I believe in serendipity, the notion that things fall into place unexpectedly; the definition is meant with pleasant connotations but I’ll take it however I find it. Shortly after I posted the October 2014 PracticalDad Price Index results, I came across two separate and seemingly unrelated news articles.
The first article pertained to the announcement that China has finally overtaken the US as the world’s largest economy. It was surprising on the face of it since other sources were all pegging that event to finally occur in 8 to 10 years. But further reading showed that this was a different metric, called purchasing power parity. What this means is that the GDP for each nation is adjusted by an international body for the purchasing power of its currency. Since the given is that the price of most items in the US are comparatively more expensive than in China – from the average price of housing to a Big Mac – then this pricing power should be factored into the national GDP. While it sounds a bit far-fetched, the notion that nations such as Italy and the UK are now calculating the contribution of such illegal activites as hookers and blow to their national GDP, then it really isn’t that much of a stretch at all. This was a new twist that was implemented just within the past several years and is a different result from the traditional GDP metric which, while still showing the US ahead of China. showed a trend that indicated China was on track to overtake the US by the early 2020s. Naturally, there was some conservative talk radio blowback, condemning the Obama Administration and Democratic Congressional policies for permitting this unconscionable event to occur. And this is what sets me to wondering after reflecting on the second article.
The second article is from the NY Post, which alleged in 2013 that the government cooked the books on the unemployment rate prior to the 2012 presidential election. This most recent column alleges that a Denver field office whistleblower has come forward with information that the unemployment numbers are again being cooked. What caught my eye in the article was a comment that it also extended to inflation data. In fairness, the original allegation regarding the pre-election unemployment numbers was investigated by the Commerce Department’s OIG with the resultant finding that there was no substantiation to the claim; but the new allegation does make me wonder…especially in light of the ongoing findings about the weaponization of the IRS against conservative groups. It’s difficult to know who to believe in this world of he said, she said journalism, a newspaper with a definitive political leaning or an agency of an increasingly distrusted government. It might be a purely academic spitting contest save for one fact: the inflation rates are now key to the purchasing power parity metric and if anything ever shifted from purely interesting to important, it would be this particular issue. Since the median American family income is still multiple times greater than the median Chinese family income, the ability to keep the inflation rate low in comparison to the Chinese rate could conceivably have some impact on the GDP competition.
I have an elderly friend of Irish descent and his repeated mantra has been never let the facts get in the way of a good story and it’s certainly possible that we’re now in this operative mode. God knows that there are plenty of other issues that have been, and are, gamed. I won’t sit here and say the numbers are or aren’t gamed since I simply have no way of knowing. But the question is planted and I’ll keep plugging each month with the PracticalDad Price Index. In the long-term, the question of potentially gamed inflation data is a short-term sideshow because the real issue is the passing of the torch of economic dominance from one nation to another. And the truth is that for all of its own problems, China is moving along in such a way as to truly overtake us in a decade or less. Regardless of the question about data quality.