Real GDP Is Crashing, 2000-2011

Contrary to official US government statistics, the economy is shrinking at an alarming rate.

When you calculate real GDP growth, you have to adjust for inflation. If the size of the economy stays the same, but inflation is 10%, then the raw GDP will be 10% bigger.

When economists calculate “inflation adjusted GDP”, they use the CPI as their inflation adjustment factor.  However, the CPI severely understates true inflation.  Inflation is misreported as economic growth.

For example, suppose that true inflation is 20% and the CPI is 5%.  Without any inflation adjustment, the economy grows 10%.  When you adjust via the CPI, it seems that the economy grew by 5%, when it really shrunk by 10%.  This leads to the lie “Deficit spending and inflation stimulate the economy.”  Inflation causes the economy to appear to grow, because the inflation adjustment uses the CPI instead of true inflation.

Gold is a much more accurate measure of inflation.  There are short-term fluctuations.  Over a period of 5-10 years or more, gold should track true inflation pretty closely.  It is more accurate to say “The value of the paper dollar is crashing.” rather than “The value of gold is skyrocketing.”

I calculate inflation-adjusted per capita GDP correctly.  I use gold as my inflation adjustment, rather than the biased CPI.

Here is USA per-capita GDP in ounces of gold.

Here’s the same information on a log scale. On the log scale, it’s easier to see how the rate of shrinkage is increasing.

I use this page as my source for GDP data.  I use udagold as my source for the price of gold. “% Gain” is the change in one year. “Cum % Gain” is the cumulative change. “Ann % Gain” is the cumulative gain converted to an annualized amount.

YearPer Cap GDPGoldGDP/Gold% GainCum % GainAnn % Gain

Notice the severe decline from 2000. In the year 2000, per capita GDP was 130 ounces of gold. In 2011, it was only 30.3 ounces of gold. That’s a decline of nearly 75%, at an annualized rate of 10%.

Measured in ounces of gold, real GDP has decreased every single year since 2000!

A pro-State troll might say “There’s a gold bubble.” I don’t see any evidence of that. Even if there is a slight gold bubble, that doesn’t explain a 75% decline over 11 years.

Some people object that GDP is not a fair measure of economic activity. Many useless things are counted as part of GDP. Lawyer salaries count as part of GDP. The financial industry counts as part of GDP. However, GDP is the most widely-cited measure of economic activity. There is no way for me to measure “GDP minus useless things”, so I just use GDP.

When professional liars talk about inflation-adjusted GDP, they use the CPI as their inflation index. The CPI severely understates true inflation. This causes inflation to be misreported as economic growth. This leads to the lie “Inflation stimulates the economy.” Inflation causes the inflation-adjusted GDP number to increase, because inflation is not properly counted. If you measure GDP in ounces of gold, then the economy is crashing at an alarming rate.

10 Responses to Real GDP Is Crashing, 2000-2011

  1. Anonymous Coward August 1, 2012 at 4:16 pm

    The whole economy is distorted by government and banks sucking money out of the real economy.

    Taxes are too high. I read that German companies spend as much effort looking for ways to legally avoid tax as in actually growing their businesses. This is plain wrong.

    Because of interest rates, companies have to pay back loans quickly. This distorts what they do. It means everything shifts to short term profits, instead of long term thinking.

    We need to do what Ellen Brown and Bill Still recommend – we need debt free money. That would be better than crushing, exponentially growing interest rates.

    The whole thing is a fraud. Money creation and debt is a system that is designed to crash into the ground. The real, productive economy can never have exponential growth which is needed to kept up with the debt interest.

    • Exactly. The whole Keynesian model focuses purely on short term profit, at the expense of the long term one. A lot of people realised this decades ago, but the farce has kept going. I might even add that this has benefited quite a few influential personages… :O

  2. Anonymous Coward August 1, 2012 at 4:32 pm

    > Lawyer salaries count as part of GDP.

    The legal system is completely broken.

    When a woman leaves a man, the man has to pay a sum comparing to _x_, where x is a year’s salary in legal fees, even for cases where the law is “clear cut” and for a situation that happens thousands of times across the land.

    Lawyers mess up, but are still paid a fortune. Witness the beautician in the UK, that paid lawyers to handle her court case but lost. She couldn’t afford lawyers for the appeal and so handled the case herself. She won over a simple contract matter against a construction company. So why did the lawyers keep their money if they messed up the first case? Money for nothing. Why couldn’t the highly paid lawyers read a contract?

    While women (see Daily Mail) are imprisoned for having part-time jobs with variable income while claiming housing benefit, others game the system. The others have free lawyers (paid for by tax-payers’ money) to go to tribunals to increase their welfare benefits. Some women are on 60, 000 pounds a year in combined benefits (see Big Issue job scam) and have free lawyers to get them more government money. But other women are more honest and take up part-time work. They get sent to jail for doing real work.

    The welfare system favours those that understand the system and game it. Lawyers jump on the bandwagon and get their big fees to get more government money for those playing the system.

    Honest people that don’t understand the system are jailed.

  3. Anonymous Coward August 1, 2012 at 5:04 pm

    > Lawyer salaries count as part of GDP.

    The law and justice no longer exists in the United Kingdom.

    Everyone must be equal under the law. This no longer applies.

    People were jailed for stealing bottles of water in the riots.

    However bankers that steal millions and billions are above the law.

    David Laws MP had a government Treasury post for a short while. It was revealed he made a false claim on his expenses. The media made excuses for him. He didn’t want to admit he had a gay partner.

    It is a very nice perk to be able to buy a bigger house on your MP expenses. David Laws was already a millionaire due to his time working in banks. He didn’t need to do this at all.

    OK, so David Laws MP got off scott free. It was said by the mainstream media if he was honest about his gay lover we could have claimed the same amount of money.

    I can see why there is good reason not to prosecute this man.





  4. For your consideration:

    In 2000, the average pump prices for a gallon of gas was ~1.50 and we’ll say that the average cost per ounce of gold was $300 (it averaged lower for most of that year). This means that each gallon of gas cost ~ 0.005oz of gold in 2000.

    In 2012, a recent gold price was ~1600oz and a recent pump price for a gallon of gas was ~3.50, which works out to a current gallon of gas costing ~0.002oz of gold.

    Did gas become worth 40% of what it used to be worth in 12 years? Did gold become worth > 5x as much in real terms in 12 years?

    • It still doesn’t match, a 40% decline in the gold-price of gasoline, vs. a 75% shrinkage in the gold-sized economy.

      There have been improvements in drilling, but not enough to account for 40%.

      If you want to be scientific about it, you should pick a whole bunch of commodities, and not just gasoline. If you look at a 10 year chart of gold/silver/copper/platinum, they line up pretty closely.

      I use gold for simplicity. GDP/gold has decreased nearly every single year!

      Another possibility is that the gold price was suppressed from 1975-2000. The central banks used up their gold reserves, causing it to increase more than other things.

      • It’d be more scary if it did match exactly, but in any case you’re being sloppy with terminology.

        To compare apples to apples it’s either:
        - gold-price of gas in 2012: 40% of what was, vs per-capita g.d.p in gold: 25% of what it was
        - gold-price of gas in 2012: 60% shrinkage from what it was versus per-capita g.d.p in gold: 75% from what it was shrinkage

        Take your pick of comparisons (40% to 25% or 60% to 75%), remember both figures are cumulative over 12 years so the annualized difference is even smaller. Still a discrepancy, but you’d expect a discrepancy unless everything was standing still.

        Comparing precious metals commodities to each other isn’t that enlightening because for the most part their prices tend to be fairly strongly correlated (never lockstep, but usually within a reasonable envelope). So if your interest is “what could I buy with N units of metal M at time T” you don’t learn as much by comparing two metals (the rates fluctuate, just not that much) as you do by comparing a metal to something entirely unrelated.

        I picked gasoline because gasoline consumption is a good proxy for economic activity in the USA (country of discussion), due to the way it correlates with transportation (to/from work, moving goods around the country). You could also look at pork bellies, electricity prices, and so on.

        What’s going on is interesting but it’s nothing so simple and dramatic as a 75% drop in GDP over 12 years; if that happened it wouldn’t be a debatable thing. (Hint: it’s not like 3 out of 4 supermarket shelves are barren everywhere you go…).

        • I’d be more impressed by an analysis involving a whole bunch of commodities. Add corn, sugar, oranges, etc. to your analysis. Those prices should match gold more closely than gasoline, but I don’t have a good source for prices.

          Also, when the economy shrinks, people use less gasoline.

          Supermarkets are only a small fraction of the economy. There also are State food subsidies. There also is a hidden type of economic shrinkage, lower quality. A box of Russell Stover chocolates used to be 16 oz. Now, it’s 12 oz, and the quality is lower. That’s a 25%+ decrease, but there’s still stuff on the shelves.

          GDP/gold has decreased every single year since 2000. That is significant. GDP/gasoline also decreased, albeit not by as much. My overall point is still correct. In real terms, the economy is shrinking by a lot. Even 1%/year annualized is significant shrinkage.

          If you want a more extreme example for your point, pick natural gas. It’s the only commodity whose FRN-denominated price hasn’t skyrocketed in the past few years. To be most scientific, a basket of commodities would be best as the inflation index.

          For me, “Gold is money!” is a definition. There are manipulations and fluctuations in the gold price. Over a 10+ year range, it should even out. Gold and gasoline should converge over longer periods of time.

          • Just going off of some standard commodity price indices we have this, measured in gold:

            Agricultural Raw Materials: $97.9 in 2000 (~0.33oz) => $132.45 in 2012 (~0.083oz)
            Food Price Index: $82.12 in 2000 (~0.27oz) => $168.84 in 2012 (~0.11oz)
            Beverage Price Index: $76.96 in 2000 (~0.26oz) => $160.38 in 2012 (~0.10oz)
            Industrial Inputs Price Index: $77.36 in 2000 (~0.26oz) => $163.36 in 2012 (~0.10oz)
            Crude Price Index: $52.78 in 2000 (~0.18oz) => $171.02 in 2012 (~0.11oz)

            Agricultural Raw Materials: ~25% of 2000 price (~75% shrinkage)
            Food Price Index: ~38% of 2000 price (~62% shrinkage)
            Beverage Price Index: ~39% of 2000 price (~61% shrinkage)
            Industrial Inputs Price Index: ~39% of 2000 price (~61% shrinkage)
            Crude Price Index: ~61% of 2000 price (~39% shrinkage)

            Make of it what you will.

          • Those “Price Indices” are calculated using the same flawed methodology as the CPI. Try again with something else.

            I’m looking for “corn”, “sugar”, “cotton”, “pork bellies”, etc. I meant the raw futures prices, and not some State statistic that’s manipulated.

            What I make of it is “You’re a troll who’s ignorant about economics.”

            Here is an example of what I meant. Corn Jan 2000 – $200. Corn Dec 2011 – $646. That’s a change from $200/$300=0.66 to $646/1600=0.40. That’s comparable to the example you gave for gasoline.

            Sugar #11 Jan 2000 – 6.17. Sugar Dec 2011 – 23. 6.17/300=0.0206, 23/1600=0.0144. That one is only a 30% decline.

            Ironically, the best example in that chart is crude oil (NYM). Jan 2000 – 25.6. Dec 2011 – 98.3. 25.6/300=0.0853, 98.3/1600=0.061, only a 29% decline.

            That page also has metal.

            Silver – 543.3 to 2791.5 – 543.3/300 = 1.811; 2791.5/1600=1.744, practically unchanged.

            Copper – 86.3 to 343.6 – 86.3/300 = 0.288; 343.6/1600=0.215, 25% less

            Platinum – 430.2 to 1400 – 430.2/300 = 1.434; 1400/1600=0.875, 40% less

            The bottom line is that, no matter what commodity you use as your inflation index, real GDP is crashing. I’ve used gold every time I made that post, so I’m consistent.

            Looking at most of them, the commodities seem closer to the gasoline example than gold. However, when I looked at silver/copper/platinum, those tracked gold more closely.

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