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Silver Wheaton Corp. Message Board

  • ilap2004 ilap2004 May 6, 2013 11:46 AM Flag

    Manipulating the GDP Number

     

    The Obama administration is re-jiggering the method of calculating Gross Domestic Product (GDP). The
    In March 2013, the U.S. government invented a new way of calculating GDP. The Financial Times reported that starting from July 2013, U.S. GDP would become 3% bigger due to a change in statistics. GDP now includes R&D spending, art, music, film royalties, books, theatre. This change in GDP statistics has not been implemented elsewhere in the world.

    Research and development (R&D) spending, which shouldn’t even be accounted for as investment, adds a significant amount to the U.S. GDP number. It accounts for around 2% of U.S. GDP. Art, music, film royalties, books and theatre add another 0.5% to U.S. GDP. Another adjustment has been made to pension accounting. Previously, pension spending was included in GDP. After this adjustment however, we also look at the “promise” to pay out pensions. So we are talking about imaginary numbers that are now included in GDP. Commissions, legal bills and expenditures on real estate transactions are included in GDP as “investment.” Obviously these expenditures aren’t associated with real production.

    One result is that comparing the GDP number between other countries and the U.S. is not transparent anymore. It is like comparing apples and oranges. GDP should measure real production (like building a factory) and what the U.S. government added here is not real production.

    But the GDP number is already a joke in many ways:

    Scenario 1. ExxonMobil hires an unemployed petroleum engineer for $100K per year. She spends a year looking for new oil, finds nothing.

    Scenario 2. The federal government hires an unemployed petroleum engineer for the same $100K. She spends a year looking for new oil, finds nothing.

    Scenario 1 has zero impact on GDP: No oil to sell=no extra consumer purchases=no extra GDP.

    Scenario 2 raises GDP by $100K. As BEA says, “Government consumption expenditures…consists of…compensation of employees"

    This topic is deleted.
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