Michael Mandel Strikes Again
Is he now this country’s most important macroeconomist? Here, he writes,
in many of these industries, we actually have physical measures- tons of steel, barrels of oil, bushels of corn-that gives us a check on the BEA numbers (The one exception is computers et al, but I’ve got a different approach there). And the physical measures tell a very different story than the BEA data.
He is arguing that the official statistics on U.S. output (value added, to be more precise), as calculated by the Bureau of Economic Analysis at the Commerce Department, are misleading.
Value-added is the difference between gross output and intermediate inputs. Because real intermediate inputs fell so much faster than real gross output, pure arithmetic means that real value-added grew very quickly. And since productivity is the ratio of value-added to labor, with value-added rising and labor falling, that generates an enormous productivity increase.
Mandel goes on to argue that the drop in intermediate inputs is bogus. This would not be such an issue if the intermediate inputs were domestic. If that were the case, then if BEA is over-estimating the value added of final producers, it is by the same token under-estimating the value added of intermediate producers, so it all comes out in the wash in the aggregate statistics. But…
the price drop of imported intermediate inputs is being severely underestimated
The prices of imported intermediate inputs are being handled incorrectly. When you underestimate the rate of price decline, you also under-estimate the real amount being supplied. And because these are imported intermediate goods, the error is not neutral with respect to U.S. output.
I also recommend Tyler Cowen’s comments.