Thursday, December 20, 2012

GDP, or GDI?

Though GDP seems to be surging,
Economists' views are diverging,
For if growth is discerned
By what's made (vs. earned)
May foretell if it's flat or encour'ging.

There are many ways of measuring an economy, among which are gross domestic product (GDP) - the value of all goods and services produced - and gross domestic income (GDI), the earnings of all economic actors. Theoretically, GDP should equal GDI, since the product I buy is equal to the income you earn. However, sometimes they diverge, and rarely more so than today.

This morning the Bureau of Economic Analysis released the third revision of 3rd quarter GDP.  As Matt Yglesias blogged in Slate: "the news is good. What was initially reported as growth at a 2 percent annual rate and then revised up to a 2.7 percent annual rate now stands at a very respectable 3.1 percent annual rate. In nominal terms, we now have Q3 clocking in at 5.9 percent growth which is the kind of thing that's consistent with catchup." So, all's well? Not quite: GDI grew by only 1.4%. Now, ours is a big economy and certainly not easily measured, but that's a big divergence. Yglesias suspects that the more optimistic GDP number is closer to the truth, on the evidence of President Obama's decisive electoral victory. After all: in politics, "it's the economy, stupid."

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