Economic Fiction

Thursday, 11 Jul 2013 07:40 AM

By Neal Asbury

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Suppose you sat down at a blackjack table and were dealt the ace and jack of spades. You turn over the cards and proclaim that you've got blackjack. But the dealer announces that from now on, the winning hand is 30, and you've lost. You'd be mighty confused.

So imagine how confusing it is that the gross domestic product (GDP) — the output of goods and services produced by labor and property located in the United States — is running at an annual growth rate of 1.8 percent, but suddenly rises to 3 percent at the end of July, with no improvement in the economy.

How does that slight of hand occur? The Bureau of Economic Analysis (BEA) simply recalculates the GDP and announces that it officially grew 3 percent due to a few additions to the statistics, ignoring the standard that economists have been using to calculate our growth numbers for years.

From now on, government statisticians will take into account money earned from creative works, including movies, television shows, books, theater and music. Money spent on research and development, which has, until now, been considered a cost of doing business, will also be included.

So should we be doing somersaults to celebrate our growing economy? Not so fast. Most economists agree that while the new additions will boost GDP, "they will be too small to fundamentally change our view of how the economy is doing."

While this process has been going on for some time, a cynical person might ponder why this windfall has taken place during the Obama administration. But if you've followed this administration's proclivity to play fast and loose with economic figures, this recalculation should come as no surprise.

While the unemployment rate was stagnant or worsening, every government estimate indicated a quarterly improvement, ignoring the 25 million underemployed and unemployed Americans.

The secret to this process is that as millions of Americans stopped looking for work and dropped off the grid, they were no longer counted as unemployed. The more people who stopped looking for work, the better the numbers looked. According to this rationale, if everyone stopped looking for work, the unemployment rate would be zero.

Is it any wonder that after announcing the numbers each month, the administration has to go back to recalculate them because there were some discrepancies?

Sorry, no blackjack. Winning is now 30.

The irony of the new GDP calculations is that it is largely based on the value of U.S. intellectual property (IP).

But a private advisory panel says growing IP theft, mainly by China, is costing the United States more than $300 billion each year. China is responsible for up to 80 percent of our IP theft, but Russia and India are also countries where IP theft runs wild.

A GOP blog estimated that IP theft and counterfeiting are significant barriers to economic growth. IP-intensive industries employ approximately 18 million Americans. Every year, IP theft in the United States results in the loss of 750,000 jobs. The resulting loss of jobs and sales has a significant impact on the economy.

IP-related industries account for nearly 20 percent of American jobs and contribute to over one-third of GDP. U.S. IP is currently valued at approximately $5.5 trillion, more than the GDP of any other country, and accounts for more than half of all U.S. exports and drives 40 percent of our economic growth.

A report by the Commission on the Theft of American Intellectual Property, as reported by the Voice of America, recommends tougher U.S. action to address the issue, "including economic sanctions, import bans and blacklisting from financial markets. This non-partisan panel, made up of former high-ranking U.S. officials, says the president's national security adviser should help lead the response to the theft of trade secrets."

Panel Co-Chairman Jon Huntsman says Washington's current strategy is not sufficient, and does not provide enough negative incentive for those who would engage in IP theft.

You see a pattern here? Instead of really taking the steps necessary to improve GDP by cracking down on IP theft, we're simply changing the numbers.

Instead of creating the jobs that we need, this administration is cooking the books to make it appear as if unemployment is actually dropping.

One day, this administration will be held accountable for the real economic numbers, and future generations will understand that we've all be dealt a losing hand.

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