Every time I talk about a "slowdown" or a "double dip" coming in the economy, I have go through some weird contortions in order to write about it. What I have to dance around is the actual Gross Domestic Product (GDP) number as measured in billions of chained 2005 dollars by the BEA. Generally speaking, we might think of a declining GDP number as a necessary, but not sufficient, condition for calling another recession.
But the relationship between GDP and recessions is not straightforward. During 2008 the U.S. had a couple of quarters of growth, although the NBER had declared that the recession began in 2007 Q-IV (4th quarter, October-December). The St. Louis Fed, which hypothesizes that the recession ended in 2009 Q-II, presents all the voodoo required to calculate whether the economy is expanding or contracting.
Suffice it to say that in normal usage, GDP is the number used to measure where we are. When Calculated Risk talks about a "slowdown" in the economy, or Barry Ritholtz says we will avoid a another recession, they are literally referring to billions of chained 2005 dollars. And of course they are not the only ones. Politicians and economists—I assume we can tell the difference—almost invariably use GDP to tell us the economy is growing, which is considered a Good Thing, or not growing or growing only slowly, which is considered a Bad Thing.
Everyone agrees (or should) that GDP is a deeply flawed measurement of human well-being, as I first described in GDP Is The Real Fraud. Even the keepers of the Holy Grail at the BEA acknowledge that. Wealth inequality? GDP doesn't care. Bubbles? GDP grows. Soaring health care costs? GDP is happy!
But few people have a deep appreciation of just how fraudulent the GDP measurement truly is. Toward explaining this, I present Exhibit A.
Data from the BEA for the years 1970-2009
The Services part of GDP has never shown an annual decline since 1970. Never! During the Great Recession, which some would contend we're still mired in, the Services component of GDP showed miniscule declines in two quarters, 2008 Q-III and 2009 Q-I. In so far as Services is by far the largest component of GDP, and in so far as it can not go down, or down much, we are forced to conclude that GDP is as phony as a three dollar bill.
Our economic world was literally falling apart in late 2008/early 2009, but the growth in Services marched on. At the beginning of the recession, Services was $8262.3 billion. And at the end (as hypothesized by the St. Louis Fed) that number stood at $8341.8 billion. Slow growth, to be sure, but growth nonetheless. Case closed.
The next logical step would be to determine exactly how this nonsense arises. That would require teams of people, millions of dollars and a high tolerance for boredom, so I can't delve more deeply into the numbers today. However, the following charts give us a clue about what's been going on for decades now.
From Health Care Spending And PCE by Calculated Risk
From Seeking Alpha's GDP By Category
Both graphs point to the same conclusion: it is soaring health care costs that predominantly push up the Services component of GDP. It is inevitable that we will disagree about various things, but perhaps there is one thing we can all agree about—skyrocketing health care costs are a disaster. In fact, health care is the single biggest factor that will bankrupt the United States in the next decade and beyond unless some radical policy changes are implemented.
People say GDP is growing, which they regard as a Good Thing. But this data says that if GDP is growing, America is dying, which most would regard as a Bad Thing. So which is it? Growing or Dying?
Citing rising GDP to bolster arguments about the economy's "health" and to score political points is mindless drivel. GDP is the Real Fraud.