Gotransit: the new system of macroeconomic threatens the US economy

Administration of the Donald trump is thinking about changing the methodology of trade statistics. It can mean for US macrodynamic manipulation and the loss of the system of coordinates the economic, experts warn

The “correct” statistics

The President of the United States Donald trump regularly complains about “fake” news. Meanwhile, experts began to fear manipulation of macroeconomic data from the administration itself. A month after taking office, trump still has not appointed the head of the Council of economic advisers (group of academic economists, the analyst prepares for the presidents), but have already received from the staff of statisticians overly optimistic forecasts for economic growth of the United States, and began to study the possibility of changes in the principles for the calculation of trade statistics. New calculated data according to the plan of the President will strengthen his position in the matter of amendments to the existing trade agreements of the country.

Many observers excited about the economic initiatives of the new authorities. Of experts on statistics of alarm periodic unceremoniously statements trump about the economy and macro data, as well as his apparent disdain for economists in General, according to Bloomberg. There are rules, “protecting data from direct manipulation, but they don’t dispel all my concerns about independence,” he wrote in his blog Jan 24, Brent Moulton, the veteran of the Bureau of labor statistics and Bureau of economic analysis, USA. “Ministers still have the opportunity to demand that the statistical Agency does not publish any data or change methodology is advantageous for politicians”, — he said in the post, entitled “Why I fear for the independence of the statistical agencies of the United States”.

The administration trump is exploring the possibility of changing the methodology of calculation of foreign trade statistics of the United States, wrote last week, The Wall Street Journal. In particular, the authorities want to exclude from the structure of the American export the whole re-export (import, imported into the USA temporarily and intended for delivery in other countries), but to leave these products in the composition of imports. According to the plan of trump, such a measure would correctly calculate the trade deficit of the United States (which in this case will be higher than the old statistics) and will add to the administration’s arguments for the beginning of procedure of revision of existing trade agreements with other countries. The Obama administration opposed such changes to the methodology, referring to the inevitable bias statistics — the decrease in trade balance. The change in methodology may in some cases turned a positive balance into negative, the WSJ reported a source involved in the discussions of the new measures. Most of all it will affect trade statistics with countries with which the United States signed an agreement on free trade zone.

Increasing production is one of the key items trump the priority of which is accurate data on actual U.S. exports less intended for re-export of imports. In January, the order to prepare data for the new methodology was given to the Office of the U.S. trade representative (engaged in the development of trade laws, drafting of trade agreements, the coordination of foreign trade policy). Management staff completed the assignment, but did so with reservations. In the they called them unrepresentative, citing their arguments. New calculations are planned to be submitted to members of Congress, said the source WSJ. The decision on transition to the new methodology has not been made yet, said the publication of Payne Griffin, Deputy head of the administrative apparatus of the U.S. trade representative. “Discussion of methods of data processing takes place in the framework of long-term discussions to ensure the most accurate statistics”, — quotes the WSJ review of the Bureau of economic analysis, USA.

“We should not interfere in the work of migration”

Several interviewees WSJ economists confused government-proposed initiative. “Statistics requires symmetry,” explained Steve Landefeld, former Director of the Bureau of economic analysis. If we exclude re-exports from the export statistics, in the interest of symmetry is required to adjust the figures for the imports, he added. The white house also wants to change the method of calculation of the import by switching to the “import for consumption” — this is a narrower definition of imports, covering imported goods that are intended for consumption in the domestic market. This measure, however, will not lead to tangible changes in the structure of the trade balance, the WSJ notes.

“I don’t see any problem that could be solved by changing the methodology, told Bloomberg Dean of the school of business Dartmouth”s Tuck School of Business and former member of the Council of economic advisers, and Matthew slaughter. On the contrary, it will create a lot of problems concerning not only the interpretation of the state of the economy, but also the integrity of the state statistics of the United States as such”. It is not clear what sense to collect data on exports, which would not reflect the re-export of goods and services, the expert adds. Methodology of analysis of the U.S. economy evolved over the years, and statistics have spent a lot of time and effort to both the government and society have reliable and representative data, he says. “History clearly shows that any interference of the authorities into the work of statistical services faces challenges. If we start to change the methodology, we complicated for businesses — large and small — understanding the market situation, as well as the recruitment process and planning,” says slaughter.

“Any official revision of the accounting methodology creates discomfort, no matter for what purpose it is directed, because it deteriorates the comparability of the historical series, — explained RBC chief economist “PF Capital” Evgenie Nadorshin. — This initiative looks more politically motivated than economically necessary.” It is not excluded that short-term actions do not greatly improve the negotiation position of the White house in the issue of trade agreements, but greatly complicates the analysis of trade data U.S. balance of payments and economic forecasting in General, the expert added. Any changes must be as smooth and predictable, concluded Nadorshin. “Foreign trade statistics re-export should be considered, — told RBC Director of the Institute of information development of the Higher school of Economics (HSE) Vladimir Bessonov. — Its exclusion from the export does not look logical.”

The proposed U.S. changes de facto, may not have any influence on the statistical methodology and the calculation procedure of the balance of payments because, in fact, are only suggestions for the interpretation and analysis of existing figures, says RBC senior analyst, group research and forecasting rating Agency ACRES Dmitry Kulikov. According to him, the publication of the full value of exports (Total exports) and exports of goods produced in the U.S. (domestic exports), and so is the international trade Administration of the United States (ITA). In 2016, the difference is around $220 billion — that it is proposed to reduce the trade balance. Nothing prevents the proposed figure called “adjusted trade balance” and use it as one of the goals of economic policy, says the expert. In the statistics information according to the generally accepted approach to the trade balance, of course, lost will not adds Kulikov. “With a strong desire offer number, perhaps you can give some sense of the indicators of this kind, where the balance is adjusted for possible unstable incoming flow, present and in our economic policy — for example, the non-oil deficit of the Federal budget”, — the expert specifies.

Trade agreements

The administration is considering the trade deficit of the US as evidence of the weakness of the national economy and the reason for the revision of the “disadvantageous” to the country’s trade agreements, particularly the agreement on free trade between USA, Canada and Mexico (NAFTA). Many economists, in turn, believe that the role of trade agreements in shaping aggregate trade balance of the country is exaggerated — the latter depends more on investment and savings rate, writes the WSJ.

On the background of the trade deficit, which was formed in the U.S. with major trading partners such as China, the deficit with NAFTA partners is relatively small, writes Bloomberg. With most of its 75 trading partners, the US recorded a trade deficit; in 2016 reached $743 billion in excess of imports over exports in half. Therefore, the revision of such agreements, like NAFTA, will not bring US to parity of aggregate trade balance, concludes Bloomberg.

The change in methodology may be able to transform in some cases a positive balance in the negative, said Simon Lester, analyst, Center for trade policy at Washington’s Cato Institute. “But how can it force someone to change the approach to trade policy? — asks the expert. — Is there at least one person — in Congress or elsewhere in the body, which would have taken it as an argument for the imposition of duties?” I like this approach to the calculations seem to be incorrect, said Lester RBC.

Unemployed America

During his election campaign criticized trump has become the official labour market statistics. “The unemployment rate is 28, 29, and 35%. I even heard that it can reach 42%,” said trump in January. According to official data of the Ministry of labor of the United States, the figure for the same month amounted to only 4.8%. In 2015, the trump estimates the number of unemployed in the 93 million people. Treasury Secretary Steven Mnuchin at the hearings in the Senate to approve his nomination was supported by evaluation of his leadership and stated that official figures “of unemployment do not correspond to reality”. Later the same opinion was expressed by the press Secretary of the White house Sean Spicer.

According to Brent Moulton, the first in the list of the White house for review may be data on unemployment just because of the criticism she was facing from the us administration. Veterans of the American statistics also worried that budget cuts departments can strike at the integrity of economic data. On the background of the promises Republicans have a more pragmatic approach to spending the probability that they will cut the budgets of various state agencies is only growing, says Bloomberg. “I worry that we don’t have enough money to collect data, and to ensure their reliability and representativeness”, — said the Minister of Commerce under the Obama administration, penny Pritzker. “The modern economy as never before depends on the data, — stated in the letter sent by the American analysts for the upcoming conference, dedicated to gosstatistiki, which in March will spend the Brookings institution and American enterprise Institute. Without reliable information about the economy and social situation is impossible to make informed decisions, which lie at the basis of the positive developments in trade, research and management.” “Changes in the methodology of analysis of the labor market complicate the understanding of historical changes in the U.S. economy, — the slaughter of Dartmouth”s Tuck School of Business. — This issue should not be treated superficially”.

If the economy starts to decline, administration of trump can take the fight for the “alternative facts” in the economy, says a Professor at the University of Oregon Marc Volume. “The worst thing that trump can do — and I see this as a real risk is to make government agencies that handle economic data to serve their political interests, to appoint people who “tweak” the numbers in his favor, — said Tom in an interview with the television program CBS MoneyWatch January 24. — If this happens, the data will become useless and we will lose all representation of the true state of the national economy”.

Unrealistic optimism

Last week the White house has prepared a preliminary forecast for the growth of the American economy in the next decade, what also surprised many experts or analysts. According to the administration, the country’s GDP over this period will grow by 3-3. 5% per year. In this design, given at the previous authorities, much more modest, though, and do not take into account the new administration announced plans for tax reform and spending budget. According to the forecast of the congressional Budget office, GDP will grow only 1.9% per year from 2021 to 2027. The fed expects growth of 1.8% per year in the long term. In the previous ten years the economy grew on average by 2% per year. To reach the growth rate of 3% per year will be difficult without a dramatic increase in labor productivity, as well as change the situation of working-age population that is falling, economists warn.

“To go on a three percent increase prohibitively difficult, — says Professor of Economics, Harvard University Dale Jorgenson (according to his forecast, growth will be 1.8% in the next decade). — A fundamental transformation in the economy, such as the reform of the tax system, may increase to 2.4 percent” (quoted by WSJ). Among the factors impeding the acceleration of GDP, the Professor calls the ageing of the working population, as well as the termination of the increase of his level of education.”

According to one of the developers of the fiscal policy under the previous administrations, was quoted by the WSJ, his memory of experts has never asked me to cook so high projections of economic growth. As a rule, the new estimates differ from the alternative forecasts by 0.1–0.2 percentage points, but not a full percentage point, said the publication of several people who were in the previous administration. According to them, former presidents — both Republicans and Democrats are reluctant to approve overly optimistic forecasts because they carry risks for the authority of the President in Congress and in society in General. “The fact that the predictions eventually come true, spent a huge amount of time and effort”, says Douglas Holtz-Aitken, an economist in the administration of George W. Bush.

Trump’s plans to increase military spending and reduce taxes, will likely increase the budget deficit, said Maya Magzines, Chairman of the American NGO “the Committee for a responsible budget.” “The risk is that these optimistic scenarios create the conditions for additional borrowing in the coming years trillions of dollars that will only bring harm” if the forecasts are correct, signed Magzines. Do not agree with it Bessonov of the higher school of Economics: “I Doubt that the goal of the trump — increasing borrowing, after all he have played for their reduction”. In his opinion, the difference between the old and new estimates of economic growth may be due to different views about what economic policies will be carried out by the authorities. “The forecast of the new administration can also be the target that plays a mobilizing role for the national economy. Trump best inflated forecast, because otherwise the efficiency of its protectionist policies can be questioned”, — concludes the expert.

“In practice, economic policy forecasts sometimes are a function of the target, not really the expected scenario. Example — target version of the med’s forecast for the Russian economy, says RBC Dmitry Kulikov of an ACRE. — I believe that this is the same case. Forecast ACRES for five years for the US economy (including reforms trump) — less than 2% average annual real growth.”

Nadorshin from “PF Capital” also considers forecasts of trump overstated: “They do not look plausible”. “I don’t think that the new administration has done anything worthwhile to justify these estimates. No constructive steps, which earlier said trump, to achieve growth of 3-3. 5% will fail, — said the expert. — No sane investors will not rely on such dynamics of GDP, if the administration trump in the near future will not begin to undertake anything constructive.”

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