Thursday, September 3, 2015


The formula for "real" GDP taught in schools:

nominal GDP ÷ base year GDP × 100

This yields "real" GDP in what was called "constant dollars." Supposedly, this "real" GDP is a measure goods and services of the current year deflated to the prices of a base year GDP. Base year GDP is merely the nominal GDP of the year chosen to be the base.

You can watch Sal from the Khan Academy teach the difference between nominal and "real" GDP on YouTube and then you can watch Sal teach the Constant Dollar method to calculate supposedly "real" GDP also on YouTube.

Under logical scrutiny, the concept gets exposed as mere hokum, bunko. Think about it. The base year GDP is inflated by whatever the inflation was for that year.

Before 1996, the BEA used the school method. From 1996, the U.S. Department of Commerce has used the chained-dollar method (see: BEA's Chain Indexes, Time Series, and Measures of Long-Term Economic Growth).

The BEA method for real GDP, though complicated, is hardly much different that school-method GDP. The new method uses the average of two successive periods of GDP. So year two of a chained-dollar average becomes the year one of the next chained-dollar average. The minions at the BEA believe this removes distortion that any year might cause owing to changes in composition of goods and services.

The math looks something like this:

"real" GDP = nominal GDP ÷ implicit price deflator

where the implicit price deflator = (current-dollar ÷ chained-dollar) × 100

and a chained-dollar = base period current-dollar measure × (chained-type quantity index number current period - chained-type quantity index number base period)

Anyway, chained-dollar "real" GDP is still as bogus as the chain consists of an averaged succession of already inflated GDP as the basis to deflate current dollar GDP.

Could you measure a length of a distance with a ruler that changes in size the farther you go? That is what academicians and the minions at the BEA claim you can do with their bogus method.

And today, that academician economists can't see this plain truth reveals how stupid they are, how weak their intellects are, how indoctrinated they are. Worse are the millions of idiot-like parroters who parrot the false belief of "real" GDP when they report on it.

Men were much smarter about money and banking from the years of the late 1870s through the 1920s. One such man was Edwin Walter Kemmerer who was known as "the money doctor." This is what Kemmerer had to say about inflation:


Kemmerer goes on to say:

Anyway, there is a method to deflate away inflation, which uses a metaphorical measuring stick kept at a constant length. That method is my method — the True Dollars™ method. It is the only real, true, legitimate method.

Both the constant-dollar method or the chained-dollar method rely on prices. Prices are an effect and not a cause. It's impossible for an effect to be its own cause.

It's impossible to deflate prices with past inflated prices.

Economists are idiots to believe otherwise. And guess what? They believe otherwise.

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