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Posted by: Doug Henwood | August 1, 2013

GDP revisions: not a conspiracy, Jack

The irrepressible Jack Rasmus, who never tires of displaying his ignorance, has a piece up on Counterpunch (“Economic Recovery by Statistical Manipulation”) on the recent revisions to the U.S. national income and product accounts (NIPAs). No doubt speaking for legions of paranoids, left and otherwise, Rasmus describes the revisions as yet another politically driven scheme to make the economy look better than it is—“rewrit[ing] the numbers to make the failure ‘go away.‘” They’re not, and they don’t.

Like almost all economic stats, the national income numbers—GDP and its supporting cast—are revised frequently as better data replace early estimates. In order to produce timely data—the first estimates of GDP et al come out less than a month after the quarter ends—some components have to be estimated. Over time, as more definitive numbers come into the Bureau of Economic Analysis (BEA), which produces the NIPAs, earlier estimates are revised. First takes are revised over the two subsequent quarters, and then every summer there’s an annual revision to the NIPAs that goes back several years. Every five years there’s a so-called benchmark revision, which involves not only the incorporation of better underlying data, but often conceptual rethinks as well. If Rasmus has any idea of this revision schedule, he doesn’t let on—not surprisingly, because it might interfere with the conspiracy theory (sorry, hate that cliché, but it’s earned in this case) he’s trying to weave. You can read all about the machinery behind the NIPAs yourself by following the links on this page: BEA National Economic Accounts; revisions are specifically addressed here.

With this benchmarking exercise, the 14th iteration, the major rethink was the reclassification of expenditures on research & development as well as the creation of original works of art and entertainment as investment; previously they were classed as routine business expenses. These new categories, along with software (previously counted along with investment in machinery and equipment), form a new aggregate, intellectual property (IP) products. The difference is that investment adds to GDP and routine expenses don’t. You can argue with the details, but this change is not conceptually outrageous. R&D that leads to a new drug or processor chip is a lasting commitment that produces income over time, which is what investment is all about. Ditto the creation of a new movie, even if it’s dumb. (Valuing these things can be very hard, but that’s more a practical than theoretical problem.) The effect of this change is to add about $470 billion to 2012’s GDP (which, by the way, is the total value of goods and services produced in the U.S.). Other conceptual changes add another $55 billion or so, and better source data, another $34 billion. You can find plenty of details in the news release.

But these changes were applied to previous years as well—more in recent years, as IP products have grown in importance, but the revisions go all the way back to when the NIPAs begin in 1929. So while the level of GDP was revised upward by 3.6%, earlier years were also revised upwards, meaning that growth rates weren’t affected all that much. The average growth rate for the 2000–2012 period was revised up all of 0.1 point, from 1.6% to 1.7%. That’s still a very weak number, half the 3.1% average since 1960 in fact. And that average was unaffected by the revisions. The Great Recession was marked down somewhat in severity, from a loss of 4.7% in real GDP to 4.3%, but it remains the worst recession since the 1930s by a considerable margin. And the recovery since 2009 has been upgraded a bit, but it remains the weakest upturn in modern history. In other words, Rasmus is completely wrong about revising failure away.

He’s wrong about many other things as well. The entire passage about Gross Domestic Income (GDI) is deeply wrong. Note that the full name of the accounts is the national income and product accounts. That is, there are two sets of books, one for income and one for product. Income, by definition, has to be earned in production (like wages or profits—leaving aside the theoretical question of whether capitalists “earn” their profits). In theory, the two estimates, income and product, are supposed to match. In practice, they don’t, because real life is never as neat as a textbook. Often the income estimate has run ahead of product, which Rasmus wrongly attributes to income earned in speculation. Speculative incomes, like capital gains, have nothing to do with production, and are therefore excluded from the NIPAs. But income doesn’t always run ahead of product; sometimes it lags. If Rasmus knows this, he doesn’t let on about this either. Of course, doing so would have undermined his agitprop.

That’s not all Rasmus is wrong about. He asserts that the GDP revisions may lead to revisions to the employment numbers. In fact they won’t, since the two are computed separately. (Actually the employment numbers are an input to GDP estimates, not the other way around.) He repeats the baseless claim that Reagan revised the unemployment numbers to make them look lower; in fact, there have been only minor changes to these stats over the decades, and the changes have been in both directions (though always in small magnitudes).

The people who produces economic and other statistics are skilled and honest civil servants. I’ve been talking to these people for over 20 years—they’re very open about what they do, and the virtues and limitations of the numbers they produce. You could argue—as I would—that GDP is only a very partial measure of economic welfare. It says nothing about distribution or quality, and takes no accounting of the degradation of the natural environment nor of unpaid domestic labor. You could argue that Iron Man 3 is not a positive contribution to human welfare, so counting it as an “investment” is some sort of cruel joke. You could argue that the whole idea of IP is a subtraction from human welfare, since information wants to be free (though that’s not how capitalism works, alas). But Rasmus doesn’t make these arguments. Instead, he just makes stuff up.

Official stats will show you that chronic unemployment is a major and lingering problem, that the U.S. income distribution is horribly unequal and has gotten worse over the last three or four decades, and that poverty remains scandalously high. Official stats, as they are, without the ministrations of Jack Rasmus. In fact, it’s amazing how much damning information the government publishes about American society almost every business day. You don’t need to spice it up with phantasmic plots.

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Responses

  1. I thought it was Carter who, in 1980, ordered that unemployment statistics stop including those who had fallen off the roles so as to lower the rate in anticipation of the campaign against Reagan.

  2. The unemployment data have nothing to do with the number of persons collecting unemployment compensation, which is what I assume Rob Anderson means by “had fallen off the roles.” All that matters is that you have actively searched for work during the four weeks prior to the survey week in any particular month. The government does calculate other measures of labor market distress, and one includes those marginally attached to the labor force. These persons have not looked for work in the prior four weeks but have looked in the past year. At any rate, if I run out of unemployment benefits, I will remain unemployed if I continue to actively look for work.

  3. I think the issue with unemployment data has more to do with an establishment propensity to choose whatever version conforms to their various agendae; U1 or U3 or whatever bolsters their story

  4. michael, [or doug] can you clarify further? my understanding is that those who’ve never held a job and are looking, as well as those who are part-time but can’t find full-time, are not included in the stats. is that accurate?

  5. jp, if you are actively looking for your first job, you are counted as unemployed. You won’t qualify for unemployment compensation, however. All part-time workers are counted as employed. The BLS does estimate the number of involuntary part-time workers, and it includes them in one of its measures of labor underutilization. If you go to http://www.bls.gov/news.release/empsit.nr0.htm, you will get a summary of last months data. Underneath this report, there are links to various data sets. Check this on out: http://www.bls.gov/news.release/empsit.t15.htm

  6. ” $470 billion to 2012’s GDP (which, by the way, is the total value of goods and services produced in the U.S.).”

    Actually, it isn’t. Its the new value added during the year, as Marx described in his critique of Adam Smith. The value of all goods produced during the year is comprised of c + v + s, the constant capital, the variable capital and the surplus value. But, as Marx points out in his critique of Smith the national income or expenditure comprises only v + s, it misses c, the value of the constant capital produced in previous years, and only used in the current year’s production, and thereby transferring its value to it.

  7. With regard to Ux: the reported unemployment, new filings etc. are census numbers produced by DoL from the state UI offices. The Ux numbers are the result of *sample surveys* conducted on behalf of BLS by Census; they are fungible. Anyone who’s really interested can read an entire report, and check out the CIs (if you don’t know what a CI is, you should) on the Ux’s. You’ll be surprised.

    One can argue that counting such types of IP, particularly given how much of it is contested with regard to patenting, as elements of GDP does lead to distortion. In the limit, one could have a country such as Bermuda which “produces” only financial services for foreigners, and has a recorded GDP that tops the world. Most Bermudians (I’ve been there) can barely afford to eat. Extending GDP with ever more amorphous “service” is a distortion. Food, clothing, and shelter matter. Movies, not so much.

    It was the financialization of the US economy which motivated The Great Recession (lots o moolah looking for larger returns in the face of Greenspan’s cratering of interest rates); it’s a long story. Suffice to say: tilting GDP towards fiduciary “production” leads to actors seeking fiduciary returns over real returns. IOW, be careful what incentives you create. The sly will game them to their advantage over the commonweal.

    But… I do agree that there’s nothing explicitly nefarious going on. However, it is a value judgment to expand the definition of GDP. Just because the US economy is less real production now than in the past doesn’t mean we should redefine GDP to bolster that decision (made by capitalists, not governments). This was not an instantaneous decision. I spent some years as a Fed techy (not at DoL/BLS/Census, though), and the GS-13s take no guff from the Supergrades. The appointees and the Supergrades come and go. The GS last forever.

  8. Every GDP statistical release from the BEA begins with this phrase: “Real gross domestic product — the output of goods and services produced by labor and property
    located in the United States….” Gross means that includes depreciation; net domestic product deducts depreciation, which is the value of the capital stock consumed in a year’s production.


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