These time-lapse clips from the University of Adelaide demonstrate how US growth (not inflation) masks problems on the ground
There are many things you can learn about America’s economy over the last decade. For instance, it depends a lot on what your relationship is with the government, and which statistical base you look at. However, it’s these little bits of knowledge that can help you understand the sometimes opaque workings of economic data.
This time-lapse video from the University of Adelaide will take you through 12 economic indicators recorded by the Bureau of Labor Statistics (BLS) over a decade. We’ve taken the liberty of condensing them down to the macro-level, by compressing time and fitting together smaller data points to demonstrate the connection between them.
But what should you make of this strange departure from standard reporting? Perhaps the American economy is not all that it seems to be?
You can watch this video in full here:
And, in the context of other charts below, here’s a blow-by-blow rundown of what different standards of reporting tell us about the American economy over the last decade.
Why so lopsided?
The fiscal baseline is a baseline estimate of a country’s budget (shown in the yellow colour in the top right of the graph). It removes from the numbers that the government is actually spending at the levels this baseline assumes.
The monetary baseline is a measure of what the government actually spends in a given year. It removes the effects of a number of spending cuts that have come into place, as well as a predicted increase in spending.
The trend line is a measure of what happens to a baseline projection over time. It excludes the effects of recessions and other typical fluctuations and often changes that are temporary – like a one-off tax cut that leads to higher tax revenues or a one-off payment to a beneficiary in the form of a payment for Medicaid or Medicare.
These are part of the “residual stimulus” that followed the financial crisis, which moved the baseline to higher and higher levels of growth. It is now back at its lowest level of growth since 2007, despite the recovery from the crisis.
The underlying GDP, or gross domestic product, is a more realistic look at the state of the economy. It strips out fluctuations, like spending on defense, interest payments and health care and makes a more realistic projection of the economy in the future. However, a quick glance at real GDP tells us that the real growth in this indicator is still so lopsided that it’s like shooting the funny dog.
The inflation rate is obviously a major component of GDP, but unlike the baseline, it is also adjusted for changes in prices, such as how companies are responding to a stimulus. So, while the inflation rate in an economy showing low inflation is probably healthy, low inflation does not necessarily mean that something is working.
Measurement and weighting
There are three different ways that governments measure the economy, two of which are included in the chart above. As the lines reveal, they differ greatly. On one side is the consumer price index, based on the changes in prices of things like petrol, bananas and fireworks. The other is based on official output figures, which is like a recent snapshot of the economy, because it takes into account the effects of negative monetary and fiscal shocks. Then there’s the price index, which includes just things we’re actually buying.
You can find more data sets on the internet. For instance, statistics Australia has a fantastic overview of how GDP was measured over the last decade. We’ve also compiled data from the UN on GDP using data on trade, exports and imports.
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