Unreal Economics - An interesting aspect of the effect of deflation on the computation of economic aggregates:
more than half of the second-quarter growth of 3.1 percent was due to defense spending. Another chunk was due to investment in computers, which soared by $38.4 billion. But the vast majority of computer investment never occurred. Given the bizarre way government statistics are compiled, nobody actually paid anything and nobody received anything. That's because Washington measures computer investment by calculating how much it would have cost in 1996 to buy a computer of equivalent power to today's machines. Of the $38.4 billion in the increased computer investment, therefore, only about $6 billion was real spending. The other $32 billion was a statistical construct, which is just a fancy way of saying it wasn't real. Without that false comfort, we would have been looking at a second-quarter growth not of 3.1 percent but of roughly 1.7 percent--and most of that attributable to defense spending.

Eventually foreigners will stop funding our excess. Meanwhile, we trick 'em with shady accounting.

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