Like other facets of the federal bureaucracy, government-collected data could soon bear the imprints of the Trump administration. The change would likely prove costly for banks and other businesses.
Earlier this month, White House advisor
The discourse arose after the Federal Reserve Bank of Atlanta's GDPNow model began forecasting a
While the altered GDP calculation would fit with the administration's goal of a more "privatized" economy and is consistent with the president's willingness to upend governing norms, the concept has little support among mainstream economists. The consensus view is that turning a blind eye to government activity would make the measure less accurate.
"Timely, accurate, consistent economic data is critical to good decision making, whether that is at the Federal Reserve, at the Commerce Department, at JPMorgan Chase, at Boeing or in your own household. You need that information to make good decisions," said Mark Zandi, chief economist of Moody's Analytics. "If you don't have that information, you're economically flying blind and have a good chance of wrecking the economy, financial system and everything else."
Moreover, the idea of changing a long-running metric to suit a president's view has raised alarm bells not only for partisans, but also many policy experts and business decision-makers.
"This is straight out of '1984' the novel," said Rodney Ramcharan, an economics professor at the University of Southern California and a former Federal Reserve economist. "The Chinese have been doing this for a long time with their numbers, where they systematically try to manipulate the output growth in China and inflation to achieve or attain their political aims. The Soviet Union did this, ostensibly, as well, with their five-year plans."
GDP has been the predominant tool for measuring economic growth since the Bretton Woods Conference in 1944. The main components of the formula have not changed since then, but the scope has been modified over the years. The most recent adjustment came in 2013, when BEA began including artistic creation and research and development activities. The addition was the result of an update to international standards.
Few believe new methods for calculating GDP — or any other key metric — would actually work to paper over economic deteriorations. But they could diminish the government's role as a neutral third party on which firms can rely to not only make their own business plans but also to make agreements with other outfits.
"It's going to create a tremendous amount of transaction costs," Ramcharan said. "A lot of contracts are priced on these data, and now, if you no longer trust them, you have to now have lawyers do a lot more checking, have more ways to verify, get different sources of data. This all increases the cost of doing business, and it's going to hurt the economy as well."
Yet, there are some economists who see the merits in rethinking how economic activity is measured. Peter Earle, director of economics and economic freedom at the American Institute for Economic Research, a libertarian think tank, said unlike in physical sciences, measurement in economics is inherently subjective and based on certain assumptions. What is measured and how can have inadvertent impacts on policies and business practices, Earle said.
Specifically, Earle pointed to the heavy influence of consumption on the current GDP model, something he said has contributed to the U.S.'s largely consumption-driven economic policymaking. He said a de-emphasis of government spending in data collection could eventually curb the role of government in the economy, but doing so would take years.
Earle also said it is risky for the government to make sudden and drastic changes to its data-collection methods. If a new GDP formula is devised, it should be presented alongside the old model, he said.
"It's just good practice to continue the old number, even if it's not really relevant, alongside the newly created, new source of data," Earle said. "It is pretty bad science and just opens the door to too many conspiracy theories when you stop a data source overnight and introduce a new one."
Changing the complexion of GDP could have notable second-order effects, too. Treasury Secretary Scott Bessent, who has emerged as the
It does not appear that Bessent shares the same appetite for GDP reform as Musk and Lutnick. In a
"One of the big mistakes the Biden administration made, and thank goodness they made it, was they … went with the numbers, not what the American people were feeling," Bessent said. "They said 'No, it's a vibe-cession' and 'You really don't understand how good you have it.'"
A new approach to GDP could also raise questions for certain bank regulatory initiatives. For example, industry groups have argued that regulatory thresholds should be adjusted to align with growth in GDP, a change that would prevent banks from being punished for simply growing in line with the broader economy.
GDP currently includes four components: consumer spending, business investment, government spending and net exports, or the difference between exports and imports. Government spending includes federal, state and local expenditures on things like infrastructure, services, national defense and government workers. Notably, it does not include transfer payments, such as those related to Social Security, Medicare, Medicaid and food assistance programs. Instead, those dollars only enter the equation in the form consumption, after recipients spend them on goods and services.
According to the BEA's
Musk, Lutnick and their supporters say an administration could make GDP look like it is growing simply by giving raises to public employees or otherwise increasing spending on "things that don't make people's lives better," as Musk put it.
In an interview with Fox News, Lutnick vowed to use his position to address this by removing the government-spending component.
"Governments historically have messed with GDP," he said. "They count government spending as part of GDP. So I'm going to separate those two and make it transparent."
The comment alone has raised questions about Lutnick's familiarity with the BEA's GDP product. Those well versed with the dataset note that the underlying data is already quite transparent and that the government components can be readily factored out by anyone who downloads the corresponding spreadsheets.
David Wessel, director of the left-center Brookings Institution's Hutchins Center on Fiscal and Monetary Policy, said if the Trump administration simply wants to emphasize the private components of GDP, it could do so now, with no changes needed to the underlying formula.
"If they want to put out a press release after the GDP comes out and say that privately produced GDP has grown faster under Trump than under Biden, fine," Wessel said. "People do that all the time. … The [Council of Economic Advisers] puts out a press release after everything."
The concern, Wessel said, is that the White House approaches the BEA or the Labor Department's Bureau of Labor Statistics — which tracks inflation and unemployment — the way it has agencies like the Consumer Financial Protection Bureau or the Education Department, effectively shuttering them until their actions can be aligned with the goals of the administration.
"It's totally appropriate for the commerce secretary, the secretary of labor, to ask the economic statisticians, why do you do it this way? Is there a better way to do it?" Wessel said. "I'm not saying those people shouldn't be questioned, but that's different than having the people at the top tell them what they want the answer to be."
While the proposal to remove government spending from GDP has generated more criticism than praise in the economics community, that does not mean that the current approach to tabulating economic activity is beyond reproach.
Some say the present model does not reflect shared costs and benefits related to things like public health and the environment. Others point to the fact that the measure does not account for efficiency of services provided, the distribution of profits or the increase in standards of living. Like other government-generated data sources, GDP has also suffered from a more challenging data-gathering environment — one in which survey participants are harder to reach and less responsive.
Mickey Levy, former chief economist for Bank of America and a current fellow at Stanford's Hoover Institution, said the current method for GDP measurement is based on decades-old constructs, from a time when the U.S. economy was largely centered on manufacturing. He notes that products built by U.S. firms in overseas factories — such as iPhones — end up being counted as imports and therefore diminish GDP, rather than grow it.
But Levy said Lutnick's remarks do not suggest that he is thinking about changing the measure to reflect technological or economic developments, or in pursuit of greater economic granularity.
"His comments were sufficiently naive or off base that, while I kind of understood what he was getting at, he, by those statements, didn't even know enough to say what changes he would make," Levy said. "Should they do it seriously, they would create a commission to study ways to improve GDP, and the experts, even the hardcore conservatives, would say, 'Gee, there's already a lot of data there.'"
