When US numbers are only make believe
Anthony Hilton, Evening Standard
12 August 2003
THE cheerleaders for the American economy have been out in force again in the past few days, trying to convince themselves and indeed everyone else that the world's biggest economy has got over its woes and is truly on the mend.
To be realistic though is to have doubts, not because the published American growth figures are wrong but because they are seriously misleading. American economic statistics are compiled and adjusted in ways that consistently give a much more upbeat result than one would get if the same numbers were collected and published under the conventions for national statistics used in Europe.
This was something that US Federal Reserve chairman Alan Greenspan himself eventually came to admit, although not until he had gone a long way down the track in indulging the dotcom mania, and he admitted it in such a way in Congressional testimony that few grabbed the significance of what he was saying at the time.
It is, however, now widely recognised that the greater part of the productivity miracle that allegedly transformed the performance of the US in the last decade, and led to Greenspan's tolerance of the stock market bubble, existed mainly as a statistical aberration. But that painfully learned lesson is already being forgotten. Those who hail the return of growth across the Atlantic have to remember that they still collect the figures in the same biased and bullish way.
The main factor in inflating the figures is hedonics, a term that will be meaningless to most people. What it seeks to recognise is that this year's computer is much more powerful than last year's model, this year's car is better, and every bit of plant and machinery purchased will show some sort of improvement not reflected in a higher purchase price.
What hedonic adjustments do is measure this gain in efficiency, put a cash value on it and add it to the economic growth figures.
So if a new computer is twice as powerful as one of a year ago but costs the same $1,000, then a further $1,000 is added to the growth figures to account for that extra power.
It does not take long on this basis to add considerably to the overall growth figures. The problem is that, rather like the creative accounting in the books of Enron and indeed many British companies down the years, however healthy these notional profits appear, the cash is not there and it cannot be spent.
In the case of the US economy, which is 80% dependent on consumer spending, the gap between book entry and reality makes a big difference. |
