Friday, August 24, 2007

Backdoor Economics

I was always interested in the different ways by which economists check the growth of an economy. Traditionally you measure it by calculating GDP, however accounting errors or erroneous assumptions can result in inaccurate measurements. Or in the case of China, political pressure to "make" GDP growth a certain number. But by measuring other things you can check the "official" GDP figures to see if they're legit.

For example, Alan Greenspan (if I recall correctly) liked to look at rail road ties and repairs and the more the economy grew, the more goods were being produced and thus the railways of our nation were further worn.

But another simple, but ingenious way of going about checking economic growth figures is electricity usage. This should be in direct relation to GDP.



Originally I had misread the chart as I assumed electric useage was falling behin GDP growth, but then Zephyr pointed out to me that there are two scales and that electric use has actually EXCEEDED official GDP reports. GDP is growing around 11-12% while electric use has been between 12-16%.

China may be growing even faster than you previously thought.

12 comments:

Able Archer said...

Ahhh, the classic case of different scales on the y axis. Look carefully, and their GDP numbers seem conservative. Unless they are exporting electricity (doubtful!).

zephyr said...

I concur with the use of "backdoor" measures, and electricity is a good one (one that I have used for three decades).

However, I am perplexed by your conclusion on China. Perhaps I am not reading the chart correctly. It shows GDP growth of 10 to 12% in recent years, while electricity use has been growing at a rate of close to 16% in the same years. So it seems that official GDP growth rate is LESS than the growth rate for electric usage. This implies that China's GDP is growing FASTER than reported.

The chart is misleading in that the electricity growth rate is shown with a different scale. The two measures should be shown with a common, equal scale, to avoid giving a misleading visual. The blue line for the electricity growth rate would be above the GDP growth rate line if the scales for each were the same.

Captain Capitalism said...

Oh gosh, look at that. Sorry, my bad, you're right, it is a separate scale.

I shall revise.

Thanks!

Johnny Roosh said...

I think the Chinese are just using their hairdryers more.

Anonymous said...

As far as I know, electricity growth and GDP growth are correlated by a factor less than 1, meaning that 10% electricity growth result in e.g. 6% GDP growth. I have read an article which said that Japan was the most efficient country with a factor of 0.6. However, I can't remember where I have read this, so I can give you no proof.

Anonymous said...

Just take a look at a truckstop. The more trucks parked there or looking for a place to park, means goods are moving.

Less trucks? Less goods in transit.

Everything you have comes by truck.

Anonymous said...

This is why Tables are superior to graphs. You don't have these problems then.

NUMBER IS ALL!

zephyr said...

It is important to remember that data coming from China is highly suspect.

I do not believe the GDP or electricity numbers. My bet is that both are overstated.

GDP usually grows slower than electricity, as the economy makes increasing use of electrical technology, and proportionately less use of manual labor and simple energy applications.

Coincidently, there was an article in the Sunday NY Times on China's GDP growth, suggesting that the official GDP growth data is political fabrication more than reality, and that the ratio of GDP growth to electricity growth should be less than 50%. So 16% electricity growth (if true) might imply about 8% GDP growth.

Anonymous said...

Now I remember the article. It's the one from the NY Times, as Zephyr already said.

It definitely sounds reasonable that GDP grows less than electricity usage and statistics seem to support this case.

AG said...

Electricity growth is heavily related to GPD based on manuafacture and heavy industrial economy. A service oriented or information aged economy will not have such correlation. Such example like Hawaii or some tourist based economy. People need to think differently in today's information aged economy which is post-industrial.

AG said...

In information based economy, newer and better computer often burn less energy than first generation vacuum tube based computer. But productivity is actually increased with less energy use. Old model is questionable.

Jay Currie said...

Not long ago a chap with the wonderful name Yukon Chan - who is think tank guy in China - noted that China's energy inputs are 7 times those of the US per unit of production.

Which does not invalidate the point here but rather gives on pause as to what the co-relation co-efficient should be.