Chained dollars redux

Doug Henwood dhenwood at panix.com
Mon Jul 19 11:51:03 PDT 1999


Enrique Diaz-Alvarez wrote:


>going back to this chained-dollars adjustment to GDP. I got some
>figures. I get this from another bear, Michael Burke.
>
>"Here is how it works: The US counts growth in "computing power" as
>sales growth, not in dollar sales.

I don't understand what this means. Conceptually, they're defining the real price of computers as computing power per dollar spent. That's massively difficult in practice, but there's nothing wrong with the concept.


>Of course, we have been in an era where computing power has grown
>exponentially while ASPs of the same computers have fallen like a
>rock."
>
>"For example, last year, chained dollar computer sales growth added
>$158 billion to GDP, more than half of GDP growth. In real dollars,
>computer sales were up less than $8 billion.

I think he means nominal, and I get $14 billion.


> This discrepancy of 95% between actual numbers and govt. fantasy
>numbers is the ONLY component of our outsized GDP growth and
>productivity growth and low inflation numbers. Without chained
>dollar sales of computers, both GDP growth and productivity growth
>look very sickly."
>
>I pored over the figures at the DOC web site. Under gross private
>investment, change from previous year, I get +$137 billion.

So do I; Burke must be using unrevised figures.


> I assume
>that the other $21 billion must come from household expenditures on
>durable goods (sounds reasonable).

I don't see household computer expenditures broken out separately in the NIPAs; they're included with other household electronic goo-gahs. But what matters for this sort of analysis is the business use of computers.


> If his figure for computer sales (up
>only $8 billion) is correct, then the chained-dollars of computer sales
>do account for half of GDP growth. This would be an absolute scam.

Problem is it doesn't work this way. Chained real growth figures aren't additive, as they say; each component is adjusted separately, and you can't add up all the components to get the whole. (The difference, in the jargon of the trade, is called the residual.) For example, in 1998, real computer investment was up $137 billion, but producers durable equipment, the larger category, was up $109 billion. Burke's exercise, then, is fairly meaningless.

Nominal spending on computer investment contributed just 2% of nominal GDP growth in 1998, though, and the broader category of info processing equipment, just 5%; people talk as if this is the whole enchilada these days, but in purely dollar terms, it's more like salsa.

Doug



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