I’ve written before about how Japan is a post-growth country, and has been for 15 years. I’ve also suggested that Britain seems to be entering a similar economic plateau. Here’s a new one: the United States may also be a post-growth nation.
That sounds unlikely, but it has been noted by several analysts, including , of the Crash Course, John Williams of . They all reckon that growth has stalled in the US, and that it has been masked by the official figures. writes “the US economy, far from having grown by two thirds in real terms since 1990, has actually been flat at best.”
How is this possible, one might ask. Can that be right? How come nobody noticed?
The answer lies in the misreporting of economic data. There’s no great conspiracy to hide anything, just a series of little measures to massage the figures, one stacked on another, until the official US government figures can’t really be taken at face value.
Unemployment figures, for example, were undermined by the Kennedy administration. The added a new category of ‘discouraged workers’, which were people who had given up looking for work. Giving them a separate category meant the government could claim that unemployment was falling. The Clinton administration removed ‘discouraged workers’ from the stats altogether, and this categorization issue the US unemployment figures.
Inflation reporting has been tinkered with by successive governments too. Nixon removed food and energy from the inflation statistics, grouping them as a new ‘core inflation’ bracket. Convinced that rising house prices were distorting inflation figures, the Reagan administration eliminated the problem by calculating the rent that people might pay if they were renting their houses instead of owning them, and added that to GDP. Clinton changed the reporting of the Consumer Price Index (CPI) by introducing the abstract concept of ‘’, which revises prices downwards on the basis of quality improvements. Through these sorts of changes, inflation in the US has been underestimated for a long time.
Misreporting the inflation rate has all kinds of effects. It will mean lower interest rates, so money is cheap and people can get mortgages and loans with ease. It means lower pension and social security bills, since payments are calculated based on the Consumer Price Index. This is all very convenient for governments, so they might be tempted not to fix inflation reporting even if they know it’s broken.
Also convenient is the impact on other economic performance indicators. If you consistently underestimate inflation, you will consistently overestimate GDP.
Economist John Williams has been trying to draw attention to this problem for years. He recalculates the official economic data with better methodology and gets very different results. You can explore this alternative data on the website. This is a graph of his GDP figures, compared to the official line in blue. If Williams is correct, the US economy has basically stopped growing, and actually shrank in size over the last decade.
Is this right? Frankly, I don’t know. Things like hedonic pricing are a level of complexity beyond my largely self-taught understanding of economics. I wouldn’t surprise me if the US government is publishing unreliable data. Lots of countries do that with lots of different statistics, adjusting the methodology to give more palatable results. (Here in the UK, I puzzle over why the ONS used a of 2.3% for last year’s GDP estimates when inflation averaged over 4% for 2011, which would have put us in recession for the whole year. But as I say, I am not equipped to say whether that’s good practice or political convenience.)
It’s possible that the US economy has flat-lined, and the country is now in a post-growth state. That would have very serious repercussions for the deficit, the national debt, and the state of the global economy generally. It’s also possible that the official figures are broadly correct, and the economy is growing. It’ll take someone with more specialist knowledge than me to say who’s right.