Death of the National Economy, Part 2

Eric Garland Business Trends, Economic trends, Geopolitical Trends 2 Comments

Hit tip to Marc Arenstein (@traintalk) for sending me this piece of news about industrial classifications set to change in 2017. Here’s a piece of news that will delight that one uncle you have that gets drunk and tells you about how “Elites are pushing us to a One World Government, Glenn Beck warned us all.”

Only it isn’t sounding that crazy any more. Check this:

Globalization Forces Major Change In Business Classification System: One Result Will Be That Imports From Manufacturers That Have Outsourced Production Offshore Will No Longer Be Considered Imports

Seagate_Wuxi_China_Factory_TourU.S. federal agencies involved in economic data are on the verge of a major and transformative change in the way they classify companies that have outsourced their U.S. production to foreign manufacturing contractors.

The change could radically increase U.S. production statistics by classifying “factoryless goods producers” as domestic manufacturers. Companies like Apple will no longer be considered “wholesale traders,” and their sales would be counted as U.S. production, even though none of their manufacturing is in the United States.

Imports by American companies that outsource their production to foreign manufacturers also would no longer be counted as imports, thereby impacting the balance of U.S. international trade accounts.

The idea is for the federal government to determine how much production has been offshored and to pinpoint the number of American companies that are linked to manufacturing, even though they don’t make the products they design and sell.

The changes now being finalized by the U.S. government would be implemented in the 2017 North America Industry Classification System when factoryless goods producers will be classified as U.S. producers. The new classification system of manufacturers would introduce “significant discontinuity” to a wide range of statistics gathered by the government, say those involved.

There is disagreement on whether it is even viable to place factoryless goods producers in the category of domestic manufacturing. Adds one economic statistician: “If you start counting foreign-produced goods as U.S. production you could be introducing a huge misinterpretation of the manufacturing [data] series.”

Potentially a dozen major government statistical series could be impacted by the change. Industrial production, international accounts, national income product accounts, regional accounts, producer price indexes, international prices and industrial productivity are just some of the statistical series that will undergo significant discontinuity.

“For the purpose of balance of payments, goods that are manufactured overseas for U.S. companies are not going to be considered imports any more, they are going to be just U.S. production,” notes William Powers of the International Trade Commission.

Everyone got that? US industrial production will now be counted irrespective of who’s doing the work. Executives in Boston, laborers in Shanghai? They’re American. Designers in California, workers in Bangalore? Americans.

You are living in America, but you don’t need to be working for America’s economy to be thriving.

When it’s election time, the profit from Chinese factories will be used to fund advertisements for American politicians who will yell at each other about who can create the most jobs. You will be allowed to vote at the appropriate time (though you won’t be given a national holiday to make time for voting; that’s reserved for important things like Colombus Day.)

This may seem like an insignificant change that will only affect economists, but in fact it promises to be a major shift in how we score economies. Are we in a slump? Should something be done? All that requires a feedback loop from data such as GDP.

Ask yourself why this needs to be done – and who benefits?

All this is why I launched Transition Economics to begin with.

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