by David Stanowski
17 December 2010
This is the second in a series of articles on economic statistics:
The federal government generates most of the data and statistics used to measure and analyze the economy. This is unfortunate, because politicians are in the business of convincing the public that conditions are better than they seem to be in order to stay in office, so they are constantly "adjusting" the formulas to make the results appear better than they really are.
One of the statistics that they are most concerned about is the growth of the Gross Domestic Product; their measure of overall economic strength. If the government is forced to acknowledge that the economy is growing very slowly, or even declining; people grow very angry and restless.
One of the ways to avoid the anger of the voters is to "adjust" the formula used to compute the GDP, in various ways, so that GDP growth has a constant positive bias. Another "technique" is to boost the GDP estimate when it is first released, and reported by the media, and the quietly revise it lower months later when no one is paying attention.
John Williams started Shadow Government Statistics in 2004 in effort to correct the "adjustments" in government statistics, and generate more accurate data.
The SGS Alternate Gross Domestic Product metric begins with the "official GDP", and then adjusts it for distortions in government inflation usage and methodological changes that have resulted in a built-in upside bias.
Have you ever wondered why recent economic growth doesn't seem to match that of earlier times; why people have been forced to use more and more credit to maintain their standard of living? Because, a more accurate calculation of the U.S. GDP growth rate shows that it has been declining for at least 25 years! (Longer-term studies indicate the decline goes back even further than 1984!)
In fact, the following graph shows a real GDP growth rate (blue line) of less than +1.5% since 1992, and a negative GDP growth rate since 2001, with the exception of a small positive bump in 2004! The government's official GDP "estimates" a current growth rate of about +3.2%, signaling that the Great Recession is over, but SGS says that the current GDP growth rate is actually still -1.7%; and the Great Recession is far from over.
Which one do you believe?
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