Measuring trade can be misleading (June 8)
By Chuck Doud
The Madera Tribune
Here may be one reason why we are having trouble digging ourselves out of the Great Recession: We have fallen for some economic sleight of hand.
Until 1991, the value of the American economy was expressed as the Gross National Product — which was the market value of goods and services produced by labor and property supplied by U.S. residents, regardless of where those residents might be.
After 1991, however, we began measuring economic output as Gross Domestic Product — which is the market value of goods and services produced by labor and property in the United States regardless of nationality.
In other words, the Gross Domestic Product now includes those things that are produced abroad by non-Americans and sold in the U.S.
Using Gross Domestic Product as a measure of our economy has made it appear that for most of the past 20 years we have been doing very well, but in fact, we haven’t. America’s trade deficit now is hovering at around $500 billion annually, meaning we buy more abroad than we sell abroad.
When we bring those items purchased from foreigners here and resell them, those sales are folded into the measure of the Gross Domestic Product, although no American — or at least very few Americans — benefitted from their production.
The retailers who sell imported products can claim that their productivity was increased by being able to buy imports such as shirts, for less than the same items might be made at home, but that is a false measure of productivity. Only the profit on the shirt should be part of the Gross Domestic Product, not the whole shirt.
But if that were the case, Gross Domestic Product would be many billions of dollars smaller, even though it would be a more accurate measure of how productive we are.
What we are finding out is that so-called free trade isn’t free, and that its out of-balance weight on our economy is making recovery very tough.
