Creative Accounting

September 9, 2004 4:29 PM

US Govt. Reporting of Economic Indicators: There was a link on Fark today about creative accounting. A choice quote from that article - "In short, we would need to have about $45 trillion in the bank today earning interest in order to pay all the promises that have been made for future Social Security and Medicare benefits — over and above the future taxes and premiums that will be collected to fund these programs." and "The CBO estimates that we would have to raise taxes by 6.5 percent of GDP immediately and forever to maintain these programs in perpetuity. This year alone, that would mean a tax increase of $800 billion.". [More Inside]

In the Fark thread, there was a link to this article: A Primer on Government Economic Reports -- Things You've Probably Suspected but Perhaps Were Afraid to Ask!. This article, among other things, claims that actual unemployment rate is 12.5% and that actual GDP growth should be reported as 0% by 1980 methodology.

How accurate are these analyses and the tidbits?

posted by Gyan to Work & Money (3 answers total)

I'm a ways out of econ classes and I really can't read that link because it stinks like dogshit (plus the Pats are on in half an hour), but how would the CPI have changed in a measurable fasion? Isn't it just a bucket of goods that are supposed to represent the current economy, providing a way to relate one era to another? If it's the thing used to compare eras, it's difficult to say it's changed in a substantive way since it's a subjective measurement with nothing to compare it against. Also:

annualized inflation-adjusted GDP growth of 3.0% would be roughly three percent lower (effectively netting to zero percent or below).

Not sure where this info is grabbed from (especially since there are no sources cited), but I wonder if there's what we in New England would call a "wicked math erra" 0.03 - (0.03 * 0.03) does not equal zero. It might just be a mis-statement. Then again, maybe the Time Cube folks only made a slight physics miscalculation.
posted by yerfatma at 5:33 PM on September 9, 2004

Medicare and Social Security are pay-as-you-go systems. The first contention is more or less correct.

The actual unemployment rate is hotly contested. y2karl's links in this thread may be a good place to start.

You'll have a hard time finding a serious economist who thinks GDP hasn't grown over the past 25 years. That being said, remember that the GDP deflator is a bit of an abstraction (Owner-equivalent rent?), and that GDP measures trade.
posted by Kwantsar at 8:24 PM on September 9, 2004

Response by poster: Kwantsar, it's my fault for lack of clear phrasing, but the article doesn't claim that GDP hasn't grown over 25 years. The article claims that the last annual GDP growth that was reported (as 3%) would have been reported as 0% if the methodology used in 1980, was used to calculate growth.

yerfatma, I think the article is refering to absolute percentage differences, not relative differences. So it should be 0%.
posted by Gyan at 9:36 PM on September 9, 2004