I posted this sometime back on another forum and almost forgot about it.
It's interesting to note that Wall Street, Fed policy making, and economic stimulus packages are all dictated by our Gross Domestic Product. When the GDP goes up, the financial markets are very happy and when it goes negative we are said to be in recession.
On June 18th Business Week published an article by a little known economist, who had no ax to grind, and could probably be best described as a back room bean counter. The reason she got the article is that in studying how GDP numbers were compiled, she made a discovery. When Business Week contacted the BLS (Bureau of Labor Statistics) looking for an official to refute her discovery, they didn't... instead they confirmed it.
What she uncovered was that when an American Company, closed a domestic plant and offshored it's production, that the 25% or 30% savings the company realized as additional profit resulting from labor savings are being added to the USA Gross domestic Product!! Plant closed, people laid off and the GDP goes up!
In looking for confimation, they looked around for an industry that was all but gone in the good old USA. They interviewed the head
of a North Carolina
Furniture manufacturer, who told Business Week that BLS numbers had him scratching his head
. Furniture production has pretty much come to an end in America, yet Furniture Manufacturers continue to show positive growth numbers in domestic manufacturing inside of the GDP numbers. BLS is counting imports in our GDP numbers.
I know, it sounds like I made this up. Read the Business Week article here.
The Real Cost Of Offshoring
The magazine admits that it's difficult to quantify this error. They took a stab at it and come up with 40% of all GDP growth in the last few years is total fiction due to this problem. Subtract real inflation from the remainder and I wonder what everyone is so happy about.
This is the first article I've read which does something to explain why all the domestic economy numbers look great on paper yet domestic wages are suffering. And this is just one small item in the the GDP numbers. I wonder what they would find if a group of economists took the entire GDP process to task?