The art of measuring the size of the economy just got a new box of crayons.
The Bureau of Economic Analysis announced last week it would be changing the guidelines with which it calculates Gross Domestic Product, more familiarly known as the GDP, the standard by which the size and growth of the economy is measured.
The change comes after more than five years of economic stagnation that, despite frequent claims of a strengthening recovery, have seen high unemployment and extremely slight growth in the size of the economy.
GDP is calculated by adding up the total amount of private consumption, investment, government spending, and net exports. The new changes, which will include definitional changes to expand what is counted in GDP, are expected to add 3 percent to the GDP report, while not changing the actual output of the economy.
The agency claims the changes in calculation “more accurately portray the evolving U.S. economy and to provide for consistent comparisons with data for the economies of other nations.”
Outspoken investment broker and financial commentator Peter Schiff describes the change as “propaganda” in his radio show.
“That’s what the government does. Whenever they don’t like the results, they change the methodology for calculating those results,” Schiff says in a new SchiffRadio report.
“Now it doesn’t mean that the economy is actually any bigger, but it means they can pretend it’s bigger,” he added.
Schiff, the CEO of Euro Pacific Capital, asserts that the underlying reason behind making the GDP looking bigger is so that the debt looks smaller. Economists agree that if public debt continues to exceed GDP past sustainable levels, economic growth will suffer because more and more of the economy is dedicated to paying interest on loans rather than spending on investment or consumption or things that create growth within an economy.
“[I]f you have a BS GDP, that’s artificially inflated based on creative accounting, than it means the economy isn’t generating enough income to service all of that debt,” Schiff says.