6 ms·

Wasn't this investigated and found to be a misleading statistic? For example: https://www.bloomberg.com/opinion/articles/2018-03-12/shares-of-real-gdp-don-t-g

Wasn't this investigated and found to be a misleading statistic? For example: https://www.bloomberg.com/opinion/articles/2018-03-12/shares-of-real-gdp-don-t-give-the-real-story-of-manufacturing https://www.bloomberg.com/opinion/articles/2018-03-12/shares... The graph in this article, from BEA data, shows that when you don't apply inflation tricks, manufacturing has dropped from 28% in the 50s to 12% today. And they're still factoring in adjustments due to the "increase in quality of computers", ie, one computer today is worth some large number of 1980s computers.

jjcon 6y ago
It depends on the context - yes the number of manufacturing jobs has decreased (important in one context) but the industry at the macroeconomic level has been growing (to about keep up with everything else) Also - when did accounting for inflation become a ‘trick’? No way you can look at nominal gdp on these time frames.
- jbay808 6y ago
  Did you look at the article I linked? It's not really focused on the jobs aspect, on which the data is clear, but rather on the accounting, and in particular your graph which is always cited in these discussions. I would need to quote too long of an excerpt to make a full reply. Here's where the discussion starts though. > Real gross domestic product is GDP adjusted for inflation, which allows us to better measure and compare growth over time. If you're measuring and comparing different industries' shares of GDP over time, it's not immediately obvious why you would need to do such an inflation adjustment. The very act of dividing manufacturing's contribution to GDP in 1960 by overall GDP in 1960 does the inflation adjustment for you, given that both amounts are in 1960 dollars. > The BEA's remedy to the problem is to put up warnings against doing share-of-real-GDP calculations all over its website. It's worth reading the whole thing.
  - throwawaygh 6y ago
    Comparing manufacturing output between time periods doesn't make a lot sense. How many 1980s mainframes equals one iPhone? It's a woefully incomplete question if you goal is to reason about economic value/output. Computing is not particularly special in this respect... The manufacturing/services divide itself is a bit silly without careful attention, and I think is incredibly overplayed because "manufacturing" aligns with a bunch of other political/economic geography stuff. This is true everywhere, not just in computing where it's most obvious. Even agriculture in a lot of ways. By the time you apply all that careful attention, any sort of meaningful macro work becomes impossible. You're just doing a whole ton of little sector-by-sector analyses. And it gets worse if you start looking at the labor economics instead of just measuring output. It used to be that manufacturing-related services and the physical work of manufacturing were relatively coupled. The people working in the manufacturing plants more-or-less knew how all the equipment worked. That's not really at all the case anymore.
    - deleted 6y ago
      [deleted]
    - bonestormii_ 6y ago
      Why have we immediately reduced the conversation to the "economic" value of manufacturing? There is also a strategic geopolitical advantage to retaining domestic manufacturing, which is the most relevant part of this discussion. Jobs, the economy... there is more to life, and more to maintaining a hegemony.
      - throwawaygh 6y ago
        > There is also a strategic geopolitical advantage to retaining domestic manufacturing, which is the most relevant part of this discussion. NB: there's also a strategic geopolitical advantage to out-sourcing manufacturing. The US would be a weaker nation if we had to commit a bunch of human capital to textiles. But to answer your actual question: > Jobs, the economy... there is more to life, and more to maintaining a hegemony. You could say the same about freedom. Most people would prefer a good-paying job over global hegemony, and care about the latter only in service to the former. note: I agree there's a strategic national security/economic/sov. interest in domestic chip manufacturing, hegemony or not. But the general analysis that we should make ourselves poorer in order to be world hegemon is, to most Americans, I suspect a bit backward.
- rsj_hn 6y ago
  The problem here is these GDP measures measure value add. Let's work through an example: Scenario A: You assemble everything locally with 50% of your components from east asian component manufacturers, the rest from the domestic market. Your costs are $800 per unit. Then you spend $200 on in-house design and sell your product for $1500, for a profit of $500 per unit and a domestic value add of $700 per unit. At that price point, you sell 2/3 of a million units, adding roughly half a billion to domestic manufacturing. Scenario B: You outsource all of your assembly to China and parts from East Asian component manufacturers and only do design/QA in-house. If you pay $300 to your suppliers, spend $200 on in-house design but sell your product for $1000, you have $700 in domestic value add. Say at $1000 you sell a million units, so you've contributed a billion dollars to the manufacturing share of GDP. Now if a company switches from Scenario A to Scenario B, most people would (rightly, I believe) assume that some manufacturing has left the economy. But actually the manufacturing share of GDP has increased! However it's a very fragile increase, because a change in the terms of trade and suddenly you pay more for your foreign inputs and at that point it will appear as if manufacturing's share of GDP has fallen. There is also the issue that foreign rivals are going to be in a better position to compete against you, so long term this does not bode well for manufacturing's share of GDP. Now this is just one company, and buying from domestic suppliers also contributes to GDP. But they have the same issue -- they can outsource production leaving design/QA in house as well. So you can have a situation with high manufacturing share of GDP with nothing produced in the nation other than design/QA. So all these GDP by industry measures, at the end of the day, are measuring industry margins more than actual manufacturing per se, and really weren't designed with outsourcing in mind, and aren't intended to be used in a time series analysis during which a lot of outsourcing is happening.
  - pm90 6y ago
    Interesting. Are there better ways of measuring the contribution of manufacturing to the GDP? Or is it simply not possible by definition?
    - rsj_hn 6y ago
      I'm not in a position to say that no better way is possible, but all ways of defining economic aggregates run up against conceptual problems when you try to apply them to an actual economy, the most intractable of which is how to assign a single number to a changing mix of heterogeneous goods. The difficulties with defining "inflation" when the basket of consumer goods changes every period is well known, but you have similar difficulties with defining production if you change your inputs -- of which outsourcing is a special case. In most situations you end up using price as an aggregator, even if the price is itself normalized by a scaling factor. That means if you shut down a factory today and have your goods produced cheaply overseas except for a few small finishing steps here, it will be the relative prices of the inputs that determine how much of the good was produced here versus how much was produced overseas, and this wont generally reflect the "real" amount produced here versus overseas as viewed by a layman. In fact, if a producer couldn't outsource cheaply, they probably wouldn't do it, so there will be a consistent gap in terms of what the laymen sees and what the BEA data will show. And note this also creates the appearance of a productivity boost. Imagine Apple firing all their manufacturing employees and employing only a few designers. Now, they can produce a lot of value with only a few cost inputs, hence productivity just went up. Of course, the designers may not be more productive in terms of creating more designs or better designs, but as Apple is able to capture a large share of the total value, then it will be attributed to the super productivity of the designers, which may have more to do with politics in East Asia choosing an export led growth model than anything to do with the iPhone. And it gets more complicated because the NIPA system doesn't take into account the possibility of economic rents. E.g. going back to the Apple example, if Apple can charge $1000 for the phone, with only $300 of inputs, then this $700 worth of "value added" must be attributable to some portion of labor and capital. If the designers are paid $200 then capital is paid $500. In NIPA parlance, that means $500 worth of capital investment (and or depreciation) must have occurred somewhere in the economy, which again to the layman would require unrealistic measurements of investment. There is no NIPA notion of someone overpaying. And then don't get me started on how corporate shell companies headquartered in tax shelters like the Bahamas or Ireland screw with GDP numbers, especially of the smaller nations that serve as tax shelters, but also with US productivity and investment data.
- brigade 6y ago
  Especially in the context of Intel using overseas fabs, the dire bit of that article is > a lot of the manufacturing output growth since the mid-1980s, when the BEA started factoring quality improvements in computers into its measures of real output, has been driven by the rising quality of computers and electronic products, not by increases in actual, you know, output. i.e. one Intel chip produced today is considered to be thousands of times more output than one Intel chip produced in the 80s, because it's thousands of times faster.
  - throwawaygh 6y ago
    > i.e. one Intel chip produced today is considered to be thousands of times more output than one Intel chip produced in the 80s, because it's thousands of times faster. This point is a bit of a rorschach... is that an over-estimation or an under-estimation? Sounds like a massive under-estimation to me, in the same sort of qualitative way that it's silly to try to quantify the economic effect of the internal combustion engine in terms of horses displaced... it's measuring something kinda relevant but totally missing a qualitative shift that unlocked impossible-to-quantify economic activity (for better or worse is up to us).
    - _jal 6y ago
      Sure, but remember where we started - an argument about whether there is more or less domestic manufacturing than in the past or not. Increasing the performance of the product does not mean more manufacturing is going on - that mistakes value for output.
      - throwawaygh 6y ago
        > that mistakes value for output. Yes, exactly. My point is that I wouldn't call measuring actual value instead of a pretty meaningless "output" metric a "mistake". The original point of the pre-existing "output" metric was to approximate actual value creation, after all...
        jbay808 6y ago
rayiner 6y ago
Thanks! Bloomberg has become one of my favorite sources for real news.
- fiddlerwoaroof 6y ago
  Like spy chips on supermicro motherboards? After that story, they’ve lost a good deal of credibility.
  - perl4ever 6y ago
    I wonder if someone planted that story just to provide something for people to complain about.
    - _jal 6y ago
      Bloomberg could choose to start earning back some trust at their leisure by retracting the article. They haven't; they still stand by it. Since they consider the rest of their output just as trustworthy as that article, I'll take them at their word.
      - dx034 6y ago
        The FT was under intense pressure for years to retract their stories about Wirecard. Journalists even got sued by the German regulator. And most disagreed with FT enough that stock prices remained high for years. They never retracted a single article and trusted their sources and journalists more than the public. In the end they turned out to be right but it took more than 5 years since the first article. I believe we should consider that Bloomberg could fall into a similar category.
  - jryle70 6y ago
    I find it hard to believe that such a well informed crowd with health dose of skepticism as HN can be outright dismissal of that article just because no evidence has been revealed, and because experts have dismissed the story so far. A favorite story on HN, this listening device was not detected for seven years, despite experts extensively looking for it [0] [0] - https://en.wikipedia.org/wiki/The_Thing_(listening_device) https://en.wikipedia.org/wiki/The_Thing_(listening_device) As a side note, we tend to judge an article if it goes against our belief, but are willing to give it a pass otherwise. Case in point, plenty of Bloomberg's articles about Boeing or climate change being discussed but don't think I've seen anyone questioning their premise or evidence. I'm guilty of this as well.

jjcon 6y ago

It depends on the context - yes the number of manufacturing jobs has decreased (important in one context) but the industry at the macroeconomic level has been growing (to about keep up with everything else) Also - when did accounting for inflation become a ‘trick’? No way you can look at nominal gdp on these time frames.

jbay808 6y ago
Did you look at the article I linked? It's not really focused on the jobs aspect, on which the data is clear, but rather on the accounting, and in particular your graph which is always cited in these discussions. I would need to quote too long of an excerpt to make a full reply. Here's where the discussion starts though. > Real gross domestic product is GDP adjusted for inflation, which allows us to better measure and compare growth over time. If you're measuring and comparing different industries' shares of GDP over time, it's not immediately obvious why you would need to do such an inflation adjustment. The very act of dividing manufacturing's contribution to GDP in 1960 by overall GDP in 1960 does the inflation adjustment for you, given that both amounts are in 1960 dollars. > The BEA's remedy to the problem is to put up warnings against doing share-of-real-GDP calculations all over its website. It's worth reading the whole thing.
- throwawaygh 6y ago
  Comparing manufacturing output between time periods doesn't make a lot sense. How many 1980s mainframes equals one iPhone? It's a woefully incomplete question if you goal is to reason about economic value/output. Computing is not particularly special in this respect... The manufacturing/services divide itself is a bit silly without careful attention, and I think is incredibly overplayed because "manufacturing" aligns with a bunch of other political/economic geography stuff. This is true everywhere, not just in computing where it's most obvious. Even agriculture in a lot of ways. By the time you apply all that careful attention, any sort of meaningful macro work becomes impossible. You're just doing a whole ton of little sector-by-sector analyses. And it gets worse if you start looking at the labor economics instead of just measuring output. It used to be that manufacturing-related services and the physical work of manufacturing were relatively coupled. The people working in the manufacturing plants more-or-less knew how all the equipment worked. That's not really at all the case anymore.
  - deleted 6y ago
    [deleted]
  - bonestormii_ 6y ago
    Why have we immediately reduced the conversation to the "economic" value of manufacturing? There is also a strategic geopolitical advantage to retaining domestic manufacturing, which is the most relevant part of this discussion. Jobs, the economy... there is more to life, and more to maintaining a hegemony.
    - throwawaygh 6y ago
      > There is also a strategic geopolitical advantage to retaining domestic manufacturing, which is the most relevant part of this discussion. NB: there's also a strategic geopolitical advantage to out-sourcing manufacturing. The US would be a weaker nation if we had to commit a bunch of human capital to textiles. But to answer your actual question: > Jobs, the economy... there is more to life, and more to maintaining a hegemony. You could say the same about freedom. Most people would prefer a good-paying job over global hegemony, and care about the latter only in service to the former. note: I agree there's a strategic national security/economic/sov. interest in domestic chip manufacturing, hegemony or not. But the general analysis that we should make ourselves poorer in order to be world hegemon is, to most Americans, I suspect a bit backward.
rsj_hn 6y ago
The problem here is these GDP measures measure value add. Let's work through an example: Scenario A: You assemble everything locally with 50% of your components from east asian component manufacturers, the rest from the domestic market. Your costs are $800 per unit. Then you spend $200 on in-house design and sell your product for $1500, for a profit of $500 per unit and a domestic value add of $700 per unit. At that price point, you sell 2/3 of a million units, adding roughly half a billion to domestic manufacturing. Scenario B: You outsource all of your assembly to China and parts from East Asian component manufacturers and only do design/QA in-house. If you pay $300 to your suppliers, spend $200 on in-house design but sell your product for $1000, you have $700 in domestic value add. Say at $1000 you sell a million units, so you've contributed a billion dollars to the manufacturing share of GDP. Now if a company switches from Scenario A to Scenario B, most people would (rightly, I believe) assume that some manufacturing has left the economy. But actually the manufacturing share of GDP has increased! However it's a very fragile increase, because a change in the terms of trade and suddenly you pay more for your foreign inputs and at that point it will appear as if manufacturing's share of GDP has fallen. There is also the issue that foreign rivals are going to be in a better position to compete against you, so long term this does not bode well for manufacturing's share of GDP. Now this is just one company, and buying from domestic suppliers also contributes to GDP. But they have the same issue -- they can outsource production leaving design/QA in house as well. So you can have a situation with high manufacturing share of GDP with nothing produced in the nation other than design/QA. So all these GDP by industry measures, at the end of the day, are measuring industry margins more than actual manufacturing per se, and really weren't designed with outsourcing in mind, and aren't intended to be used in a time series analysis during which a lot of outsourcing is happening.
- pm90 6y ago
  Interesting. Are there better ways of measuring the contribution of manufacturing to the GDP? Or is it simply not possible by definition?
  - rsj_hn 6y ago
    I'm not in a position to say that no better way is possible, but all ways of defining economic aggregates run up against conceptual problems when you try to apply them to an actual economy, the most intractable of which is how to assign a single number to a changing mix of heterogeneous goods. The difficulties with defining "inflation" when the basket of consumer goods changes every period is well known, but you have similar difficulties with defining production if you change your inputs -- of which outsourcing is a special case. In most situations you end up using price as an aggregator, even if the price is itself normalized by a scaling factor. That means if you shut down a factory today and have your goods produced cheaply overseas except for a few small finishing steps here, it will be the relative prices of the inputs that determine how much of the good was produced here versus how much was produced overseas, and this wont generally reflect the "real" amount produced here versus overseas as viewed by a layman. In fact, if a producer couldn't outsource cheaply, they probably wouldn't do it, so there will be a consistent gap in terms of what the laymen sees and what the BEA data will show. And note this also creates the appearance of a productivity boost. Imagine Apple firing all their manufacturing employees and employing only a few designers. Now, they can produce a lot of value with only a few cost inputs, hence productivity just went up. Of course, the designers may not be more productive in terms of creating more designs or better designs, but as Apple is able to capture a large share of the total value, then it will be attributed to the super productivity of the designers, which may have more to do with politics in East Asia choosing an export led growth model than anything to do with the iPhone. And it gets more complicated because the NIPA system doesn't take into account the possibility of economic rents. E.g. going back to the Apple example, if Apple can charge $1000 for the phone, with only $300 of inputs, then this $700 worth of "value added" must be attributable to some portion of labor and capital. If the designers are paid $200 then capital is paid $500. In NIPA parlance, that means $500 worth of capital investment (and or depreciation) must have occurred somewhere in the economy, which again to the layman would require unrealistic measurements of investment. There is no NIPA notion of someone overpaying. And then don't get me started on how corporate shell companies headquartered in tax shelters like the Bahamas or Ireland screw with GDP numbers, especially of the smaller nations that serve as tax shelters, but also with US productivity and investment data.
brigade 6y ago
Especially in the context of Intel using overseas fabs, the dire bit of that article is > a lot of the manufacturing output growth since the mid-1980s, when the BEA started factoring quality improvements in computers into its measures of real output, has been driven by the rising quality of computers and electronic products, not by increases in actual, you know, output. i.e. one Intel chip produced today is considered to be thousands of times more output than one Intel chip produced in the 80s, because it's thousands of times faster.
- throwawaygh 6y ago
  > i.e. one Intel chip produced today is considered to be thousands of times more output than one Intel chip produced in the 80s, because it's thousands of times faster. This point is a bit of a rorschach... is that an over-estimation or an under-estimation? Sounds like a massive under-estimation to me, in the same sort of qualitative way that it's silly to try to quantify the economic effect of the internal combustion engine in terms of horses displaced... it's measuring something kinda relevant but totally missing a qualitative shift that unlocked impossible-to-quantify economic activity (for better or worse is up to us).
  - _jal 6y ago
    Sure, but remember where we started - an argument about whether there is more or less domestic manufacturing than in the past or not. Increasing the performance of the product does not mean more manufacturing is going on - that mistakes value for output.
    - throwawaygh 6y ago
      > that mistakes value for output. Yes, exactly. My point is that I wouldn't call measuring actual value instead of a pretty meaningless "output" metric a "mistake". The original point of the pre-existing "output" metric was to approximate actual value creation, after all...
      - jbay808 6y ago

rayiner 6y ago

Thanks! Bloomberg has become one of my favorite sources for real news.

fiddlerwoaroof 6y ago
Like spy chips on supermicro motherboards? After that story, they’ve lost a good deal of credibility.
- perl4ever 6y ago
  I wonder if someone planted that story just to provide something for people to complain about.
  - _jal 6y ago
    Bloomberg could choose to start earning back some trust at their leisure by retracting the article. They haven't; they still stand by it. Since they consider the rest of their output just as trustworthy as that article, I'll take them at their word.
    - dx034 6y ago
      The FT was under intense pressure for years to retract their stories about Wirecard. Journalists even got sued by the German regulator. And most disagreed with FT enough that stock prices remained high for years. They never retracted a single article and trusted their sources and journalists more than the public. In the end they turned out to be right but it took more than 5 years since the first article. I believe we should consider that Bloomberg could fall into a similar category.
- jryle70 6y ago
  I find it hard to believe that such a well informed crowd with health dose of skepticism as HN can be outright dismissal of that article just because no evidence has been revealed, and because experts have dismissed the story so far. A favorite story on HN, this listening device was not detected for seven years, despite experts extensively looking for it [0] [0] - https://en.wikipedia.org/wiki/The_Thing_(listening_device) https://en.wikipedia.org/wiki/The_Thing_(listening_device) As a side note, we tend to judge an article if it goes against our belief, but are willing to give it a pass otherwise. Case in point, plenty of Bloomberg's articles about Boeing or climate change being discussed but don't think I've seen anyone questioning their premise or evidence. I'm guilty of this as well.