Just because the government crunched numbers and the result came out positive means we are all better off? None of the 15.7 million unemployed Americans is thinking the recession (Great or otherwise) is over. FULL ARTICLE by Doug French
Source link: http://blog.mises.org/11009/should-we-believe-the-gdp/
Should We Believe the GDP?
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Ms. McArdle and the author confuse income statements, which GDP is, with balance sheets.
Even with balance sheets, how can you obtain objective values for your assets and liabilities? You can only do this with money (by definition!), whence the focus of mainstream economics on money.
Today ISTAT (the Italian government statistical institute) released data.
Industrial production for September is down again (-5.6% to August and -15.5% to the same month last year). October is expected to be also bad but data won’t arrive until the end of the year.
Also a poll among Italians (commissioned by Confesercenti, the shopowners’ association) says 87% of all interviewed believe the depression isn’t over despite claims to the contrary.
Yes, the crisis is truly over thanks to central banks… (add sarcastic icon)
Ironic that recently Krugman used GDP data to highlight the success of the stimulus:
http://krugman.blogs.nytimes.com/2009/10/30/stimulating-thoughts-3rd-quarter-edition/
Then later laments the disconnect between GDP and actual prosperity, in order to prove another point:
http://krugman.blogs.nytimes.com/2009/11/07/reagan-reagan-reagan/
I really don’t put much weight to the GDP, employment numbers and price indexes other that they can move the overall market in the short run. I do put weight against the individual corporations and their balance sheets/financial statements. And from where I sit, there are lots of companies out there that I see real improvement.
Then there is the wife index. Just ask your wife how the shopping traffic is at the mall and the time it takes to get a table for lunch. In my area, these numbers are supporting an economic recovery!
While the government can hamper a business cycle, they cannot stop it.
If we recall that GDP is a measure of goods and services in dollars, and if we remember that it includes gov’t payments, then it is a logical jump to realize that the only purpose of GDP figures are for Congress to get a metric of the available tax base.
There can be no other logical reason. Or we accept the preponderence of evidence that logic is not a part of the gov’t monetary policy/process.
GDP is fundamentally flawed because if you buy a government bond, that is investment. If the government spends that bond, it is government spending. It is double counted, and the debt component is not accounted for.
Need to subtract new debt from GDP
excellent and timely article. we can’t ram this point home often enough – gdp is worse than useless.
ISTAT’s a laugh – italian talk-radio (zapping, radio anch’io etc) always has people railing at the official italian inflation figures, and how they don’t correspond with reality.
i seem to recall recently that silver ear-rings were removed from ISTAT’s cost-of-living basket, apparently no longer a consumer must-have.
GDP is the best way to measure economic prosperity. You can break windows and rebuild them to increase GDP. You can bomb cities and rebuild them to increase GDP.
But printing money is the easiest way to increase GDP. For that reason, the government should encourage lots of money printing.
It’s probably more than double counted. The government can bail out insiders with that money, causing it to be triple counted. Then those insiders can buy bonds, causing it to be quadruple counted. Etc. This is one of the justifications of the multiplier effect. Government spending is counted multiple times in the GDP formula. Therefore government spending should be maximized.
I’m disappointed at all these comments. Economists are well aware of the limitations of GDP. It is a measure of output not of well-being or happiness. It is not the only indicator used in making decisions, and, in any event, it still is a good indicator of long term improvements in the quality of life and highly correlated with variables that presumably do matter. Those countries with sustained high growth rates are better places to live in that they were before.
I know it pays to be dogmatic in this blog, but, despite many of the big wastes of government, there are government outputs that I would pay money for.
The houses that were built are not worth anything now, but they were at the time they were produced (sure, a bubble, but that was caused by something else, not by GDP as an indicator).
And to whomever said that buying a government bond is included in GDP, it is not.
How can we tell that the GDP is a crock
..and the unemployment numbers as well.
October was the 13th straight month to show a monthly deficit — another record. It was the fifth-largest monthly deficit ever.
The imbalance came mostly from lower receipts of individual and corporate taxes. Receipts were $135.3 billion, a 17.9 percent drop from last October.
Full story
http://finance.yahoo.com/news/Federal-deficit-sets-October-apf-2373356521.html?x=0&sec=topStories&pos=3&asset=&ccode=
given the many limitations of gdp – and they are legion as john williams has demonstrated – i would challenge the mises institute to formulate a better measure of economic activity….
the gdp is a grossly shoddy number in part due to its statistical limitations but also due to its political manipulations – something which john williams documents….
one problem with gdp is that it is a synthetic value without real world counterparts – with imputed housing income being one such example….and then there is the incestuous relationship with inflation measures and its perverse inclusion of hedomics and other voodoo economics….it is not that hedonics is a misplaced idea but that it is not measurable in any satisfactory manner…but it drives real gdp calculations.
there are hard statistics such as corporate revenues, tax receipts, etc which are not derivative values which might serve as the basis of a new general economic activity indicator….
i soundly reject the idea that we are bound to the current gdp construct or that it has semantic value as one commenter opined.
a number presented as meaningful which is almost always within sampling error is a profoundly retarded exertion of intellectual pygmyism….shame on anyone who takes note of gdp. shame on you!
we have to acknowledge that government output is a service with some kind of economic value however coerced and artificial it is….people are willing to pay for some amount of it…..
and then there is the charlatanism of substituting gdp for gnp about which i will only say read john williams’ critique.
it is time to discard the statist technocratic gdp as a meaure of general economic activity. failure to do so is to remain shackled in ignorance and slavery.
An Alternative to Capitalism (which we desperately need here in the USA)
The following link takes you to an essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy:
http://evans-experientialism.freewebspace.com/steinsvold.htm
John Steinsvold
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