March 07, 2025

More On Counting Federal Spending As A Full-Value Addition To GDP

March 07, 2025/ Francis Menton

My last post on Tuesday has inspired a spirited debate in the comments about how federal spending should properly be accounted for in GDP. What is the right answer? After reading the comments, it occurs to me that there are several more points to make.
For those criticizing or disagreeing with my post — led by prolific commenter Richard Greene — the main theme has been that many large categories of federal spending make an obvious positive contribution to the economy. Examples given include the Defense Department, teachers/education, and national parks.
Surely excluding those kinds of things entirely from GDP accounting would provide at least as deceptive an indicator of the true size of the economy as including them at full cost value. And if those kinds of things, and many others, are not included at full cost value, what is the alternative? Some flat percentage discount could be applied, but there is no obvious constant level of discount that would be appropriate for all categories of spending; and reasonable people could disagree on varying levels of discount for different categories. Maybe defense should even be included at a premium!
My answer to this critique was at least suggested in the prior post. . . .

March 04, 2025

Is Some Honesty About To Come To Government Economic Statistics?

March 04, 2025/ Francis Menton

A recurring theme at this blog over the years has been the rank dishonesty of many of our government’s economic statistics.
Rather than being neutral indicators of the state of the country and its economy, the most important government statistics have been crafted and manipulated to maximize their usefulness to advocates for increases in the size of government and in government spending. Here is a particularly detailed post on this subject from back in December 2016.
The two main areas of focus here have been the statistics on GDP and on poverty. Both of those come from the Commerce Department.
In the case of GDP, the biggest issue is that government spending on goods and services is counted as a 100-cents-on-the-dollar addition to GDP. That means that the most wasteful spending gives an apparent but false boost to the economy; and even more importantly, that any cut to government spending, no matter how wasteful the spending may have been, gets portrayed as a hit to the economy and a harbinger of recession.
For today, I’ll consider the GDP statistics.

September 18, 2024

September 18, 2024/ Francis Menton

China has proudly proclaimed itself to be a Communist country ever since Mao Zedong came to power in the late 1940s. I understand the term “Communism” in the context of a country like China to mean a socialist (state-directed and controlled) economic system with the additional element of political repression allowing no dissent from official orthodoxy.
China’s economic history is a bit more complex than just 75 years of tightly-controlled socialism. Its economy languished (including the usual mass deaths and starvation) for the first 40 or so years of Communist rule.
Next, under party leader Deng Xiaoping and successors from the mid-1980s for about 30+ years, China allowed a substantial private economy to emerge and flourish. During those years it experienced rapid economic growth, and in that very short period of time its economy became the second largest in the world after the U.S. (however, more like 70th place if ranked by per capita GDP).
Then in 2013, current strongman Xi Jinping came to power. In the most recent decade under Xi’s rule, the political repression has been greatly ramped up, the central planners have reasserted their pre-eminence, and the private economy has been gradually strangled.
So how is China faring under its most recent regimen of tightly-controlled socialism, central planning, and state-directed investment?

September 22, 2023

September 22, 2023/ Francis Menton

It’s now more than sixty years since the independence movement in the late 1950s and early 1960s transformed nearly all of sub-Saharan Africa into independent countries.
Hopes soared for a new era of progress and prosperity. But six plus decades on, with essentially no exceptions (maybe Botswana?), the 49 countries of sub-Saharan Africa are about as poor as ever.

The New York Times treats the subject in a big piece by Patricia Cohen a few days ago on September 18. Sorry if this is behind their paywall, but I subscribe to this stuff so that you don’t have to.
In the treatment at the Times, this is just a case of the sad cruelty of nature, an extreme instance of “bad luck.” But we can learn a good deal about the true source of the bad luck by looking at clues that Ms. Cohen and the Times inadvertently drop in the course of their reporting, without even noticing that they are doing it.

August 22, 2023

August 22, 2023/ Francis Menton

It’s hard to learn what’s going on in China, and it’s getting harder. Data series that show anything unfavorable are suppressed or discontinued, and journalists who might write something negative are increasingly unwelcome. But there is every reason to think that China’s forty-year economic boom at the minimum is stalling out, and indeed its economy may be headed for a major crash.
The Wall Street Journal has two significant pieces on this subject in the last two days: from yesterday, a long front-page news article with the headline “China’s 40-Year Boom Is Over. What Comes Next?”; and today, a lead editorial “The Electric-Vehicle Bubble Starts to Deflate.” (Both are probably behind the pay wall.).
But before discussing those in more detail, let’s review the important background. China’s economy took off in the 1980s when then-leader Deng Xiaoping loosened state controls and allowed a private sector to grow and flourish. Current leader Xi Jinping, who assumed power in 2013, has reversed that policy and increasingly tightened state control and direction of the economy, particularly since his second term began in 2018.
Are there any lessons that we in the U.S. and the rest of the West should be learning here?

February 06, 2022

February 06, 2022/ Francis Menton

In mid-January, the gigantic blowout spending bill going by the Orwellian name of Build Back Better died in the Senate.
Over in the progressive precincts of government and the media, where everyone knows that all human wealth and well-being come entirely from government largesse, it was time to prepare for the bad economic news. Surely, with no massive new government blowout spending and with Omicron surging, the January jobs report would be dismal, likely even showing employment declines.
Therefore, in the run-up to Friday’s jobs report for January, the White House spin machine was in full tornado mode, blaming the impending news of a jobs decline on the virus rather than on the administration’s failed economic policies.