I do not question the reported increase in manufacturing, I question how was it computed and how accurate is it? Especially during the Clinton years.
Here's a great speech by Mr. Alan Greenspan. It 'splains a lot of what I am trying to say -- but does not question the GDP.
If you have time you may find it interesting and better to read it personally.
http://www.federalreserve.gov/boarddocs/speeches/2001/20010327/default.htm
The quotes below are from the speech that Mr. Alan Greenspan gave at the Fed. I'll leave it up to this former COBOL programmer to explain. (At least, one source said that Greenspan started at the Federal Reserve at the "lowly position of Cobol programmer.")
How to report the performance of an economy:
It was so "evident in a world of steel, fabrics, and grains"
In those days "an average price of hot rolled steel sheet and a corresponding total tonnage was precise enough for most analytic needs."
In those days "the definition of a typical unit of output was reasonably unambiguous, was a meaningful and relatively robust statistic."
Not so now. "These [our economy's] newer technologies and the structure of output they have created have surfaced a set of definitional problems. . ."
Though the earlier days were relatively straight forward, not so today.
"I refer, of course, to the age-old problem of defining what we mean by a unit of output and, by extension, what we mean by price. The dollar value of sales or GDP depends, of course, on the specific accounting rules chosen." [My emphasis]
I.e., "during the last decade or two, an ever-increasing share of GDP has reflected the value of ideas more than material substance or manual labor input."
The effect is to "seriously challenge our measurement systems in an age of the microprocessor, fiber optics, and the laser."
Mr. Greenspan uses an example from medicine,
"These latent problems have emerged in full view in the pricing of medical services. Perhaps the inherent complexity of this undertaking is most clearly revealed by posing the question, what do we mean by a standardized unit of medical output? Is it the procedure, the treatment, or the outcome? What does the fee charged for the bundle of services associated with cataract or arthroscopic surgery represent? How does one value the benefits to the patient of shorter hospital stays, more comfortable recoveries, and better physical outcomes? Clearly, the unadjusted fee for a single medical procedure does not adequately represent its 'price.'" [my emphasis]
My point: The bold above represents the question I've raised about just how accurate is the GDP; i.e., do the accounting rules adequately represent 'price'?
"Indeed, the level of real gross product per hour for medical services embodied in our overall productivity measures declined between 1990 and 1999"
You see, without some sort of adjustment portions of the GDP could appear to be in decline, the way I understand this.
So I guess the solution was to ask what is our modern medicine's value to us right now, today-- a kind of "pleasure" it gives, thus hedonics and quality-adjusted prices.
. (Mr. Greenspan expands the medical example here for clarification of value.)
Then he gets to it, "the measurement of some goods prices presents considerable challenges."
"High-technology goods are a case in point. Academic research in this area dates to the mid-1960s, but its application in the measurement of real output gained prominence with the introduction of hedonic price indexes for computers and peripherals by the Bureau of Economic Analysis in 1985. . .recently, the efforts undertaken by statistical agencies have intensified, spurred by the accelerated pace of technological innovation, which has yielded an ever-expanding range of new products and product variants, as well as by the rising share of these goods in our economic value added."
Next Mr. Greenspan uses semiconductors, computers, and LAN equipment to give specific examples.
"The characteristics of these goods present the range of complexities that one faces in measuring quality-adjusted prices."
"This so-called 'hedonic' technique--now [2001] applied by the BEA to items that account for 18 percent of GDP--is one approach."
My bold answers my question. Yes, hedonics affect the GDP computation. Next question, does it inflate the GDP?
Though some (I included above a quote from an official of NAM) claim that the growth (late 1990s) in manufacturing is due in total or in large part to hedonic price indexing Mr. Greenspan made no mention of it.
So are all those GDP dollars flying around real or imputed?
Same site notes this about inflation:
Going from aaproximately 110 to 170 ( or a 60 point rise) over the same time frame. This represents an approximate 54% increase in producer price increases. This means that actual production growth was essentially static...indeed, perhaps negative...and increasingly so over the '02 to '05 time frame. 15 years of static result. Not good. So much for phoney free trade.