Thursday, January 29, 2009

Why We Watch GDP Instead of GNP, and the Seduction of Power

Tomorrow at 8:30 a.m. the GDP (Gross Domestic Product) number will be reported for fourth quarter of 2008. It will show a major drop.

In the old days, the number that would have been focused on would have been the GNP (Gross National Product), but that changed during the Administration of Bush I. John Crudele explains why that change likely occured:

Skeptics think the administration of George H.W. Bush wanted to make the economy look better for the 1992 election and felt that the more narrowly-defined GDP would be kinder to a debtor nation like ours than the GNP.
Like the concept of "core" inflation, politics was involved.

In both cases, there had to be economists in government who understood the real reasons for the changes, but because of the seductivemess of power they remained silent.

In an earlier post, I quoted Don Boudreaux, the chairman of the economics department at George Mason University, who is mystfied by the suddden support for a Keynesain type stimulus program, when, as Bordeaux puts it, "In the profession, Keynesianism was almost dead until the past few months."

Again, it's the seductiveness of power, most know better. They deny their own knowledge and are too weak or enamored of the power eliite to speak truth to power. As the economy becomes more volatile, because of these political moves, and then reaches a point of a crack up boom, I'm sure God is making a special place in hell for these hypocritcal bastards.


  1. Can you explain exactly how the switch would matter? Some other economists and I talked about this very issue a month or so ago, and we thought it would either not matter or even go the wrong way.

    I totally agree the change would be for political reasons, but we couldn't figure out how it helped. (We were specifically seeing whether the US switch from trade surplus to deficit could explain it, but like I said the move went the wrong way.) Any ideas?

  2. It had to do with the dollar. The trade-weighted exchange value of U.S. dollar vs G-10 Countries climbed during most of 1992 and early 1993. (1993 was the election year GHW ran against Clinton). The TW dollar started 1992 at 86.1 and ended November 1993 at 95.5. a climb of 10.6%

    With GDP you have total value of products & Services produced within the territorial boundary of a country

    With GNP you have total value of Goods and Services produced by all nationals of a country (whether within or outside the country)

    Thus, US nationals earning money in foreign currencies would most likely have shown a drag on GDP (unless they showed super super growth) because the translation back into a stronger dollar would have resulted in negative growth in terms of the dollar.

  3. Though he scares the hell out of me, I for one am glad that Obama won the election. Had McCain won, he'd have pursued the same economic "stimulus" plan that Obama is pursuing -- and it would have failed, just as Obama's is going to fail. But because McCain has an "R" after his name, the failure of that plan would be touted as another failure of capitalism -- just as Bush's 8 years are being touted as a failure of "deregulation" and "laissez faire".

    Of course, the notion that the last 8 years represents capitalism and laissez-faire is utterly preposterous, but it rings true with the uneducated. Because Obama is in office, it will not be possible to blame this failure on anything other than statist intervention in the market.

  4. OK so you agree with me then, that the standard conspiracy theory is backwards? I.e. it is a bit weird to say, "We switched to GDP because we are a debtor nation" when the real reason is the dollar was strengthening so much.

  5. The dollar strength at the time was the reason. It had nothing to do with being a debtor nation.