Posted on 09/21/2013 11:34:54 AM PDT by NaturalBornConservative
Phony Government Statistics: GDP
- By: Larry Walker, II -
“There are six things that the Lord hates, seven that are an abomination to him: haughty eyes, a lying tongue, and hands that shed innocent blood, a heart that devises wicked plans, feet that make haste to run to evil, a false witness who breathes out lies, and one who sows discord among brothers.” ~ Proverbs 6:16-19 ~
Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. But according to Economist Walter J. Williams of Shadow Government Statistics, “Upward growth biases built into GDP modeling since the early 1980’s have rendered this important series nearly worthless as an indicator of economic activity... With reported growth moving up and away from economic reality, the primary significance of GDP reporting now is as a political propaganda tool and as a cheerleading prop for Pollyannaish analysts on Wall Street.”
On August 29, 2013, the Federal Government reported that Real Gross Domestic Product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the "second" estimate released by the Bureau of Economic Analysis (BEA). In the first quarter, real GDP increased 1.1 percent. (The BEA will release its final number for the second quarter 2013 on September 26, 2013, at 8:30 A.M. EDT.)
However, this GDP headline number refers to the most-recent quarter’s annualized quarter-to-quarter rate of change (what that quarter’s percent quarter-to-quarter change would translate into if compounded for four consecutive quarters). This can mean that the latest quarter can be reported with a positive annualized growth rate, while the actual annual rate of change is negative, as was the case for the 3rd quarter of 2009. So is the economy really growing or not?
Note: The chart above, courtesy of ShadowStats.com, shows Annual Growth (Year-to-Year Percent Change). This is not the annualized quarterly rate of change that serves as the headline number for the series.
Shadow GDP
According to Shadow Government Statistics, the annual growth percentage change in GDP for the second quarter 2013, based on Official BEA data, was a mere 1.64%. However, when the aforementioned upward biases, inserted into GDP since 1984, are removed, the annual growth percentage change for the second quarter 2013 was actually more like -1.75%.
In fact, if you study the chart above, in conjunction with source data courtesy of Shadow Government Statistics, other than an anemic growth rate of less than 0.51% for the first, second, and third quarters of 2004, based on pre-1984 methodology, annual GDP growth has been negative ever since the second quarter of 2000.
Even worse, every time the BEA makes a new Pollyannaish change in its GDP reporting methodology, all prior data is restated back to the year 1929. For example, according to Shadow Government Statistics, methodological changes made in 2004 led to increases in previously reported GDP of 2.86% for 1980, and 5.25% for 1990 (see table below).
Unless this nonsense is reigned in, I suspect that in the near future, the Great Depression will be referred to as the Booming 30’s. Should you wish to study this topic further, please take a few moments to read the series authored by Walter J. "John" Williams, “Government Economic Reports: Things You’ve Suspected But Were Afraid To Ask!”
The Bottom Line: Nearly every key statistic reported by the Federal Government is a lie. Virtually every word emanating from Washington, DC is a lie. Although the American people may be exceptional, the Government of the United States, as it stands today, has strayed so far from the mark that there will be none other to blame as it seals its own demise.
Related: Black Unemployment Rate Closer to 37.9%: Phony Government Statistics, Detroit and Black Americans
He collects hundreds of thousands of data points, just like the federal government? I know the private sector is more efficient than the government, but I didn't know one guy working from his apartment office could replace hundreds of government workers like that.
Let me know if you ever find out what he really does. Thanks!
Oh, yes. I agree.
I was just taking the GDP as the Keynesians designed it. I certainly do not agree with it. We are definitely experiencing negative economic growth [ugly term].
The commentaries which provide the details are only viewable by subscription and are here: http://www.shadowstats.com/commentaries.
I have a subscription, and can vouch that the details are all there within the content above and within the regular commentaries. I have included in this post, that which I am allowed to include (charts and information from the non-subscription articles).
A few hints are given though. For example, if inflation is understated, then GDP will be overstated. If millions of discouraged workers are removed from the labor force, then the unemployment rate will be understated. No, he doesn't collect the data on his own, he uses the same data that the federal government obtains, then he strips out the the biases inserted since the early 1980's (in the case of GDP).
That's about all I can say, since according to the terms of use, as a subscriber:
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"All rights reserved. Except as expressly provided herein, the Content may not be modified, copied, distributed, framed, reproduced, republished, downloaded, displayed, posted, transmitted, or sold in any form or by any means, in whole or in part, without ABAR’s prior written permission..."
Since he doesn't collect any data on his own, how does he "strip out the biases"?
The data contained in NIPA accounts is just raw data which as reported by the BEA. This data can be manipulated and interpreted in various ways to arrive at GDP. Which inflation rate one uses, whether one uses chained dollars and what year they are chained to, what is counted in personal income, etc... So he only includes what was included when GDP was reported more or less correctly back in the early 80’s.
For example, personal income currently includes a rental value for all homeowners. In other words, if you own a home, your personal income is upped by the amount of rent you would receive if you were renting your home, even if you just live in it. Is that really income? Should that figures really be part of GDP? The CPI number is understated because it doesn’t contain energy. If energy inflation is included, then inflation is higher, and GDP is consequently lower. Should energy costs be included?
The government just recently changed the formula again in a manner that will show a higher amount of GDP than previously. They will go back and revise all prior reporting back to 1929. The question is why do they keep massaging the numbers? The answer is because the numbers keep declining.
You should buy a six month subscription and read this stuff if you’re really interested. It doesn’t cost that much (I can’t remember the exact amount though).
But since he isn't collecting his own data, he lacks the ability to calculate the "old inflation rate" to compare to the current rate.
The CPI number is understated because it doesn’t contain energy. If energy inflation is included, then inflation is higher, and GDP is consequently lower. Should energy costs be included?
But of course energy is included in CPI. If he claimed it isn't, he's an even bigger fraud that I thought.
What he says is that the geometric weighting employed by BLS is a purely mathematical gimmick that automatically reduces the weightings of goods rising in price... Thus if energy prices are rising, then people must be using less energy and are thus less affected than in reality.
According to BLS, the energy index was -.1 over the last 12 month's (unadjusted). So I suppose one could say the rise in energy costs is included, but they're really not, in my view anyway.
That's a relief, because that claim is wrong.
Has the BLS removed food or energy prices in its official measure of inflation?
No. The BLS publishes thousands of CPI indexes each month, including the headline All Items CPI for All Urban Consumers (CPI-U) and the CPI-U for All Items Less Food and Energy. The latter series, widely referred to as the "core" CPI, is closely watched by many economic analysts and policymakers under the belief that food and energy prices are volatile and are subject to price shocks that cannot be damped through monetary policy. However, all consumer goods and services, including food and energy, are represented in the headline CPI.
Most importantly, none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI for Urban Wage Earners and Clerical Workers (CPI-W). Individual income tax parameters and Treasury Inflation-Protected Securities (TIPS) returns are based on the All Items CPI-U.
1.Has the BLS removed food or energy prices in its official measure of inflation?
What he says is that the geometric weighting employed by BLS is a purely mathematical gimmick that automatically reduces the weightings of goods rising in price...
He would have to use the old weighting then. But he doesn't.
And your conclusion that “he doesn’t” is based on what - fact or speculation?
Has he said that he does, in the information you buy?
Now compare that to the 1.5% annual rate reported by BLS for the same period and you can see there is a wide discrepancy.
In fact, according to James Hamilton of Econbrowser, John Williams admitted in 2008 that his numbers are just inflated CPI data:
Last month I called attention to an analysis by BLS researchers John Greenlees and Robert McClelland of some of the claims by John Williams of Shadowstats about the consequences for reported inflation of assorted technical decisions made by the BLS. Williams asked me to update with a link to his response to the BLS study. I am happy to do so, along with offering some further observations of my own.
You can follow the link to Shadowstats’ response to Greenlees and McClelland and judge for yourself, but my impression is that the response is more philosophical than quantitative. In a separate phone conversation, Williams further clarified the Shadowstats methodology. Here’s what John said to me: “I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an ad factor to the reported statistics.”
"The ShadowStats-Alternate Consumer Inflation Measure adjusts on an additive basis for the cumulative impact on the annual inflation rate of various methodological changes made by the BLS (the series is not recalculated). Over the decades, the BLS has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard of living, to something that neither reflects the constant-standard-of-living concept nor measures adequately most of what consumers view as out-of-pocket expenditures. Roughly five percentage points of the additive ShadowStats adjustment reflect the BLS’s formal estimates of the annual impact of methodological changes; roughly two percentage points reflect changes by the BLS, where ShadowStats has estimated the impact from changes not otherwise published by the BLS."
If you truly believe in science, then perhaps you should go to the source and dispute his claims yourself.
Entertainment R&D Boosts Federal GDP Calculation Following Formula Changes - "When the Commerce Department reported this morning that the Gross Domestic Product rose 1.7% from April through June, the figure was 3% higher than expected — and that’s partly due to the change..."
July 31, 2013 - The new GDP methodology: What you need to know -- U.S. economy over $500 billion larger due to new definitions
http://www.marketwatch.com/story/the-new-gdp-methodology-what-you-need-to-know-2013-07-31
You expecting him to add 3% to his CPI "calculation"?
Actually $500 billion, the amount attributed to this latest change in methodology, was exactly 3.0% of $16.6 trillion, the amount of current dollar GDP (2nd Qtr 2013), so without that change, not to mention all the others made since 1984, where does that leave us?
That leaves us with Williams imagining we’ve had negative GDP for the last 13 years.
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