“And wouldn’t worker productivity appear lower, not higher?”

I’m up past my bed-time, as you can see.

GDP = private consumption + gross investment + government spending + (exports – imports)

GDP = private consumption + gross investment + government spending + (exports ? imports)

So wouldn’t over-valuing imports cause the GDP to be lower, not higher, than otherwise? And wouldn’t worker productivity appear higher, not lower?

But I’m sure I’m not as informed on the subject as the NY Times writer, so what am I missing?

Also, whenever something comes up that appears to have no good explanation, that’s usually a good time to ask: maybe there’s a reason things are done this way? Sure, sometimes things “just happen”, but not usually. One possibility is that if we are measuring the “value added”, then what difference does it make if the same component costs 1/2 as much in China. If it is valued at $100 in the US, then that’s it’s value for the US. I’m not an economist (I just like to pretend), but I’d like to hear some more economists’ perspective on that.

Employment and median wages seem to be the most obvious indicators since the more people are employed, the more likely they are to spend and the more our economy will flourish…given that it’s driven by consumer spending.

Low unemployment may occur during a bubble economy, as it did during the late 1990′s and much of the past decade. The fact that our economy is driven by consumer spending is the problem. As we are consuming more than we produce, someone else has to be producing more than they consume. You mention Peter Schiff, he has a great analogy about this:

“Six Asians and an American are stranded on an island. The first day, they divide up responsibilities. The American is assigned to eating. One of the Asians is assigned to fishing, another to foraging, yet another to hunting, etc. At the end of each day, they gather on the beach, where the American eats the food produced by all the Asians, leaving enough crumbs for the Asians to eat and be able to go back out the next day for more food.

Economists would look at this situation and conclude “Hey, without the American, the island economy would surely collapse, because without his demand for food, none of the Asians would have a job.” Of course, in reality, the island economy would in no way collapse, Indeed, the standard of living for each Asian would immediately increase dramatically if they were to boot the American from the island.“

Plus, its primary value is comparative, so if you change the way its measured, it becomes harder to compare it to past data.

The gov’t has been giving us inflated numbers for productivity for years. Peter Schiff discusses this in some detail in several of his books. I suppose most folks consider here him anathema, a scary arch-conservative boogeyman. But when it comes to finance and investing and government stats, he really know his stuff. If you have enough in the way of basic critical thinking skills to take some of his predictions with a heavy grain of salt, he’s well worth reading.

I feel like I learned a lot from him.