"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.
