhaehnle
As much as I would like to believe that there has been a massive qualitative
change in the meaningfulness of GDP caused by the internet, I would like to
see a comparison across multiple countries. _If_ that qualitative change is
real, then it should be visible elsewhere in the world as well, possibly with
some time shift.

Right now, the first two bumps in the graph coincide uncomfortably with two
burst bubbles (which does not fully refute the idea, but it means it must be
taken with a whole lot of salt).

------
adventured
It's not a coincidence that separation point in the chart begins shortly after
the Fed began heavily harming the US dollar and promoting a bubble dependent
economy based on asset inflation schemes (the first point of separation
represents the real estate bubble and the beginning of the 2005-2007 soft
bubble of the stock market). You can also witness the exact same spike in the
GDP of every other country on earth when priced in US Dollars, nicely showing
off how dramatically the Fed was harming the currency (give it a try, type in:
"romania gdp" or "peru gdp" or any country, into google and look at how they
all perfectly skyrocket at exactly the same time, in tandem with the USD
falling and coinciding with the lift-off in this article's chart).

The huge jump in household assets is the representation of the Fed inflating,
which simultaneously debases the median (and below), while increasing in
_nominal_ terms the wealth of the top ~10% (who can hedge and dodge inflation
for the most part, while worker incomes and basic savings cannot).

Bill Gates is worth $84 billion, right? The rich have gotten a lot richer,
right? No they haven't, they've merely kept up with the Fed debasing the
dollar. Everyone else has gotten poorer. If you inflation adjust the rich
backwards, they're only slightly richer than they were 20 years ago. Gates is
lucky if he's worth $40 billion in 1997 terms. Whether we're talking about
housing, oil, gold, silver, platinum, copper, milk, eggs, education costs,
health care costs, car costs or nearly anything else - you can roughly
increase those costs by 70%-100% (at least, more in the case of edu and health
care) over 20 years due to Fed inflation.

------
timtas
The author notices the divergence, but he doesn't seem to notice that a new
pattern has emerged. Forty years of smooth increase has morphed into to
something like a roller coaster. He looks past these chronic spasms to see a
secular shift -- "continued exponential growth of household net worth." It
turns our that wealth _can_ durably outstrip savings! He doesn't wonder
whether another steep (perhaps steeper) plunge of asset values might be in
store.[1]

There's nothing mysterious here. For a century it has been well understood how
artificial credit expansion inflates asset bubbles causing the boom/bust
cycle.[2] Only the intellectual progeny of Keynes continue to find it
mysterious and feel compelled to invent exotic new explanations for such
"paradoxes."

Why ever would we be surprised at inflating asset prices when it's been Fed
policy for a long time. In the words of Bernanke, "...higher stock prices will
boost consumer wealth and help increase confidence, which can also spur
spending."[3] In other words, new paper wealth makes consumers feel richer so
they'll stop that harmful saving.[4]

[1] He notes, "The valuation jumps up and down as asset markets re-evaluate
what all those real assets are worth." but without wondering why they only
started "jumping up and down" in 1999.

[2]
[https://en.wikipedia.org/wiki/Austrian_business_cycle_theory](https://en.wikipedia.org/wiki/Austrian_business_cycle_theory)

[3] [http://www.marketwatch.com/story/bernanke-defends-qe-
talks-w...](http://www.marketwatch.com/story/bernanke-defends-qe-talks-wealth-
effect-in-op-ed-2010-11-04)

[4] [https://mises.org/library/hayek-paradox-
saving](https://mises.org/library/hayek-paradox-saving)

------
Animats
This needs more detail about how real estate value changes are counted. Also,
how does this account for the transition from fixed-benefit to fixed-
contribution pensions?

Of course the savings rate is down. US retail real interest rates are
negative. Save now, have less later.

~~~
HiLo
You have it backwards, interest rates are a function of the amount of savings
available to be pooled and invested. For a variety of reasons, there is a
surplus of savings in the world, hence low interest rates. These reasons
involve deficient demand + austerity policies, as well as demographics, and
foreign reserve accumulation by emerging economies.

~~~
meric
There is too much currency chasing too little capital. If anything, with US
savings down in the pits, I think saving is too low. Why is there too little
capital for people to invest in? Every time the Federal Reserve lowers the
interest rate or launches QE to prevent the economy from experiencing negative
growth, companies producing goods the economy would not have wanted without
stimulus, stays alive a little longer. As long as these companies stay in the
economy, capital tied down to produce those goods cannot be used in a more
productive manner. That's why each interest rate cycle has rates go lower and
lower, each round of QE bigger and bigger, because the level of mal-investment
is consistently growing higher and higher, and as a consequence yield is going
lower and lower. Meanwhile through increasing debt and central bank policy
there is more and more currency to invest with, in capital that is getting
less and less productive because the capital is used for the wrong things.
Those ghost cities and loss making subsidised farmers and iron ore mines
aren't going to help compound growth because their yield is zero or less. They
produce goods nobody really need, perpetuating deflation in goods people don't
want, while the pool of goods people do want dwindles and get ever more
expensive, for example, bacon.

------
vladd
I'm trying to understand better the graphs: if this year a house in Manhattan
appreciates in value, it won't reflect in GDP but it would reflect in the
asset growth curve?

This might be a cause for the disconnect of the curves. If the economy is
building specific surface hot-spots (city centers) that are allowing people to
better monetize their job/time, a real estate increase of that (asset bubble
or not) will drive assets up without a GDP equivalent increase?

(I understand the real estate goes up because the producing GDP in that area
also goes up. But it's like comparing asset price versus rent: the later
reflects the GDP but goes up in absolute value much less than the asset value
increase)

~~~
RyanZAG
Technically if it was about shifting asset values and hot-spots, then it would
have the equivalent decrease in asset values of assets not in those hot spots.
Eg, increase in Manhattan apartments and a decrease in mid-western farms.

That would cause asset prices to remain in sync with GDP as the worker would
increase goods trade by producing more value in the hot spot.

To me, this is probably caused by two things: foreign direct investment in
property from China and oil princes which increases the demand for assets and
boosts prices, along with slower than inflation wage growth allowing for more
investment in assets instead of labor. Foreigner investment is obvious, but
for the wage issue: if a business pays less of total profit towards workers,
the business has more money to spend on assets. The GDP would be pushed down
and the asset price would be pushed up.

I'm no economist though. There might be other reasons that are more valid.

------
fiatmoney
For all the talk of non-tradeable sectors being undercounted, there has also
been a vast overcounting of non-tradeable sectors that became tradeable (but
not necessarily "better").

Child care, health care, senior care, security, and education are just some
examples - to a much greater extent they used to be handled, untracked, within
the context of a household, until they were commercialized.

------
rdlecler1
I'm not an economist, but could tax inversions cause this. Asset values rise,
but capital stays offshore and doesn't circulate back into the economy thereby
limiting saving.

------
sukulaku
> The asset markets are wrong. They’re _wildly overestimating the value of our
> existing stock of real assets_ , and the output/income they’ll deliver in
> the future. See: “Irrational exuberance.”

Bingo! Massive stock bubble driven by easy money and (more recently)
corporations buying back their own stock (with borrowed money) to drive up the
price of the stock remaining on the market.

Besides, GDP doesn't represent the total of "real wealth" or _productive_
activity either.

The GDP is inflated because it contains all activity regardless of whether it
was actually productive or not. For example, if the government hired a million
people to dig ditches and fill them up again, that would raise the GDP, but it
sure wouldn't increase the nation's wealth.

They've even changed how the GDP is calculated to make it look bigger:
[http://seekingalpha.com/article/1368001-u-s-governments-
new-...](http://seekingalpha.com/article/1368001-u-s-governments-new-way-of-
calculating-gdp)

~~~
forgetsusername
> _They 've even changed how the GDP is calculated to make it look bigger_

Only conspiracy theorists would think the purpose of changing the GDP
calculation is to "make it bigger". What effect does "making it bigger" have?
If it's a contrived figure, the markets will take that into account. Then
again, conspiracy theorists always assume they "know" better than everyone
else.

~~~
jazzyk
I am fine with the new method of calculating GDP, _if_ all the past GDP
numbers are adjusted to make comparisons meaningful (the same way you adjust
stock prices after splits).

Oh, and careful with name-calling. I used to be like you and call some people
"conspiracy theorists" \- until Snowden.

