Nick Fountain
Appearances
Planet Money
Can we just change how we measure GDP?
And it wasn't just people who represented coal mining areas. Even people from other areas, people he thought he had convinced, became worried about how their states looked.
Planet Money
Can we just change how we measure GDP?
Steve dropped it. He gave up on his green-adjusted GDP project.
Planet Money
Can we just change how we measure GDP?
Is it technically feasible to separate those two things out, government spending versus everything else?
Planet Money
Can we just change how we measure GDP?
And since all of those things are broken out, that means that if Trump's Commerce Secretary Howard Lutnick wants to, he can just take the top-line GDP number and subtract out the government spending portion of that.
Planet Money
Can we just change how we measure GDP?
And I'm Nick Fountain. So, GDP. What exactly is it? How is it calculated? Does it ever change?
Planet Money
Can we just change how we measure GDP?
You're done. So just make up a new number. Not make up. Make up a new indicator. And if you want to talk about that new indicator, talk about that. But don't mess with GDP is sort of your stance.
Planet Money
Can we just change how we measure GDP?
We asked BEA about this. They declined to comment. But that's what Steve expects to see in the coming months. To be clear, he hasn't spoken with anyone there about this. But he expects BEA will whip up a new line and put it at the top of their quarterly press release.
Planet Money
Can we just change how we measure GDP?
That's why Steve held the line for so many years. And that's why he, like us, will have his alarm set. Quarter one GDP estimates come out at 8.30 a.m. on April 30th.
Planet Money
Can we just change how we measure GDP?
This episode of Planet Money was produced by Emma Peasley and edited by Jess Jang. It was fact-checked by Sierra Juarez and engineered by Robert Rodriguez. Alex Goldmark is our executive producer. I'm Nick Fountain.
Planet Money
Can we just change how we measure GDP?
Imagine you're in front of a room of third graders. Define GDP for me.
Planet Money
Can we just change how we measure GDP?
In this case, it'll be for the first quarter of 2025. This one big number that tells us how the economy is doing after 2020. Pretty intense couple of months. And the report is right now being put together by the statistics nerds over at the Bureau of Economic Analysis or the BEA.
Planet Money
Can we just change how we measure GDP?
Sure, but our job is to demystify. So we pressed Steve to give us a definition.
Planet Money
Can we just change how we measure GDP?
All the goods and services in the economy in one year.
Planet Money
Can we just change how we measure GDP?
Yeah, it's essentially arithmetic. Here's how you calculate it. You start by adding up everything regular old people buy, what are called final goods. Every car, every meal, every tamagotchi.
Planet Money
Can we just change how we measure GDP?
Then add to that most of what the government spends on things like schools and roads, but not on government transfers, things like Social Security. Those are excluded.
Planet Money
Can we just change how we measure GDP?
Good. You add up all those things, consumption, investment, government spending, net exports, and you get a country's GDP. Last year, that number for the U.S. was $29 trillion, which means if you account for inflation, the economy grew 2.8% from the year before.
Planet Money
Can we just change how we measure GDP?
And because of all these things, presidents are often judged on how GDP is doing on their watch. And so you could see why they would want their GDP numbers to look as good as they can.
Planet Money
Can we just change how we measure GDP?
Did you ever get political pressure from a president to change GDP? How it's calculated.
Planet Money
Can we just change how we measure GDP?
You're going to have to name names today. I'm sorry. It was Clinton. President Bill Clinton. The story goes Steve and others at the Bureau wanted to change how GDP accounted for inflation. They wanted to change how they calculated what's called real GDP or inflation adjusted GDP.
Planet Money
Can we just change how we measure GDP?
So it's around 1995. And Steve and his team bring this idea to the higher-ups at the Department of Commerce. And it eventually makes its way to Clinton. Basically, Clinton gets a note, like a written memo or whatever, explaining how they're planning on changing real GDP. Steve still remembers some of what the note said.
Planet Money
Can we just change how we measure GDP?
You could see how he would not want that to happen.
Planet Money
Can we just change how we measure GDP?
But regardless, for Steve, this was a concerning moment. He ran this independent statistical agency and he was trying to make GDP more accurate. But the president of the United States had expressed his displeasure about this change.
Planet Money
Can we just change how we measure GDP?
And Steve had stood up to the president of the United States. He'd held the line for statistical soundness because he believed that this methodological change would make GDP more accurate.
Planet Money
Can we just change how we measure GDP?
Yeah, he told us that representatives from the Motion Picture Association of America or big companies like car manufacturers were always coming to him because they wanted their industries to look bigger.
Planet Money
Can we just change how we measure GDP?
Maybe you get more attention in Congress. Steve says he was always open to ideas as long as those ideas were about making GDP more accurate. In fact, he has this one story of when Alan Greenspan, legendary economist, chair of the Federal Reserve for nearly 20 years, invited Steve to his office.
Planet Money
Can we just change how we measure GDP?
And that is because earlier this month, Commerce Secretary Howard Ludnick, who oversees the BEA, he went on Fox News and made what was maybe a big pronouncement.
Planet Money
Can we just change how we measure GDP?
It's around 1996 and Greenspan wanted to talk about an issue he was having with GDP. It boiled down to this. Greenspan thought GDP wasn't counting a whole big portion of the economy correctly.
Planet Money
Can we just change how we measure GDP?
Yeah, a $1,000 computer in 1990 and a $1,000 computer in 2000 are extremely different. The new computer is just way more computer, more bang for your buck. It's way faster. It has more storage. It can easily connect to the internet. Like... AOL dial-up. It can accept CD-ROM, not those inefficient floppy disks. But as far as GDP was concerned, they both cost the same. They both cost $1,000.
Planet Money
Can we just change how we measure GDP?
And so they were counted the same. So the economists at BEA tried to account for this. They made what are called hedonic adjustments.
Planet Money
Can we just change how we measure GDP?
Now, Steve also knew that Greenspan wanted this because he had an agenda. He wanted to keep interest rates low to stimulate the economy.
Planet Money
Can we just change how we measure GDP?
So Greenspan was coming to you saying, hey, it would be really useful to my project of expanding the money supply if you could go out and find a little bit of productivity for me in those numbers. No. In a sort of gangster tone. And you went and did it. No, no, no, no. But it did seem like he was putting the pressure on you. Well, yeah. Yeah, he was putting on the intellectual pressure.
Planet Money
Can we just change how we measure GDP?
Steve says Greenspan would pepper him and his top economists with questions, run circles around them.
Planet Money
Can we just change how we measure GDP?
Now that we know what we know about 2008, do you feel any regrets about making this change at his behest? You don't think?
Planet Money
Can we just change how we measure GDP?
Coming up after the break, what Steve thinks of the Trump administration's proposal to strip government spending out of GDP. And what he thinks the head of his former agency should do about it.
Planet Money
Can we just change how we measure GDP?
Economists think that changing the fundamental formula for GDP, that is much more dangerous. GDP is often how we compare policies and leaders across time and across countries. In fact, there are international standards for what goes into it. Countries debate at these painfully long international meetings what counts in GDP. They have to come to a consensus on it.
Planet Money
Can we just change how we measure GDP?
The last update to these global standards was in 2008, and they are working on a new update right now which could be finalized any day.
Planet Money
Can we just change how we measure GDP?
Steve Landefeld, the former head of the Bureau of Economic Analysis, says there is another category of people who have been trying to change what's counted in GDP. Outside groups. And you can see why. If governments are judged by their GDP growth, they'll focus on whatever makes their GDP look better. They'll work their butts off to do more of the things that increase GDP.
Planet Money
Can we just change how we measure GDP?
The unstated reason seems to be the Trump administration is firing a whole bunch of government workers, shrinking budgets, canceling contracts. And if, or I guess when, that shows up in GDP, it'll look bad.
Planet Money
Can we just change how we measure GDP?
And he thought their argument had merit, so he tried, really tried, to figure out how his agency could capture it all and how they calculated GDP. But because money wasn't changing hands, the math was fuzzy. It had to be based on estimates and theoretical numbers.
Planet Money
Can we just change how we measure GDP?
So Steve never ended up changing GDP to include unpaid household labor.
Planet Money
Can we just change how we measure GDP?
Steve was game. But instead of changing GDP, he tried something else. In the early 90s, he made a new separate measure that environmentalists and policymakers could look at if they wanted, but that didn't mess with the standard GDP. Steve and his team essentially created a green-adjusted GDP.