Left Business Observer News from Doug Henwood

http://lbo-news.com/

The irrepressible Jack Rasmus, who never tires of displaying his ignorance, has a piece up on Counterpunch (“Economic Recovery by Statistical Manipulation”) on the recent revisions to the U.S. national income and product accounts (NIPAs). No doubt speaking for legions of paranoids, left and otherwise, Rasmus describes the revisions as yet another politically driven scheme to make the economy look better than it is—“rewrit[ing] the numbers to make the failure ‘go away.‘” They’re not, and they don’t.

Like almost all economic stats, the national income numbers—GDP and its supporting cast—are revised frequently as better data replace early estimates. In order to produce timely data—the first estimates of GDP et al come out less than a month after the quarter ends—some components have to be estimated. Over time, as more definitive numbers come into the Bureau of Economic Analysis (BEA), which produces the NIPAs, earlier estimates are revised. First takes are revised over the two subsequent quarters, and then every summer there’s an annual revision to the NIPAs that goes back several years. Every five years there’s a so-called benchmark revision, which involves not only the incorporation of better underlying data, but often conceptual rethinks as well. If Rasmus has any idea of this revision schedule, he doesn’t let on—not surprisingly, because it might interfere with the conspiracy theory (sorry, hate that cliché, but it’s earned in this case) he’s trying to weave. You can read all about the machinery behind the NIPAs yourself by following the links on this page: BEA National Economic Accounts; revisions are specifically addressed here.

With this benchmarking exercise, the 14th iteration, the major rethink was the reclassification of expenditures on research & development as well as the creation of original works of art and entertainment as investment; previously they were classed as routine business expenses. These new categories, along with software (previously counted along with investment in machinery and equipment), form a new aggregate, intellectual property (IP) products. The difference is that investment adds to GDP and routine expenses don’t. You can argue with the details, but this change is not conceptually outrageous. R&D that leads to a new drug or processor chip is a lasting commitment that produces income over time, which is what investment is all about. Ditto the creation of a new movie, even if it’s dumb. (Valuing these things can be very hard, but that’s more a practical than theoretical problem.) The effect of this change is to add about $470 billion to 2012’s GDP (which, by the way, is the total value of goods and services produced in the U.S.). Other conceptual changes add another $55 billion or so, and better source data, another $34 billion. You can find plenty of details in the news release.

But these changes were applied to previous years as well—more in recent years, as IP products have grown in importance, but the revisions go all the way back to when the NIPAs begin in 1929. So while the level of GDP was revised upward by 3.6%, earlier years were also revised upwards, meaning that growth rates weren’t affected all that much. The average growth rate for the 2000–2012 period was revised up all of 0.1 point, from 1.6% to 1.7%. That’s still a very weak number, half the 3.1% average since 1960 in fact. And that average was unaffected by the revisions. The Great Recession was marked down somewhat in severity, from a loss of 4.7% in real GDP to 4.3%, but it remains the worst recession since the 1930s by a considerable margin. And the recovery since 2009 has been upgraded a bit, but it remains the weakest upturn in modern history. In other words, Rasmus is completely wrong about revising failure away.

He’s wrong about many other things as well. The entire passage about Gross Domestic Income (GDI) is deeply wrong. Note that the full name of the accounts is the national income and product accounts. That is, there are two sets of books, one for income and one for product. Income, by definition, has to be earned in production (like wages or profits—leaving aside the theoretical question of whether capitalists “earn” their profits). In theory, the two estimates, income and product, are supposed to match. In practice, they don’t, because real life is never as neat as a textbook. Often the income estimate has run ahead of product, which Rasmus wrongly attributes to income earned in speculation. Speculative incomes, like capital gains, have nothing to do with production, and are therefore excluded from the NIPAs. But income doesn’t always run ahead of product; sometimes it lags. If Rasmus knows this, he doesn’t let on about this either. Of course, doing so would have undermined his agitprop.

That’s not all Rasmus is wrong about. He asserts that the GDP revisions may lead to revisions to the employment numbers. In fact they won’t, since the two are computed separately. (Actually the employment numbers are an input to GDP estimates, not the other way around.) He repeats the baseless claim that Reagan revised the unemployment numbers to make them look lower; in fact, there have been only minor changes to these stats over the decades, and the changes have been in both directions (though always in small magnitudes).

The people who produces economic and other statistics are skilled and honest civil servants. I’ve been talking to these people for over 20 years—they’re very open about what they do, and the virtues and limitations of the numbers they produce. You could argue—as I would—that GDP is only a very partial measure of economic welfare. It says nothing about distribution or quality, and takes no accounting of the degradation of the natural environment nor of unpaid domestic labor. You could argue that Iron Man 3 is not a positive contribution to human welfare, so counting it as an “investment” is some sort of cruel joke. You could argue that the whole idea of IP is a subtraction from human welfare, since information wants to be free (though that’s not how capitalism works, alas). But Rasmus doesn’t make these arguments. Instead, he just makes stuff up.

Official stats will show you that chronic unemployment is a major and lingering problem, that the U.S. income distribution is horribly unequal and has gotten worse over the last three or four decades, and that poverty remains scandalously high. Official stats, as they are, without the ministrations of Jack Rasmus. In fact, it’s amazing how much damning information the government publishes about American society almost every business day. You don’t need to spice it up with phantasmic plots.