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Saturday, February 04, 2006

Economic Stats SNAFU?

An article in Business Week magazine is running a story about how the economy is really stronger than we think it is, due to the particular statistics being collected and used for reporting. The gist of it is that there are 'modern economy' things going on that aren't counted by the 50 year-old data used by the federal agencies that do the reporting.

Well, don't be. Because the economy you thought you knew -- the one all those government statistics purport to measure and make rational and understandable -- actually may be on a stronger footing than you think. Then again, it could be much more volatile than before, with bigger booms and deeper busts. If true, that has major implications for policymakers -- not least Ben Bernanke, who on Feb. 1 succeeded Alan Greenspan as chairman of the Federal Reserve.

Everyone knows the U.S. is well down the road to becoming a knowledge economy, one driven by ideas and innovation. What you may not realize is that the government's decades-old system of number collection and crunching captures investments in equipment, buildings, and software, but for the most part misses the growing portion of GDP that is generating the cool, game-changing ideas. "As we've become a more knowledge-based economy," says University of Maryland economist Charles R. Hulten, "our statistics have not shifted to capture the effects."

The statistical wizards at the Bureau of Economic Analysis in Washington can whip up a spreadsheet showing how much the railroads spend on furniture ($39 million in 2004, to be exact). But they have no way of tracking the billions of dollars companies spend each year on innovation and product design, brand-building, employee training, or any of the other intangible investments required to compete in today's global economy. That means that the resources put into creating such world-beating innovations as the anticancer drug Avastin, inhaled insulin, Starbuck's , exchange-traded funds, and yes, even the iPod, don't show up in the official numbers.

First, I'm not sure that I consider R&D to be 'productive' economic activity, or domestic product (as in GDP - Gross Domestic Product) - so much goes down the drain as dollars that DID NOT produce anything. I guess it depends on your definition of 'product'. Second, I don't see design efforts or brand-recognition or training as appropriate economic indicators or 'product' either. You can't really sell your brand familiarity to another company. Those are things you do to stay in place. You have to run faster to get ahead. Besides, we now have such a lopsided non-'free market' economy due to special interest legislation that once a company reaches a large enough size, it can dominate the market in any way it wants and the lobbyists will ensure that Congress supports that monoploy or oligarchy power thru legislation. Look at drugs or insurance as examples.

And funds trading? That IS NOT economic activity. Just go back to when Enron went bust and people were asking what actually happened to their pension monies. The economists and Wall Street pillagers all said 'What're you talking about? That wasn't real money. The value of the stock disappeared, and so did the value of the investment'. But real people paid for those shares with real wages earned. If it can evaporate because it 'didn't really exist', then how can something that doesn't exist be counted as economic activity?

And last, I really don't see 'more volatile' as a benefit either. My state has had to cut programs because the slack economy sucked all the income out of the state's investments - yours probably did too - and that was even before the Busheviks started cutting funding for all the federally mandated programs. How is that kind of volatility helping us?

So actually, I suspect this article is a trial balloon for the Bushies to see if they can't get some kind of higher approval rating for King George's economic stupidities. They're trying out an idea, to be blunt about it. I believe that the real health of the economy is the financial health of the working citizens - all of us. Are you any better off the last 5 years? Did your 401k nearly tank and not fully recover yet?

But here is the real meat of the issue: If we know we aren't collecting all the right numbers, but we don't know yet what all the right numbers should be, how do we know the news won't really be WORSE than we think it is? What if they only pick new indicators that will look positive in order to paint a rosy picture?

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