Fake GDP ?

[Widdekind]

We might consider whether we're realistic in deciding whether a tool one guy uses to feed his family is universally "true" or "fake". Not being able to 'see' the reasons for others' choices does not confer authority over what is the 'truth'...

why don't you explain to me then?

Nobody on this forum will hold you to being legitimate? What "tool to feed a family" are you talking about? No homeowner pays anybody anything, with "imputed rent". It's a fake cash flow.

How about you... tell... me what i don't "see" ?

you are not being legitimate (you "plural" i guess)

 

[Widdekind]

"good" fake component of GDP -- Inventory Accumulation

During a year, goods may be produced, which are not sold at market, but instead stockpiled in warehouses. For example, cars & houses may be built but not sold. Inventory accumulation represents real production, which employed real people. And, although no money actually changed hands, in any market transaction; the accounting value of inventory accumulation involves zero subjectivity:

• factory workers tell accountants the quantity (Q) of goods they warehoused
• sales reps tell accountants the going market price (P) of those goods
• accounts obediently add "P x Q" to "inventory" accounts

Moreover, removing inventory accumulation from GDP equals "gross domestic sales revenues". For example, when inventory accumulation is positive, all of that positive book value was stockpiled in warehouses, and not sold in stores, so the fake sales value of accumulated inventories should be subtracted from GDP. And when inventory accumulation is negative, warehouses are depleted, and sales revenues are higher than the value of this year's production alone. Removing inventory accumulation from GDP creates a statistic, "gross revenue", which is less correlated with employment figures, than GDP. ("Gross revenue" doesn't fluctuate as much, during recessions, because businesses are still selling last year's production, even with their factories shut down.) So, GDP seems to be a better indicator, of actual production, from actual employment.


"bad" fake component of GDP -- imputed rent

Conversely, removing imputed rent from GDP yields a statistic, "true GDP", which is more correlated with employment figures, than GDP. So, "true GDP" seems to be a better indicator, of actual production, from actual employment.

Moreover, the accounting value of imputed rent involves allot of subjectivity:

Estimates of space rent for tenant- and owner-occupied housing are estimated as the number of tenant-occupied (or owner-occupied) units times the average rental value (or imputed rental value). These estimates are benchmarked to units data from the decennial Census of Population and Housing and rental values from the Census Bureau’s decennial Residential Finance Survey (RFS). For owner-occupied housing the average contract rent on 1-unit rental and vacant nonfarm properties, as reported in the RFS, is imputed, by property value class, to owner- occupied units, as reported in the biennial American Housing Survey (AHS). The benchmarked estimates are interpolated and extrapolated using average rents from the AHS and the Current Population Survey, consumer price indexes for rent from the Bureau of Labor Statistics, and BEA adjustments to imputed rent for quality changes to the stock of housing.

Calculating imputed rent involves numerous mathematical calculations, each compounding the estimation errors of the previous, to produce a number, reflecting no actual production, of any good or service, sold in any market, or stockpiled in any warehouse.

Estimating the money value of imputed self services (mowing own lawns, cleaning own houses, growing own food) is valuable. "Gross imputed production" would account extra-market production (not transacted on markets), i.e. the "DIY" part of people's lives. In developing nations, imputed production (growing own food) probably exceeds official GDP, since people are producing to sustain themselves, not to sell surpluses on markets. Imputed production would measure real value (eating homegrown food). Imputed production is a valuable statistic. But subjective estimates of imputed production should be clearly differentiated, from market-valued production, which is GDP.

On top of all of the above, imputed rent, in specific particular, double counts. Mortgage payments & property taxes are counted twice, once as personal consumption (by the homeowner), twice as corporate revenues (to their home as rental business) and corporate expenses (to banks & governments). Imputed production is a valuable statistic. All imputed production estimates should be combined, and confined, within separate accounts.

 

[expat_panama]

...you are not being legitimate ...

LOL --not the first time I've been called a bastard! OK, as George C Scott once said--

"--one bastard to another? I'll drink to that!"

Believe me, I got absolutely no problem with your using a modified GDP and if it works better for you then by all means, stick to it --you can even call it the True GDP and that's your privilege. My personal bet is that the rest of us aren't about to switch over from ours to yours any time soon though.

 

[Widdekind]

sector-specfic Okun's Laws ?

US Federal Reserve Chairman Ben Bernanke observed that Okun's Law, relating changes in employment to changes in output (real GDP), for the US macroeconomy, has "softened" over the decades, from "3% - 1%" generations ago, to "2% - 1%" today. The US macroeconomy is composed of several sectors (agriculture, industry, services), whose sector-specific outputs (sector real GDP) plausibly depend on sector-specific employment levels (sector worker-hours). Thus, Okun's Law for the US macroeconomy plausibly reflects a weighted-average, of several sector-specific Okun's Laws. Over the past century, the US economy has shifted from agriculture, to industry, and then to services. Thus, the macroeconomic "3% - 1%" Okun's Law, from decades ago, plausibly reflected more of agriculture & industry; whereas the more recent "2% - 1%" Okun's Law, plausibly reflects more of the service sector. Utilizing online data from the World Bank, for the period 1981-2010, agricultural output increased 3% per 1% increase in agricultural employment level; industrial output increased 1% per 1% increase in industrial employment level; and services output increased 0% per 1% increase in services employment level, i.e. services output was statistically uncorrelated to services employment level, perhaps resembling government-sector output & employment:

And so, the shifting "posture" of the US macroeconomy, away from agriculture, towards services, plausibly explains the observations of Federal Reserve Chairman Ben Bernanke, that the overall macroeconomic Okun's Law has "softened", from "3% - 1%" decades ago, to "2% - 1%" at present.


http://en.wikipedia.org/wiki/Okun's_law

 

[Widdekind]

A good case can be made to add all implict income streams into the economy, a decent case can be made to exclude all implicit incomes but I don't see any case for cherry picking some to include and others to exclude.

insistence on uncompromising consistency is logical and reasonable. For hundreds to thousands of years, Despotism has "weeded" populations, of problematic "goats", in the name of population pacification. About 600 BC, a Greek tyrant (Periander) asked advice from an Asian tyrant (Thrasybulus):

He (Periander) had sent a herald to Thrasybulus and inquired in what way he would best and most safely govern his city. Thrasybulus led the man who had come from Periander outside the town, and entered into a sown field. As he walked through the corn, continually asking why the messenger had come to him from Cypselus, he kept cutting off all the tallest ears of wheat which he could see, and throwing them away, until he had destroyed the best and richest part of the crop. Then, after passing through the place and speaking no word of counsel, he sent the herald away. When the herald returned to Cypselus, Periander desired to hear what counsel he brought, but the man said that Thrasybulus had given him none. The herald added that it was a strange man to whom he had been sent, a madman and a destroyer of his own possessions, telling Periander what he had seen Thrasybulus do. Periander, however, understood what had been done, and perceived that Thrasybulus had counselled him to slay those of his townsmen who were outstanding in influence or ability; with that he began to deal with his citizens in an evil manner
Herodotus, Histories (Book 5, 92-f)​

Cp. "bust the trusts", dismantling of successful business "monopolies" like Standard Oil. "There's nothing new 'under the sun' in earth star-system" (cp. Ecclesiastes 1:9).


Tall poppy syndrome - Wikipedia, the free encyclopedia

 

[Widdekind]

Again, official "personal savings" includes expenditures, that do not qualify, as "personal consumption". One such expenditure, thusly accounted as official "personal savings", is home improvements (structural additions). At the same time, those home improvements are accounted as part of "gross private domestic investment, residential" (new houses, new additions to existing houses). Thus, in the income-expenditure equation, linking "gross domestic retail revenues" to US enterprises (businesses, businesses on government contracts, government personnel such as teachers, police, military), on the LHS of above figures:

Y = C + I + G + NX
= C + [I_nonresidential + I_residential] + G + NX​

to business expenses from those revenues, on the RHS of above figures:

= C + S + T (net)
= C + [S_business + S_persons] + T net)​

part of personal savings (S_persons) is actually expenditures on new home additions; which "wraps around" into residential investment:

S_persons, home improvements ---> I_residential, home improvements​

Likewise, corporate savings (S_business) "wraps around" into nonresidential investment:

S_business ---> I_nonresidential​

When savings "wrap around" back into spendings, they can be augmented, by borrowings (from banks, investors), with a corresponding increase in debt.


https://www.bea.gov/papers/pdf/RIPfactsheet.pdf
http://www.bea.gov/national/pdf/nipaguid.pdf

 

[uscitizen]

But we are exceptional!