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To: GraceZ who wrote (129540)	8/2/2001 2:55:40 PM
From: Skeeter Bug	Read Replies (2) \| Respond to of 164684

>>Your previous posts contained so many errors that I felt a public duty to point people to a reference where they could at least begin to get a basic understanding of what is meant by "chained dollars" and "chain index" when talking about the GDP and productivity.<< grace, thanks for the public servitude! ;-) seriously, your link had to do with adjusting for inflation. it used chained dollars and chain index in that context. nobody on this thread used the terms in that context (and nobody used "chained index" at all!). again, we aren't discussing chained dollars in terms of inflation adjustments. we're talking apples. you are talking oranges and complaining about me saying they can't make apple juice. -lol- i KNOW that. we're on apples, grace. put down the orange and pick up the apple. ;-) try putting "computer hedonic pricing" into your search engine - you are less likely to confuse yourself. at least comprehend the topic at hand before you start pointing out perceived errors in others. otherwise, you don't represent yourself very well. ok, i don't expect you to ever believe you are gaffing this up really badly, although everyone else knows you are confused (pm them and ask). you see the apple and see an orange b/c it is comfortable to you. especially after you spray paint it orange to prove your point ;-) here is something for you to read to get up to speeed re: the topic we are discussing (as opposed to the topic you envision us discussing). ------------------------------ financialsense.com The economic miracle which Wall Street and Washington herald to investors around the globe is a by-product of statistical wizardry. It has do with the way government statisticians measure the new economy. The most important figure is GDP. This is the figure that has captured the imagination of investors and headlines around the globe. Economic growth rates over the last few years have been short of being miraculous. They have averaged above 4% for the last few years and above 5 and 8% during the last half of 1999. During this year they are running over 5% despite repeated interest rate increases by the Fed. Gross Domestic Product (Percentage Change in Real U.S. GDP) 1999 2000 1998 1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 4.4% 4.2% 3.5% 2.5% 5.7% 8.3% 4.8% 5.6% Source: Department of Commerce: Survey of Current Business Element #1 GDP Deflator Dynamics This high level of economic growth is a product of unique statistical factors, which diverge from norms practiced by other nations. The first element is the GDP Deflator, which has been conveniently lower, adding to GDP growth. To get a true picture of economic growth, which is the sum of the nation's economic activities, it is necessary to back out the effects of inflation. By backing out the impact of inflation, you arrive at the true level of economic activity. The lower the deflator, the less that is subtracted from the actual economic numbers. The GDP deflator has been averaging in the low 2% range for much of this decade. As the table below indicates, everything from housing prices, food, utilities, medical costs, gasoline, and retail goods have been rising at much higher rates. By understating inflation, government statisticians have been overstating GDP growth. Many have questioned our inflation rates and how they are measured. Recently, the Bureau of Labor Statistics has admitted that consumer inflation has been slightly higher than officially reported. The Bureau attributes the lower inflation numbers to a "calculating glitch" and will be revising the CPI upward. The revision could boost consumer inflation rates by as much as 0.3% for the past 12 months. (iii) For the 12-month period ending last month, consumer prices rose 3.4%, while the core CPI, which excludes energy and food items, rose 2.5%. Because of these lower reported inflation rates, the government has benefited by paying lower cost-of-living adjustments on social security and government pensions. Our government has also been the beneficiary of lower interest costs, especially on it's inflation-adjusted bonds known as TIPS. The soon to be announced higher inflation news is unlikely to be welcomed by the Fed or the financial markets. Higher inflation will mean higher interest rates and trouble for the stock market. Element #2 Hypothetical Hocus-Pocus The next GDP manipulation takes place through a measure called the Hedonic Price Index. This is a statistical maneuver employed by government statisticians to measure computer output and investment. It is meant to capture the increase of computer power in terms of speed and memory. The government takes the actual increase in spending on computer investment and applies a statistical wand which changes the actual number into a higher number reflecting the hypothetical benefits of soaring computer power. Like corporations, which keep two sets of books, one for financial reporting and another set of books for taxes, the government also keeps two different sets of books. One set is the actual dollars spent on the output of goods and services and the other set is called chained dollars, which is derived after various statistical manipulations have been applied to the actual numbers. As this table shows, actual computer spending in actual dollars went from $86.3 billion during the fourth quarter of 1998 to $114.2 billion in the second quarter of this year. This represented an increase of $28 billion in actual dollars being spent during the last six quarters. (iv) Investment in Computers & Peripheral Equipment (Billions of Dollars) 1998 1999 2000 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr Actual Dollars 86.3 88.1 92.8 97.6 98.9 104.3 114.2 Chained Dollars 171.3 186.1 208.5 230.9 243.9 264.1 298.5 Source: Department of Commerce: Survey of Current Business However, after applying the hedonic deflator, that actual number is changed into $127 billion in chained dollars for the same six quarters. This technique magnifies the actual contribution of computer investment to GDP growth. This manipulated rise in GDP growth doesn't reflect actual increases to GDP growth. Instead, it reflects the increase in computer power that businesses are getting for their money. As the power of computers increases, so does the impact of the hedonic deflator. Effectually, this creates a statistical mirage, which magnifies modest sums of money spent in actual dollars into giant sums in chain-weighted dollars.