Posted on Sat, Nov. 13, 2010
last updated: March 15, 2013 11:58:05 AM
WASHINGTON — The Great Recession officially ended in June 2009, but despite five consecutive quarters of economic growth since then, many Americans simply don't see or feel it.
That's why the Bureau of Economic Analysis, a division of the U.S. Commerce Department that compiles official economic growth figures, is seeking to upgrade how it measures income, business investment and the role of small business in the economy.
The BEA is among the federal agencies criticized for not better anticipating problems that built up in the economy and eventually caused the steep economic downturn of 2007-2009. The agency's director doesn't shrink from the criticism.
"I think we missed the boat. A lot of people did. But I think a decentralized statistical system is one of the explanations," said Steve Landefeld in an interview at BEA headquarters.
Different agencies were looking at different numbers, and none saw the forest through the trees. Today government statisticians are working more closely to compare data, and the BEA is undertaking a number of steps that go beyond measuring the gross domestic product, the broadest measure of U.S. goods and services.
Here's some of what Landefeld had to say.
Q: You're asking for a budget of $113.2 million, a pretty healthy gain from the $97.2 million you got in the recently ended fiscal year. Why?
A: "The whole financial crisis has made people step back and say, 'Okay, why didn't we see this coming?' And the answer was . . . unlike GDP, unemployment and these kinds of things, we didn't have an integrated view of the financial and real sectors of the economy, which sort of put right in front of people's faces the degree of leveraging (investing borrowed money), the misalignment of prices . . . the underlying profits. It wasn't a mystery, lots of people knew it . . . but I think we have some serious gaps in the data, so that they're not reflecting what is happening in terms of the imbalances."
Q: Is that why you want to provide more information about net business investment instead of just gross business investment?
A: "Gross investment is fine to measure the total amount businesses spend on things. But you'd like to know how much of that is just to replace the capital you've used up, and that's why we have net investment figures that we like to feature."
Q: Does the picture look different if "replacement" spending is factored out?
A: "It sort of suggests . . . how we were not investing in future growth and even worse, the very large sort of hidden losses of a downturn in the economy for future productive potential." (A BEA chart shows that from 2000 to 2007, gross domestic investment by businesses grew by 1.5 percent, but when measured as net, domestic investment actually fell 1.9 percent over that period. Likewise, in 2008, gross domestic investment fell 5.5 percent but when measured as net, domestic investment fell by a stunning 21.9 percent.)
Q: You're also focusing more now on the distribution of income during boom and bust cycles? Why the focus on per-person income measures?
A: "Over time, GDP per capita has been growing faster than, say, median (midpoint) income. So we want to capture a better notion of not just how personal income per capita is doing — which is sort of an average, which is influenced by incomes at the very top — but one which represents something like what most households experience. 'Most' being code for 'median.'"
Q: A more accurate reading of income tells what people are feeling in their wallets. But is this data broken down by region? And how do you account for different costs of living?
A: "Amazingly, you might think the U.S. government has this, but there is no regional price data right now that allows you to compare price levels. There are 38 urban areas in the United States where CPIs (consumer price indices) are calculated. But what they tell you is the inflation rate for Milwaukee versus New York City. What you don't know is what the difference is in the cost of living between those places, that you might be able to buy a much bigger house in the Midwest . . . and you should have some price index to do that, and we don't have that in the U.S."
Q: Why would this additional detail in statistical reporting matter?
A: "This is the natural response to the financial crisis, which is sort of why people didn't know there was a bubble in housing prices. They kind of knew but they didn't know how big it was, and it was readily explained away by lots of 'experts.' I think we should, just like GDP, be featuring that kind of information, just like the unemployment rate, which is hard to explain away when it's out there."
Q: Part of this effort to better gauge income distribution gets at small businesses and how much they contribute to GDP, right?
A: "The Small Business Administration, it's done lots of studies over time, and I am familiar with most of them. They're quite crude, and really haven't tried to probe the micro data much to really find out on a consistent basis. The data is there to do this."
Q: This information would then help tell how small businesses affect regional incomes, how they contribute to GDP, etc. But how would you define a small business?
A: "That's a good question, because some people have different definitions of small business. Is it 500 employees? Is it less than 250 employees? There are lots of different definitions and that's one we clearly have to look at.
Q: Nobel-Prize winning economist Joseph Stiglitz thinks GDP is a weak measure of living standards. Is he right?
A: "GDP is an aggregate that has a lot of purposes, and I think people aren't aware that it's just the tip of the iceberg for a lot of data that lies beneath it. . . . It's a rich set of data, but people tend to look at one number, GDP. One easy modification with GDP to bring it down to people's level is that you divide by the population and you put it on a per-capita basis, and you begin to see what goes on there."
Q: What does that show us today?
A: "Lately it's been doing better, of course (because of five straight quarters of growth), and it illustrates a much slower growth in the economy than you see from just the aggregate GDP level, because it's a measure of not just how the economy grew, but how fast it grew to support a large population and a large labor force."
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