Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Beware Gold Stocks Downside - 13th Dec 19
Fed Says No Interest Rate Hikes In 2020. What About Gold? - 13th Dec 19
The ABC’s of Fiat Money - 13th Dec 19
Why Jo Swinson and the Lib Dems LOST Seats General Election 2019 - Sheffiled Hallam Result - 13th Dec 19
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Should We Believe the GDP Economic Data?

Economics / Market Manipulation Nov 10, 2009 - 03:49 PM GMT

By: Douglas_French

Economics

Best Financial Markets Analysis ArticleThird quarter Gross Domestic Product (GDP) figures were announced recently with that index rebounding to reflect that the US economy is growing again at a 3.5 percent rate. The financial talking heads rejoiced and investors continue to power the stock markets higher. Fed Chair Ben Bernanke even predicted that the recession was over when he told the Brookings Institute in mid-September, "From a technical perspective, the recession is very likely over at this point."


Mark Zandi, chief economist and cofounder of Moody's Economy.com told the Joint Economic Committee, "The Great Recession has finally come to an end, in large part because of unprecedented policy efforts by the Federal Reserve and fiscal policymakers."

Never mind that the third-quarter numbers included Cash For Clunkers and other direct government intervention that skewed the numbers; what's the value of GDP numbers anyway? Just because the Department of Commerce crunched their numbers and the result comes out positive that means we are all better off? None of the 15.7 million officially unemployed Americans is thinking the recession (Great or otherwise) is over; especially if you are one of the over five million people who have been out of work for more than six months.

Megan McArdle takes GDP worship to task in the November issue of the Atlantic, in a piece entitled "Misleading Indicator." McArdle writes that Simon Kuznets made a "titanic achievement" when he created a system of national accounts, but GDP "counts the dollar value of our output, but not the actual improvement in our lives, or even in our economic condition."

McArdle uses the example of a new home built during the boom to make the point that all of that homebuilding pumped up the GDP numbers during the boom, but now the "house sits empty while bankers, borrowers, and regulators squabble. One of the 2.4 million excess homes on the market, its only function right now is to bankrupt its owner."

Likely without knowing it, the Atlantic's business and economic editor states a point made obvious by Austrians: "GDP does not, and cannot, reflect the waste of enormous effort, and precious natural resources, that went into building something that suddenly no one wants." Yes, all of the malinvestment made GDP soar, but ultimately just wasted capital. As Frank Shostak explains, "The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption."

Murray Rothbard always made the point in his class lectures that GDP figures were suspect because government outputs are included. Of course, government doesn't produce anything that consumers will pay for willingly, thus it must take from the productive economy to provide these services. So there is at least double counting of the outputs.

"GDP can record how much money we spend on health care or education; it cannot tell us whether the services we are buying are any good," writes McArdle. With the House passing a bill calling for the government takeover of healthcare as it has education, the result will be the same: GDP numbers will grow, but the quality of healthcare will go down while the cost goes up.

But while McArdle criticizes Kuznet's creation, it is only because she believes that another econometrician can create a "better statistical yardstick." She believes that man is Enrico Giovannini, who has been working on "more-reliable metrics for measuring change in our health, education, the environment — the many ways that human beings make themselves better or worse off."

But of course putting numbers and measurements to these subjective values is nonsense. As Ludwig von Mises wrote, "The attempts to determine in money the wealth of a nation or of the whole of mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimensions of the pyramid of Cheops."

Kuznets himself even questioned the usefulness of these numbers:

The statistician who supposes that he can make a purely objective estimate of national income, not influenced by preconceptions concerning the "facts," is deluding himself; for whenever he includes one item or excludes another he is implicitly accepting some standard of judgement, his own or that of the compiler of the data. There is no escaping this subjective element. (Kuznets, National Income and its Composition, 1919–1938, NBER, 1941.)

But McArdle is a believer. She's disappointed that Giovannini has left the OECD (and the new index project) to head Italy's statistics authority. However, she believes when "our grandchildren face their financial Waterloo, they may have Giovannini's brainchildren to help guide them through it."

But for now we have Kuznets's creation, which provided, as Sean Corrigan points out, "Roosevelt's statist Brain Trusters with a template on which to realize their Mussolinian fantasies of how the nation's affairs should be ordered."

If all this number crunching were relegated to parlor games, no harm would be done. Unfortunately, central bankers and central planners believe these statistics have relevance, justifying their interference with businesses and making us all poorer in the process — no matter what the numbers are.

Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee. See his tribute to Murray Rothbard. Send him mail. See Doug French's article archives. Comment on the blog.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules