(This is Part 3 of a series. Go back to Part 2.)
In the meantime, let's take a look at how the manipulated CPI directly affects the calculation of an even more important statistic, the Gross Domestic Product, or GDP.
The GDP figure is the most basic statistic available on an economy. It sums up how the economy is doing, whether it's in positive or negative territory, whether it's growing or in recession.
The precise GDP that the financial and mainstream media focus on is called "real" GDP because it's adjusted for inflation. And there's the rub...
That adjustment for inflation allows for tremendous manipulation of the GDP figure, Because if the inflation figure can be manipulated, then so can the GDP.
Let's take a hypothetical example: Let's say that some country were to have a raw, notional, unadjusted GDP growth of 6%. And now let's say that we adjust that figure for inflation, which is running at 2%. So now we have a net or "real" GDP of +4%. Hey, that's great. In fact, those are very near the reported figures for the United States these days.
But suppose instead, in our fictional country, that the actual rate of inflation was not the reported 2% but someting like 10% real annual rate of inflation. Now when we correct the 6% growth for inflation we wind up with a "growth" rate of -4%.
Wait a minute. If the real, adjusted rate of GDP growth is minus 4%,
then the economy is in recession already.
You mean, instead of the +4% GDP growth talked about in the press and glowed about by the president, the economy is instead contracting at a 4% rate? Yes. The numbers used were approximate, but otherwise
that is exactly what is happening in the United States right now. We're already in a recession.
Now perhaps we can understand why the Republicans aren't getting any traction for their "storybook" economy—because it's not what it seems. It seems to be growing, according to what we read/hear in the media, but actually the American economy is already in recession.
And people sense that something's wrong with the happy talk about the economy—and that's why the administration and its allies aren't getting the credit that they would like you to think that they deserve.
(This is the end of Part 3. Go to Part 4.)
—jim sloman, 11.8.06
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