America's about to become more wealthy - on paper, at least.
That's because the way the country's gross domestic product, or U.S. GDP, is measured will change significantly come July 31, enough to boost the closely watched economic barometer by 3%, or $400 billion.
That translates to the equivalent of about $1,500 more worth of goods and services per person in the United States.
The U.S. Commerce Department's Bureau of Economic Analysis claims the changes will allow for more consistent comparisons with data for the economies of other nations.
What the revised U.S. GDP, which will apply retroactively to 1929, will really do is make the country look healthier than it actually is.
"What it speaks to in my mind is the oldest of all games: It's administrative whitewash," Money Morning Chief Investment Strategist Keith Fitz-Gerald said. "If reality doesn't fit your statistics, you adjust your statistics and say, 'Let's make everybody feel good about what we're doing by readjusting the calculations.'"
U.S. GDP Change: More Government Manipulation
Three changes in the way the BEA calculates GDP will account for most of the difference: research and development will be counted as a capital investment instead of as a cost of making goods; investment in artistic originals like books, TV shows and movies will be counted as fixed investments; money that pension plans promise to pay retirees will be counted as wages.
Fitz-Gerald said to think of it this way: What if a publicly traded company were to restate its earnings - dating to 1929?
"The stuff hits the fan when they restate their earnings," he said. "That's what the government's doing here. This is the federal government restating its earnings. They're going back effectively on the public's P&L and saying, 'Well, you know, those statistics didn't really fit and we're restating our P&L and, oh, by the way, we're doing it back to 1929.'"
Economic expert Peter Schiff says such manipulation of statistics is typical of the U.S. government. The U.S. government has over the years repeatedly manipulated statistics for unemployment and inflation.
"That's what the government does," Schiff said on his radio show. "Now it doesn't mean that the economy is actually any bigger, but it means they can pretend it's bigger."
Consider the effect on the national debt, Schiff says: If the GDP's bigger, the national debt appears smaller in comparison and thus less of the money generated by the economy seems to go toward paying interest on the debt.
Fitz-Gerald noted the broad measure of economic growth is also used by ratings agencies to measure a country's economic health.
And Fitz-Gerald said a higher GDP will do little to help consumers who continually face higher costs.
The BEA based its decision to revise the way the GDP's calculated on an international agreement put together by organizations including the United Nations, the International Monetary Fund and the Organization for Cooperation and Development.
The United States will be among the first to change its GDP based on the agreement.
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The Daily Caller:
Changes in GDP measurement create growth out of thin air
Bureau of Economic Analysis:
Preview of the 2013 Comprehensive Revision of the National Income and Product Accounts
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