The Lady Gaga Fix: How the U.S. Is Rethinking GDP for the 21st Century

Zachary Karabell, The Atlantic — Mon, 03 Jun 2013 16:40:25 -0400

This week the government released yet another revision of first-quarter economic growth showing that the U.S. economy grew a tad less than initially reported ‑- 2.4 percent rather than 2.5 percent. This revision was hardly consequential, but over the summer the Bureau of Economic Analysis will unveil a new way to calculate the overall output of the United States. And that revision will be dramatic.

Over the past few decades, gross domestic product (GDP) has become theprima inter pares of economic statistics. It is not only a measure of national economic output, it is a proxy for "the economy." The number exerts substantial influence on what we spend collectively and individually, not just in the United States but throughout the world. China has five-year plans with GDP targets, and the European Union has rigid - albeit loosely enforced - rules about how much debt a government can take on relative to its GDP. It is, in short, a big-deal number.

And it is treated as an accurate gauge of economic activity. That would have come as something of a surprise to its inventors. Simon Kuznets, the economist most responsible in the 1930s for the formation of the national accounts that provide the data for GDP, was always disturbed that domestic work, volunteer work and, of course, transactions in cash are invisible in GDP. The choice to leave those out may have made sense - after all, what is the market price of preparing a family meal? - but it underscores that GDP is not a complete measure.

The BEA is the government agency responsible for compiling U.S. GDP figures, and it is always looking for better ways to measure. Every few years it tweaks its methodology. This time the tweaks will be more than incidental. In fact, not only will they add several hundred billion dollars -- statistically, at least -- of annual output, but they will also begin an overdue transition of these numbers away from the 20th century, when they were invented, and into the 21st, where we now live.

Inflation Hawks Rage Against Their Own Hallucinations

Zachary Karabell, The Atlantic — Tue, 22 Jan 2013 16:00:00 -0500

Earlier this week the Bureau of Labor Statistics released its monthly inflation report. The numbers came in at 1.7 percent a year for all items. Excluding the ever-volatile food and energy, it was 1.9 percent.

That's about as low as inflation has been in the last 50 years. Only 1986 (1.1 percent), 1998 and 2001 (1.6 percent), 2008 (0.1 percent) and 2010 (1.5 percent) have come in lower, and a few years in the mid-2000s registered the same.

The disappearance of inflation over the past 20 years, however, has barely dented the pervasive belief that inflation remains one of the greatest threats to economic stability. These convictions persist in spite of all evidence to the contrary: Inflation is nowhere visible. For many, that is just proof that we are living in a lull -- a phony war soon to be disrupted when that age-old enemy reappears and wreaks havoc.

At the Federal Reserve -- legally mandated guardian of price stability and responsible for monitoring and containing inflation -- the president of the Richmond Fed, Jeffrey Lacker, has been warning that the current policy of very low interest rates and expansion of the balance sheet is almost certain to spark inflation in the near future.

Government Executive - Authors - Zachary Karabell

The Lady Gaga Fix: How the U.S. Is Rethinking GDP for the 21st Century

Inflation Hawks Rage Against Their Own Hallucinations