Posted on 09/23/2003 9:37:46 AM PDT by Starwind
U.S. takes sides in debate over high-tech economy
Tuesday September 23, 12:18 pm ET
By Victoria Thieberger
NEW YORK, Sept 23 (Reuters) - Trying to explain exactly how much of U.S. economic growth can be pegged to spending on computers has created major headaches for the government's number-crunchers in recent times.
Thanks to the vagaries of different statistical measures, high-tech either accounted for over half of the economy's growth in the second quarter or less than a tenth of it, depending on which measurement one favors.
Now, one of the government's top statisticians has decided there is too much confusion about the data, and will no longer publish the first measure that came to more than 50 percent.
"We're taking away the misleading components," said Steven Landefeld, the director of the Bureau of Economic Analysis, who is fed up with the flap in economic circles about the discrepancy.
Until now, both versions of the truth have been contained in the Gross Domestic Product report, the broadest snapshot of how the economy is faring, published by the BEA.
Landefeld told an economics conference last week the measure that adds up to 50 percent of GDP, the chain-dollar measure, could be "very misleading" when it was applied to things like computer prices.
Under that "real", or inflation-adjusted measure, investment in computers surged by $38 billion in the second quarter to an annualized $357 billion. That estimate also uses a technique known as "hedonic pricing", which tries to adjust dollar figures to account for improvements in quality like increased computing power.
The hedonic method tries to capture how much it would have cost in 1996 to buy a computer as powerful as one produced today -- a tall order for any statistician.
The BEA's decision means that the current or actual dollar method will be the only published figure. By that measure, the same category of second-quarter spending on computers crept up a meager $6 billion, to an annualized $82 billion.
All of which means that the difference between the two statistical methods, some $275 billion in output, or an amount nearly equal to the annual GDP of Belgium, will only exist in the world of statistics when the change takes effect in December.
SHOW ME THE MONEY
Critics of the chain measure point out it implies that computers accounted for more than half of the 3.1 percent surge in growth in the second quarter, whereas in reality it accounted for less than 10 percent of the increase. A former chief economist at Dresdner Bank, Kurt Richebacher, wrote recently in the Financial Times that the trouble with hedonic pricing is that it measures "dollars that nobody pays and nobody receives".
The Bureau of Economic Analysis, which is part of the Commerce Department, seems to have taken that to heart. "Chain dollars are in many ways not a useful device, they are neither fish nor fowl," Landefeld said, noting they are particularly misleading for items like computers where prices change rapidly.
"It's giving such a skewed impression. So what we're doing is retaining the most important of the chain-dollar information, but for those items like computers, where it's not reliable, we'll leave it out," Landefeld told Reuters.
He said the changes would be largely a "matter of presentation" as the Bureau tries to "de-emphasize" the chain measures and put more emphasis on contributions to growth.
Landefeld made the comments at the National Association for Business Economics' annual conference in Atlanta.
The change in the reporting of computer spending will be made as part of a sweeping overhaul of how the government measures GDP in December. Other changes include an update of industry classifications as well as estimates of corporate profits to include information on stock options.
Analysts, who seem quite happy with both measures of computers, were taken aback by the fuss.
"There's a lot criticism about how we measure these things, but taking account of quality changes is important," said JP Morgan senior economist James Glassman.
The much-maligned computer data will still be available on request, a relief to economists like Glassman. He reckons that although chain-dollar measures have come in for their share of criticism, the data are "one of the great innovations introduced in the last decade, because under the old system they were constantly revising history."
NASDAQ? Isn't it about 1/4 of what it used to be. The irrational exuberance is over.
The demos and republicans told us that it was okay to send all our jobs overseas because we are a high-tech society.
There's fewer and fewer high-tech job opening and a lot of our high-tech jobs have gone to places like India.
Both the demos and republicans have screwed America with Nafta and Gatt.
Believe government figures on the economy at your peril - always.
The burden of regulations and taxes are what encourage capital to go places other than America. Attacking free trade does nothing to address the problem.
Regulations and taxes just happen to be part of our system. Therefore, free trade is wrong for our society.
Free trade will only be fair when every other nation in the world adopts our regulations and taxes (or we do away with all our regulations and taxes). Ain't gonna happen. Therefore, the idea of free trade is terribly flawed.
Do you think are too many regulations, not enough, or they're just right? Same question on taxes, Goldilocks.
Therefore, free trade is wrong for our society.
Kindly piss-off, mate. I don't need or want a government bureaucrat between me and every decision of how to dispose of the wealth I've created and accumulated. :)
If and when I want a bureaucrat deciding how and where and when I can dispose of the wealth I've created I'll move to one of those havens with even more socialism. Meanwhile, quit trying to position yourself between me and whomever I'd like to trade with. Thanks.
Back in the good old days of the Nasdaq bubble, everyone was so dazzled by tech hype and our high stock price that they'd buy practically anything. Now, big corporate customers ask all sorts of annoying questions, like whether the stuff really works and what sort of payback they'll get. Boy, is my job harder than it used to be.
--Steve Ballmer, CEO, Microsoft
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The Wall Street Journal, September 22, 2003, p. B1.
Do you think are too many regulations, not enough, or they're just right? Same question on taxes, Goldilocks.
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Unfortunately, too many regulations and taxes are currently part of our system. I blame the republicans and the demos for not taking this into greater account before entering into NAFTA and GATT.
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Therefore, free trade is wrong for our society.
Kindly piss-off, mate. I don't need or want a government bureaucrat between me and every decision of how to dispose of the wealth I've created and accumulated. :)
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We agree. My problem is with our government putting us at a disadvantage because of all the regulations and taxes. You can add all the lawsuits too if you wish. It's just my opinion that our government shouldn't have entered into such agreements knowing our situation.
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If and when I want a bureaucrat deciding how and where and when I can dispose of the wealth I've created I'll move to one of those havens with even more socialism. Meanwhile, quit trying to position yourself between me and whomever I'd like to trade with. Thanks.
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I believe we agree on most of this. I can certainly see how you could have taken my comments the wrong way. I apologize if my post came across the wrong way.
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