I thought this was funny. Apparently, the Bureau of Economic Analysis (BEA) is changing the accounting methodology for GDP to add a few new categories that will have the effect of increasing GDP by a few %. Here is the money quote:
“…so we are essentially rewriting economic history” – Brent Moulton
Isn’t that hilarious? Look…All you really need to know about GDP is that it is a completely bogus number…and yet…the pursuit of GDP is the dominant focus of nearly all economic policy. This error is responsible for a huge misallocation of global resources…but I digress.
In 1982, nominal US GDP was $3.3T…30 years later in 2012 it was $15.7T almost 5 times higher. So…think back to 1982…are you 5X better off? Are you any better off? Is the nation any better off? Sure…some of that is inflation, and population growth, but most of it is something else…Dark GDP being converted into something economists can kinda-sorta pretend to count.
Perhaps the best example of this is has been “housewives” leaving the home and entering the workforce. Imagine a community where 100% of the women are housewives. They perform the role of housekeeper, caretaker, chef, chauffeur, gardener, nurse, and psychiatrist…for their own families. Then…due to the changing times… all of the women in our hypothetical community decide to join the workforce and all find jobs making wages equivalent to their husbands. The economist will go crazy!!…GDP has doubled…or more. The community is obviously twice as well off right? Well…not so fast.
The truth is, in our hypothetical economy, GDP hasn’t come close to doubling. All that has really happened is that all of the work that had been done by the housewives off the books in the shadows of Dark GDP…has now come into the light to be counted by the economist. And while the working woman now has a wage, she now has to pay someone to do all of the things she used to do. So, when it is all said and done…I would grant that yes…GDP has definitely improved some because there are bona fide efficiencies to be gained in the outsourcing of the housewives duties. However, were true accounting even possible, I think it would show that around 80% of the gain was simply due to finally being able to count (and tax) the activities that were already going on. This is the true, and mostly untold story of the supposed”economic growth” we have seen over the last 50 years.
So my prediction.. only half joking is…that someday soon, the BEA will come up with a new change to GDP to somehow include in GDP not only the economic value of housewives, but also the value of the millions of people who are opting out of the labor force rather than be counted in the “unemployed” category. Currently, the rent an owner occupied home could have generated if the owner didn’t live in it is a part of GDP….so doesn’t it just makes sense that we include the value of the services these people could be doing.. but instead have chosen not to? After all, it’s already a fairy tale number…why not give it a happy ending?