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Fed: GDP is garbage long term
A day before the first revision to Q3 GDP is released, the Federal Reserve tells us it may not be as useful as we've been led to believe.
Do Alternative Measures of GDP Affect Its Interpretation?
Gross domestic product’s high correlation with unemployment and inflation makes it a key measure of the U.S. economy. Yet the somewhat arbitrary nature of the GDP construction process complicates interpretation and measurement of the indicator. A study of an alternative measure of GDP designed to address the published series’ limitations finds that the adjusted measure differs in its representation of the long-term trend—but not the short-term fluctuations—of GDP. The published series’ relevance as an indicator is therefore robust to some of the arbitrariness of its construction....
Conclusion
Even though the concept of GDP is straightforward and uncontroversial, the practical interpretation and measurement of the indicator are subject to many limitations. To measure GDP on a quarterly basis, the BEA makes many somewhat arbitrary modifications. Most notably, the BEA estimates and includes in the published measure a considerable amount of nonmarket activity while excluding substantial amounts of market and nonmarket activity that could plausibly be included.
A large part of what makes the index useful is its high correlation with other measures of aggregate economic outcomes, such as unemployment and inflation, and the reliability of its trend as an indicator of long-run patterns in other variables, such as government revenues. As we have shown, changing many of the assumptions and modifications made to estimate GDP would likely have little effect on the short-term dynamics of the series. Our study therefore suggests that the relevance of GDP as an indicator of ongoing aggregate economic activity is fairly robust to some of the arbitrariness involved in its construction. [Much as large bank profits are rubust to the arbitrariness of their loan decisions.] However, fluctuations in GDP are not the only indicators of short-term movements in aggregate activity; it is arguable that industrial production can provide a useful alternative.
So, is GDP merely fake but accurate, or are we being encouraged to myopically study only short term fluctuations (isn't that how we incrementally pushed ourselves over a financial cliff last year)? Pay no attention to the negative GDP trend behind the curtain. Industrial Production is conveniently prepared by the Fed itself, so maybe this is just a turf war.
Read the whole thing here.
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once a month
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it is all bullshit
it is all bullshit
it is all bullshit
bubbles and crashes
because it is all bullshit
all of it
Sorry for the double-clutch on the comment. Feel free to remove one of them, as I don't know how to myself...
click edit, then delete duplicate
Perhaps the groundwork is being laid for the revising down of the much lauded, and government spending induced, Q3 numbers...
"Well, they really weren't +3.5%, but they were greater than zero, so there's that!"
Who really knows, perhaps regardless of all of the first time buyer and cash-for-clunker incentives, the numbers were lower than those factors combined to increase it; indicating a real contraction elsewhere...
Perhaps the groundwork is being laid for the revising down of the much lauded, and government spending induced, Q3 numbers...
"Well, they really weren't +3.5%, but they were greater than zero, so there's that!"
Who really knows, perhaps regardless of all of the first time buyer and cash-for-clunker incentives, the numbers were lower than those factors combined to increase it; indicating a real contraction elsewhere...
Output gap is conveniently defined and calculated in such way that it will justify inflating as long as the unemployment is perceived high by politicians. So the question how to calculate is academic, it will always yield some value that is arbitrary set by somebody else.
Similarly, the level of poverty is also set by such method that generally politicians will have to redistribute wealth to fix it (by taxing), and it can never be fixed.
this is a crock...an economy which is 19%
industrial is not being measured well by
industrial production...
whoever wrote this farticle is a boob....
if you want to understand output gap take
gross unemployment and multiply it by the gdp
per capita....it's still only a rough approximation
since i doubt that the function is linear
but it sure beats measuring factory utilization
in a post industrial information economy....
at least this method would a gross estimate
Wouldn't a debt-adjusted and population-growth adjusted number be sufficient? If we're growing economic output by 5%, but total debt grew 3%, we've eesentially borrowed that 3% from future production, so it shouldn't fully count, right?
I think GDP is already population-adjusted.