Posted on 04/09/2004 1:28:17 AM PDT by sarcasm
Measuring America's economy
Grossly Distorted ProductApr 7th 2004
From The Economist print edition
Are official statistics exaggerating America's growth?
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DESPITE the welcome leap in American employment in March (see article), America's job market has been surprisingly weak in the past couple of years—surprising, at least, to economists. Some have explained this by pointing to rapidly rising productivity figures. Perhaps firms have not needed more workers. But there is another explanation: America's GDP figures, which have been strong, may be inaccurate, and may be exaggerating the extent of economic growth.
In the two years to the fourth quarter of 2003 America's real GDP grew at an annual rate of 3.6%. Going by past recoveries, this should have meant a rise in employment of 2% a year. Instead, non-farm payrolls have fallen. Most economists say that this reflects a sharp increase in productivity growth. Jan Hatzius, an economist at Goldman Sachs, is not so sure. Other economies that have enjoyed rapid productivity gains in recent years, such as Canada and Australia, have also seen strong increases in employment.
Nor does Mr Hatzius accept the argument that the employment figures have been understating job creation. It is too soon to tell whether March's data (which were published after his study) mark the start of a delayed catching-up. This leads Mr Hatzius to suggest that GDP is being overstated. The standard measure of GDP is calculated by totting up aggregate expenditure; but another estimate, found by summing incomes—which in theory should be the same—says that GDP has grown at an annual rate of only 2.8% since the end of 2001, 0.8 percentage points less than the expenditure measure.
Another piece of evidence is the unusual divergence of the growth rates of GDP in the goods sector and of industrial production. The two series used to track each other closely; but in the past two years a wide gap has opened up (see chart). In the year to the fourth quarter, industrial production rose by only 1.4%, while goods-sector GDP surged by 8.0%.
Industrial-production figures are likely to be the more reliable of the two, because they come directly from industry reports. In contrast, goods-sector GDP is estimated indirectly by adding together final sales of goods, changes in inventories and net exports. If goods-sector GDP is replaced with the industrial-production series in estimating GDP, then the economy grew by only 2.2% in the year to the fourth quarter, not the reported 4.3%.
Why might official statisticians be overstating America's GDP—and productivity with it? Mr Hatzius suggests that they may be undercounting imports of intermediate inputs of goods and services produced abroad by American firms that have outsourced jobs to cheaper countries. Since GDP is calculated as domestic spending plus exports less imports (including imports of intermediate inputs), this would lead to an overstatement of GDP.
For example, when American firms outsource call-centre and information-technology-support jobs to India and other Asian countries, the result should be higher imports of services, yet official statistics do not show such an increase. America's recorded imports of software services from India are also much smaller than India's reported exports of such services to America.
If Mr Hatzius is right, then jobs have been slow to pick up largely because this has been, at least until now, an exceptionally weak economic recovery. That is exactly what you might have expected after the bursting of the biggest financial bubble in history.
Hardly
They don't want the American public to know the extent of their perfidy.
Huh?
Hardly - you were spamming the thread.
Your usual invective.
Here are a couple excerpts from the article:
For Intel, which has a similar-sized R&D operation in Israel, and smaller facilities in Russia and China, the attractions of Bangalore are simple: the best climate in India and “very smart people”, who are technically well-educated and speak good English. D.B. Inamdar, the senior civil servant in the provincial government's IT department, says that some 140,000 IT professionals now work in Bangalore—about 20,000 more than in Silicon Valley. Some 50 colleges produce 40,000 more each year. Intel's approach is to hire and train college graduates, supplementing them with about 100 senior engineers, mostly (like Mr Sampat) returning expatriates.
Many firms still see untapped potential in using the wealth of Indian talent for R&D—not just in IT-related areas but in other industries such as drugs and biotech. The long-term worry this raises for America is what Mr Paul calls “the disruption of the apprenticeship path”. Even if much of the work being done in India is not at the most advanced and sophisticated technical level, it is filling what used to be part of the professional experience that has helped to create America's legions of great innovators. Just as once unassailable American corporate R&D departments have seen their sway weakened, will it be long before America itself loses its near-monopoly of global innovation?
Bottom line - we're eating the seed corn of American innovation. What happens when the center of new ideas and new technology is elsewhere? They supplant us - and not just economically. We become an ex-superpower.
And if reducing America to a has-been isn't treason, I wonder what is!
We've got to ask ourselves a simple question - are we willing to give up the White House and both houses of congress? Do we want at least 4 years of Kerry?
If we don't want that, we had best wake up and smell the coffee. People vote economic issues, and they are not happy right now.
We need to stop the offshoring, and we need to do it now.
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