Interesting article on the importance of the choice of GDP deflator used to calculate real GDP:- http://www.advisorperspectives.com/dshort/updates/GDP-Deflators.php Note that using the Shadowstats alternate CPI as the deflator GDP has averaged -5.0% over the last ten years. :-o The latest GDP was -8.3% based on the Shadowstats figure.
I have an alternative version of CPI (call it the MG SuperSecretSpecialSauce CPI) that tells me that the latest US real GDP was -500%. How 'bout 'em apples?
Thanks for posting that it is very interesting. Even if the conclusion is wrong, (which I believe it is correct although probably not as negative as the article: I think we are around -1% GDP), the content is educational and well presented.
I suppose alternatively if you plugged in house price inflation for your deflator you would get some very strong "real" GDP numbers since 2009. But the idea amongst economists that "real" GDP is some kind of holy number appears to be a deeply flawed one given the wishy washy nature of the deflator component. Which one to choose? Infact, in so many respects GDP is such a crude measure of economic performance. I mean, if real GDP stood still for ten years but we got "improvements" in product quality of 2%-5% per annum (however able you are to measure such improvements quantitatively - that is another topic for discussion), I would argue that the economy is advancing. Perhaps that is the reality of what has happened in Japan over the so called lost decade (or two)?
That's partly the point of the much-discussed hedonic adjustments in CPI. And yes, it's all very imperfect, but I would argue that using a completely opaque, fully proprietary bunch of numbers such as ShadowStats is worse. Why not my MG SSSSCPI?
GDP is also heavily dependent on gov't spending--regardless of how wasteful it may be. In China, they construct huge unoccupied buildings to prop up GDP numbers.
I think it would be interesting to consider how nominal GDP has varied across different countries in recent times. Take the UK for instance - CPI is running around 5% but with real GDP between 0%-1% you have nominal GDP rising at 4-5%. I would say that in a period of debt deleveraging policy makers should be reasonably happy with that. Not really gloom and doom as the media likes to portray. Especially when the government can finance itself at 2% per annum.
of course they do. it is 1 more way to fool people on social security into believing that the gov't takes care of your retirement.
I was talking to a client who just returned from a two month business trip to China. He mentioned huge unoccupied (confirmed by his business partner) condo complex that had been built. He asked what they were on the market for and the answer? 300,000+ USD This is in the interior of China. If we thought the U.S. housing market was a bubble the China version is going to be a BLIMP.