[HN Gopher] Why do econ journalists keep making this basic mistake?
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Why do econ journalists keep making this basic mistake?
Author : paulpauper
Score : 20 points
Date : 2025-05-03 20:52 UTC (2 hours ago)
(HTM) web link (www.noahpinion.blog)
(TXT) w3m dump (www.noahpinion.blog)
| rufus_foreman wrote:
| "The increase in consumption exactly cancels out the fall in net
| exports"
|
| The increase in consumption does not happen at the same time as
| the fall in net exports.
|
| Imports have increased in advance of tariffs. The imports are
| happening before the consumption. The imports that happen before
| the consumption of those imports subtract from GDP.
|
| Yes that is a reason GDP might fall. In this quarter, if tariffs
| aren't revoked, we will consume the imports that happened to
| front run the tariffs. That will increase GDP in this quarter.
|
| Noah Smith is not stupid. Noah Smith knows this. The questions
| for me are "Given that Noah Smith knows this, why does he write
| the article he does" and "Given that Noah Smith knows this, why
| would anyone rely on Noah Smith for their economic news". That's
| what I'm curious about.
| orangecat wrote:
| He addresses this scenario:
|
| _Let's take another example, which is more like what actually
| happened in Q1. Suppose an American company, Best Buy, decides
| to buy a Chinese TV and put it in a warehouse, because it knows
| that tariffs are coming soon. That purchase counts as inventory
| investment. So investment goes up by $1000. And just like in
| the previous example, net exports go down by $1000. The two
| cancel out, and the total contribution of the imported TV to
| U.S. GDP is zero._
| rufus_foreman wrote:
| From the BEA, "The decrease in real GDP in the first quarter
| primarily reflected an increase in imports, which are a
| subtraction in the calculation of GDP"
|
| Bureau of Economic Analysis is wrong here?
| kspacewalk2 wrote:
| Yes.
| satanfirst wrote:
| You skipped the next sentence where these are partially
| canceled out by investment, consumer spending, etc.
|
| Not wrong, deceiving. Real GDP is down because of some
| factors that cancel out and because the President sucks. Is
| the correct way to read that executive approved message.
| amluto wrote:
| > Let's think about some examples. Suppose an American buys a TV
| made in China for $1000. Remember that GDP can be calculated as
| the sum of consumption, investment, government purchases, and net
| exports:
|
| > GDP = Consumption + Investment + Government Purchases + Net
| Exports
|
| > When the American buys the $1000 TV from China, U.S.
| consumption goes up by $1000. And U.S. net exports go down by
| $1000, since "net exports" means exports minus imports. The
| increase in consumption exactly cancels out the fall in net
| exports. So the total contribution of the imported TV to U.S. GDP
| is zero.
|
| This is not how buying a TV works, at least not if you buy
| through normal retail channels. You pay the store $1000 and you
| get a TV that the store bought for around $500. If it came from a
| US company that outsourced manufacturing to China, the US company
| keeps $250 and sends $250 to China.
|
| The store pays salaries and rent. The brand pays salaries and
| rent and R&D and such. GDP _increases_ by at least $750, plus a
| bunch because a lot of those salaries turn into consumer
| spending.
|
| And this applies to sales abroad, too. When someone in France
| buys a CPU or GPU or iPhone, the physical product may never touch
| US soil, but most of the purchase price ends up in the US, and
| that contributes to the GDP and to the economy in general. A
| country could do just fine, sustainably, by designing products,
| paying foreign countries to manufacture them, collecting profits,
| and spending some of those profits to buy foreign-made goods. No
| physical goods are ever exported, the trade-in-services numbers
| may or may not be nonzero, the trade-in-goods balance will be
| enormously negative, and this is fine.
| cosmicgadget wrote:
| Wsj quote he cites:
|
| > Imports subtract from the Commerce Department's calculation of
| GDP
|
| Government page he links:
|
| > The decrease in real GDP in the first quarter primarily
| reflected an increase in imports, which are a subtraction in the
| calculation of GDP
|
| I don't get it. Aren't the journalists reporting and citing the
| official numbers/methods?
| roenxi wrote:
| There is a powerful technique for working out why an author
| thinks what they do: reading the entire article.
|
| His basic thesis can be summarised with "The short version of
| the story is this: GDP is a measurement of everything produced
| within a country's borders. Imports are produced outside a
| country's borders. So imports don't add to or subtract from
| GDP. Imports simply aren't counted in GDP at all." and he
| justifies it using other words. It is quite a reasonable
| argument - the accounting formula for GDP (C + I + G + (X - M))
| is misleading because the M isn't a subtraction but an
| adjustment to prevent something like double-counting.
| cosmicgadget wrote:
| You seem to be arguing for the substacker's opinion on GDP
| calculation and totally ignoring what my comment was about.
|
| Which is kind of weird given the snark.
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