Are USA Economic Numbers Cooked?

[Fern]

I agree, but perhaps more than that..

GDP is supposed to be the sum total of the sale of goods and services. R&D can and often does materialize as a product to be sold, or even a patent to be sold. But until it produces something to be sold, then it simply should not be part of GDP.

The money spent on R&D already does go into GDP, like through payroll and purchases of equipment. But counting the cost of R&D again in addition to those purchases, it is basically counting those expenditures twice, and possibly three times if / when it produces something that does get sold (like, a patent, or a product).

My exact thought.

The others seem highly suspect as well.

E.g., pensions - OK, we're counting defined benefit plan contributions paid in on behalf of employees as wages. OK, I can see that. But they've changed it to also count amounts only promised and not funded? That I can't see. And when/if those unfunded amounts are paid in in the future they'll have to subtract them back or they'll be double counted. That sounds like an accounting mess waiting to happen.

Or, to put it another way - we can increase our GDP by promising ourselves benefits we can't pay. Or, if considering "Artistic Originals", we can raise our GDP by sitting around watching old re-runs of Seinfeld.

Here is the standard definition of GDP:

Definition of 'Gross Domestic Product - GDP' The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis.

I'm starting to feel that the US govt economists have 'tricked up' the definition and their calculation methodology so much so that it no longer meets the basic definition.

While I've largely convinced myself such dubious changes are unlikely to affect comparability (e.g., did GDP go up 1.7% or 3.1% for the quarter) I read about the changes in some economist's article. But he was complaining about the annual GDP number in gross, such as comparing annual GDP to national debt. He may have a point.

Fern

 

[Shallok]

My exact thought.

The others seem highly suspect as well.

E.g., pensions - OK, we're counting defined benefit plan contributions paid in on behalf of employees as wages. OK, I can see that. But they've changed it to also count amounts only promised and not funded? That I can't see. And when/if those unfunded amounts are paid in in the future they'll have to subtract them back or they'll be double counted. That sounds like an accounting mess waiting to happen.

Umm, not really. You definitely know that making the switch from cash to accrual requires some work at the time, but going forward it is extremely easy. You, for instance, would certainly have no problem. The only way a mess could happen is if you are employing absolute morons.

Why should the obligations related to wages for companies not be treated as wages? GDP previously reflected accrued wages after all.

Or, to put it another way - we can increase our GDP by promising ourselves benefits we can't pay. Or, if considering "Artistic Originals", we can raise our GDP by sitting around watching old re-runs of Seinfeld.

Not sure what the problem here is. Businesses, could for some reason, decide to declare massive unfunded pensions in order to inflate GDP. We could also increase our gdp by having all of america go out and purchase a whole bunch of crap (or maybe I should say purchase a whole bunch of extra crap) on the last day of the period. Will inflate the numbers. Of course, when everyone goes and returns everything the subsequent period there won't be a huge effect in the long run now will there?

Further, watching reruns of Seinfeld is certainly economic activity. If, again, all of America was watching Seinfeld rather than working (for instance) GDP would then accurately represent the economic impact of Seinfeld, while also representing the lost impact of everyone not working. Still, best to account for that tv watching.

I'm starting to feel that the US govt economists have 'tricked up' the definition and their calculation methodology so much so that it no longer meets the basic definition.

Doesn't really matter though does it? So long as there are guidelines to follow for the calculation of GDP, the rote textbook definition doesn't matter.

While I've largely convinced myself such dubious changes are unlikely to affect comparability (e.g., did GDP go up 1.7% or 3.1% for the quarter) I read about the changes in some economist's article. But he was complaining about the annual GDP number in gross, such as comparing annual GDP to national debt. He may have a point.

The increase in GDP is a 3% increase on what would have existed before for GDP. So it is not moving from 1% to 4%, but moving from 1% to 1.3%

Honestly, if your complaint was about showing r&D in GDP prior to the finished good, you would have an excellent point. There is a very good argument that R&D should not be included in GDP. I don't agree with it, as it is entirely not finished goods/services. I understand the reasoning behind it, but it is just flat out wrong. But, pension obligations accrued over the period should absolutely be accounted for in GDP--it is part of the "monetary value of all the finished goods and services". Pension obligations accrued over the period make a lot more sense to book at that time (accurately reflecting the monetary value of goods/services) than to wait until cash has been actually transferred.

Fern, you are still entirely too smart to fall into these traps. Don't let your political views bias you so much.

 

[Shallok]

That was his complaint.

Yeah. I know/knew. I enjoy giving people the benefit of the doubt despite the moving goalposts. Fun times.

 

[First]

I was about to post a nice little response, but I'm glad the OP's concerns have been allied by other posters here that this is a reality that this is nothing special and doesn't in the least affect comparability, probably going back at least 100 years if not a full 200. It's not hard to envision academics taking the time to re-run some numbers in an Excel spreadsheet or some matlab with the new GDP standards.

 

[Fern]

Originally Posted by Fern
My exact thought.

The others seem highly suspect as well.

E.g., pensions - OK, we're counting defined benefit plan contributions paid in on behalf of employees as wages. OK, I can see that. But they've changed it to also count amounts only promised and not funded? That I can't see. And when/if those unfunded amounts are paid in in the future they'll have to subtract them back or they'll be double counted. That sounds like an accounting mess waiting to happen.

Umm, not really. You definitely know that making the switch from cash to accrual requires some work at the time, but going forward it is extremely easy. You, for instance, would certainly have no problem. The only way a mess could happen is if you are employing absolute morons.

Why should the obligations related to wages for companies not be treated as wages? GDP previously reflected accrued wages after all.

It seems to me that if they don't follow GAAP, which would be the reporting basis for companies/entities with such plans, it's going to be quite problematic.

Now, I'm not a GAAP guy. I'm a tax guy and that may be my problem. But unless GAAP just changed simultaneously with the the BEA change I see a complicated problem with such adjustment and counter-adjustments

'Simple' cash to accrual would, I think, require a lot detailed info for what I imagine is a lot of plans. Again, if they're just going along with a GAAP change it won't be a problem.

Or, to put it another way - we can increase our GDP by promising ourselves benefits we can't pay. Or, if considering "Artistic Originals", we can raise our GDP by sitting around watching old re-runs of Seinfeld.

Not sure what the problem here is. Businesses, could for some reason, decide to declare massive unfunded pensions in order to inflate GDP. We could also increase our gdp by having all of america go out and purchase a whole bunch of crap (or maybe I should say purchase a whole bunch of extra crap) on the last day of the period. Will inflate the numbers. Of course, when everyone goes and returns everything the subsequent period there won't be a huge effect in the long run now will there?

I'm assuming government plans are included. If so, estimates of unfunded liabilities reach into the trillions. And we've also begun seeing defaults, i.e., local govt benefits that will never be paid. If gov plans are covered in this change it's strikes me as far too optimistic to include all that in GDP as if it's a certainty the benefits will be paid.

Further, watching reruns of Seinfeld is certainly economic activity. If, again, all of America was watching Seinfeld rather than working (for instance) GDP would then accurately represent the economic impact of Seinfeld, while also representing the lost impact of everyone not working. Still, best to account for that tv watching.

I'm not following you here. My impression was that the Seinfeld revenue from reruns was being included in current GDP even though the show was made in 1998 or before. I.e., that revenue even though received in 2007 should not be accounted in that year, but I think it should be included in the years the show was actually produced.

Honestly, if your complaint was about showing r&D in GDP prior to the finished good, you would have an excellent point. There is a very good argument that R&D should not be included in GDP. I don't agree with it, as it is entirely not finished goods/services. I understand the reasoning behind it, but it is just flat out wrong.

My other problem with the inclusion of ALL R&D expenditures is their apparent assumption that all R&D expenditures result in a useful asset. I think much of R&D results in nothing of useful value. E.g., large amounts of R&D are expended on drugs that are unsuccessful and will never be approved.

Again, I, perhaps mistakenly, think they're double counting. The wages etc incurred in the R&D are counted toward GDP, then accounting for all those expenses in the aggregate (capitalized GDP) again.

I also don't see the difference in terms of GDP in a product produced that has a short life versus one that has a long life.

TBH, I've given up trying to understand WTH they're doing. I've resigned myself to the fact that they're numbers have no relevance to me, much like the reported inflation rate. They can use their numbers for their purposes and I'll ignore them for my purposes. Their 'basket of goods' is simply too different from mine to do me any good.

Fern

 

[Darwin333]

Wrong on the oil production.

They are pumping so much out with that fracking we don't need foreign oil anymore.

Also the number one export product of the U.S. is gasoline.

I started to do the math to disprove your absurdly bullshit statement but then I realized that you are willfully ignorant and therefore incapable of being educated.

So please, by all means, do share some links that prove the above.

 

[berzerker60]

I started to do the math to disprove your absurdly bullshit statement but then I realized that you are willfully ignorant and therefore incapable of being educated.

So please, by all means, do share some links that prove the above.

He's wrong, but not all that wildly wrong:

http://www.bloomberg.com/news/2013-12-11/fracking-boom-pushes-u-s-oil-output-to-25-year-high.html

U.S. crude production rose to the highest level in a quarter-century as a shale drilling boom in states such as Texas and North Dakota cut the need for foreign oil and pushed the country closer to energy independence.
The U.S. pumped 8.075 million barrels a day in the week ended Dec. 6, a gain of 0.8 percent, or 64,000 barrels a day, the Energy Information Administration said today. It’s the most since October 1988.

...
U.S. oil output grew 18 percent in the past 12 months, the fastest pace on record, boosting fuel exports and reducing reliance on imports, according to the EIA. The boom will make the country the world’s largest producer by 2015, five years sooner than last year’s forecast, the International Energy Agency in Paris said last month.

...
Imported crude and petroleum products will dip to 28 percent of domestic demand next year, the lowest since 1985 and down from a peak of 60 percent in 2005, the EIA said yesterday in its Short-Term Energy Outlook. Refined product exports have advanced 16 percent so far this year, EIA data show.

Also we refine lots more of the world's oil into gasoline than we actually produce or keep on American soil, so I guess that's technically an export even though it doesn't help our energy independence meaningfully.

 

[IGBT]

As the EU countries trust each other less and less, the logical thing for them to do is to sell the bonds of other EU countries and buy US bonds.

Yes US bonds are going down, but if you were Belgium or France would you want to own Greece or Italian debt or US debt? Even with the smoke / mirrors of QE 1/2/3/?? so far no one is questioning valuations. But that day will come.

 

[werepossum]

As the EU countries trust each other less and less, the logical thing for them to do is to sell the bonds of other EU countries and buy US bonds.

Yes US bonds are going down, but if you were Belgium or France would you want to own Greece or Italian debt or US debt? Even with the smoke / mirrors of QE 1/2/3/?? so far no one is questioning valuations. But that day will come.

Odd you should say that right now since Belgium, who recently fancied itself our nemesis, just bought a shit-ton (I'm assuming a metric shit-ton, not a short shit-ton) of US debt when China and Japan divested. I suppose having a Nobel Peace Prize recipient running our wars convinced Belgium they were good and noble wars. (Pun intended.)

 

[zinfamous]

Are all economic numbers published by nearly all economists cooked?

I would say: yes.

 

[IGBT]

Are all economic numbers published by nearly all economists cooked?

I would say: yes.

..it's all based on valuations and the bet that what you want to sell is of value to the prospective stock / bond / widget purchaser and the bet that the paper currency you want to use for purchase has credible value.

 

[Newell Steamer]

Does it make Obama look good? Cooked.

Does it make Obama look bad? It's the truth - and, if you question it, you are blind race baiter looking to take my guns, virgin daughter and place me in debtor's prison for having to pay for your abortions, tattoos, iphones, TVs, drugs while you are planning on invading my home.

 

[l33tFuzzyLogic]

http://www.usdebtclock.org

 

[Attic]

Short answer: Yes

Long Answer: No shit.

The simple reason that doesn't require anything other than to be taken for what it's worth is, because they can.

These changes were done to boost GDP over what it would otherwise be. The year over year comparison mitigates the absolute change of this new model vs the old model for 2013.

The reason for cooking the books in this case is to lower debt to GDP ratio without actually fixing any of the major problems driving the ratio higher.

Governments have a near impossible time admitting failure, cooking the books is one of the methods they use to continue this harmful streak. The tragedy of it all is lost on the fools who support these tactics.

 

[fskimospy]

Are all economic numbers published by nearly all economists cooked?

I would say: yes.

Cooked in what way? I think this whole discussion is nonsense.

The way GDP is calculated adheres to international standards and is done in a transparent manner. They make press releases about their changes, for christ's sake.

'Cooking' the books implies dishonesty and hiding things. This is the opposite of hidden.

 

[fskimospy]

Short answer: Yes

Long Answer: No shit.

The simple reason that doesn't require anything other than to be taken for what it's worth is, because they can.

These changes were done to boost GDP over what it would otherwise be. The year over year comparison mitigates the absolute change of this new model vs the old model for 2013.

The reason for cooking the books in this case is to lower debt to GDP ratio without actually fixing any of the major problems driving the ratio higher.

Governments have a near impossible time admitting failure, cooking the books is one of the methods they use to continue this harmful streak. The tragedy of it all is lost on the fools who support these tactics.

Interesting that many of these changes bring the US into line with internationally developed standards. Are you saying that the rest of the world is conspiring with us to make our debt/GDP ratio look better? If so, that's quite kind of them.

 

[Shallok]

It seems to me that if they don't follow GAAP, which would be the reporting basis for companies/entities with such plans, it's going to be quite problematic.

Now, I'm not a GAAP guy. I'm a tax guy and that may be my problem. But unless GAAP just changed simultaneously with the the BEA change I see a complicated problem with such adjustment and counter-adjustments

'Simple' cash to accrual would, I think, require a lot detailed info for what I imagine is a lot of plans. Again, if they're just going along with a GAAP change it won't be a problem.

I'm a financial/managerial guy, but GAAP has nothing do to with it--the BEA is actually closer to following FASB 78 on pensions now. But they aren't accountants and they do not not need to go through and adjust books for it all. They get information and process it according to their models/rules. GAAP rules on defined benefit plans never really reflected how the BEA has handled pension reporting.

Here is an explanation as to the pension changes.

And again, if we reflect normal accrued wages in GDP, why would we not reflect deferred wages (in the form of a defined benefit pension)? I am actually fairly certain that other forms of deferred compensation (usually seen with executives) have been included in GDP all along.

I'm assuming government plans are included. If so, estimates of unfunded liabilities reach into the trillions. And we've also begun seeing defaults, i.e., local govt benefits that will never be paid. If gov plans are covered in this change it's strikes me as far too optimistic to include all that in GDP as if it's a certainty the benefits will be paid.

Government plans are definitely included. The defaults that we have seen, and will see, make up a very small portion of the overall GDP, and a small portion of pension obligations. I don't know, for me I believe that the numbers should be reflected in GDP when they are incurred--not when cash is actually transferred. And yeah, numbers could be juiced, but there is no reason to believe that businesses are going to screw with their books in order to have a very small effect on GDP. Maybe you haven't noticed, but multinational corporations are really not invested in trying to improve the lives of the average US citizen.

I'm not following you here. My impression was that the Seinfeld revenue from reruns was being included in current GDP even though the show was made in 1998 or before. I.e., that revenue even though received in 2007 should not be accounted in that year, but I think it should be included in the years the show was actually produced.

Well, no. The BEA previously did not count the money spent to make Seinfeld (or any show/movie/etc) as part of GDP. Now they will count that money as an investment. The biggest change here is not the effect on GDP (which is rather small) but rather that the BEA is now acknowledging the value of copyrights for GDP.

Again, I, perhaps mistakenly, think they're double counting. The wages etc incurred in the R&D are counted toward GDP, then accounting for all those expenses in the aggregate (capitalized GDP) again.

That is possible, but there is no reason to assume that they are double counting.

I also don't see the difference in terms of GDP in a product produced that has a short life versus one that has a long life.

Uhh, in the long run there is no difference really (or not enough to make a huge difference). But, simply speaking, there is a fundamental difference between a product or service that will provide revenue once versus one that will provide revenue over an extended period of time. The intellectual property changes are designed to reflect that difference.

TBH, I've given up trying to understand WTH they're doing. I've resigned myself to the fact that they're numbers have no relevance to me, much like the reported inflation rate. They can use their numbers for their purposes and I'll ignore them for my purposes. Their 'basket of goods' is simply too different from mine to do me any good.

GDP numbers really have no relevance to any individual's personal life-for the most part. But, again, the changes made last year will be reflected back to 1929, so consistency is maintained.