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Speaking of Economic Numbers. They ain't what they used to be.
Here is the grand economic barometer. The GDP. (formerly the GNP)
The Gross Domestic Product calculation.
When the Federal budget was balanced, it was a fair reading to put government spending into the calculation. Quite correctly, the same amount of money taken from the citizenry via taxes and fees by the government was then expended back into the economy by government ...equal quantities in and out. Balanced. Even. A fair calculation.
Now, with deficit spending, the government spending number in the GDP is bogus. It is fallacious. Money from thin air pumped into the economy. What is produced? The GDP number is inflated.
With the food stamp program, and the initiative to expand the rolls of the recipients, we have an example of debt financed consumption. The government is borrowing money to give away to consumers. In the vein of the "broken window" economic stimulus, the administration suggests every dollar of doled out food stamps creates nearly double the economic activity. If we break a window, we create economic activity through its replacement. Such wisdom can only emanate from Washington.
When is a sale made? For those over 50, the memory of an economy without credit cards may be a distant recollection. To make a purchase at a store, one was required to pay by cash or check. By cash, the transaction was completed instantly. By check, perhaps a few days were required. Retail sales completed and thus retail sales reports accurate.
Nowadays, with credit cards and the rolling of debt by the consumer, the question arises, "when is the transaction complete?" In an instance where the purchase is made and the credit balance on the card increases by that amount, is the transaction complete? The consumer has decided to "buy", but hasn't "paid". Will the credit card be delinquent? This arrangement skews the retail sales reports, over reporting by the mere fact that many transactions aren't actually complete. How much of the economic activity from the past holiday season still is yet to be reconciled? Should those "decisions to purchase" be considered completed sales and registered in the retail sales calculations?
Cheaply imported goods mask the real inflation.
Money spent on necessities would be a better gauge. Call it the Necessities Price Index. Food, energy, health care and shelter.
When we had a balanced trade situation, there were even values imported and exported. A wash. Now, tapping into cheap labor in the Pacific Rim nations, and heavily importing tangible items, is the current price indexing accurate?
Also, there is a little magic with the calculations. Let us take the computer chip. A technology that has been advancing and changing for the past decade. If a computer chip in an off the shelf computer has a 2.5 MHz chip, and due to technological advancements the next year there is a 3.5 MHz chip ...same price....this is calculated as a deflationary event. But is this accurate? As technology advances, the product containing this technology drops in price. One gets a faster computer for the same money, but is that really a deflationary event?
When Texas Instruments first came out with their hand calculators back in the '70's, they were near $100 a piece. Now you can buy better ones in the drug stores aisles for $10. So, was that some great deflationary event? It was calculated as such. But in reality it was more of a technological advancement rather than a measure the purchasing power of money. ? Is there cause for the faster chips and cheaper hand calculators to offset, for example, the rise in the price of beef or gasoline? Does technology drive deflation?
New GDP inputs
And it has been recently announced that the government will recalibrate the GDP calculation. Not surprisingly, the new calculation will bump up the GDP reading. (Imagine if they recalibrated the inflation calculation.)
The Bureau of Economic Analysis (BEA) which calculates the GDP estimates has announced it will begin taking into consideration subjective intangibles as part of GDP. Included will be research and development, movies, TV shows and other "artistic originals". This will inflate the GDP by as much as 3%.
2 + 2 = 5 when extremely large values of 2 are considered.
What will be considered R and D? What value is placed on failed research that leads to no development? The GDP is a measure of product, by definition. If nothing is produced, how can the money expended in that failed research and lack of development be registered in such a calculation as GDP? What value is assigned to R and D that is being conducted to duplicate a competitor's product, a product already in the market? There is good reason why research and development has been considered an expense rather than a capital item.
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