The government produces many of America's most important economic indicators. And that data will affect media's economic coverage.
These facts have long led partisans to fear manipulating the president's economic data. Specifically, during democratic chairs, conservatives often sought to dismiss positive economic trends by insisting on data manipulation. Last August, Donald Trump accused the Biden administration of “manipulating employment statistics,” causing unemployment to artificially drop before election day.
Such claims are always unfounded. The president may have incentives to tamper with economic data reported by the administrative department. However, they have always been constrained by respecting the independence of data collection agencies, including the Bureau of Labor Statistics and the Bureau of Economic Analysis, the fear of scandals, and the desire to provide clear and accurate information about the economic situation to the private sector.
But Trump appears to be unconventional by such constraints. His administration openly emptied the independence of agents, arguing that the president should boast a single authority over all activities in the administrative department. It also proves concerns about giving rise to the emergence of corruption (before taking office, the president established memokine that allowed interest groups to directly hone his net worth). The constantly changing threat of Trump's tariffs shows indifference to business owners about the future trajectory of the economy, but his entire history as a public figure suggests indifference to the truth.
All of this gives us the source of fear that Trump might tamper with government economic data if it becomes politically inconvenient. And over the weekend, Commerce Secretary Howard Lutnick proposed that he would do just that by changing how the government calculates gross domestic product (GDP), the total amount of goods and services produced in the economy.
“I know that the government has historically ruined GDP,” Lutnick said in an interview with Fox News on Sunday. “They count government spending as part of their GDP, so I'll separate these two and make them transparent.”
Lutnick's remarks came days after Elon Musk argued that “a more accurate measure of GDP would eliminate government spending.”
In other words, Musk believes the US government is producing unhelpable goods and services just to inflate GDP numbers.
This argument is practically unsound. It also appears to be politically motivated. Musk's comments come in response to new forecasts from the Atlanta Federal Reserve, which showed GDP would decline in the first quarter of this year. The meaning of Musk was that this predicted decline was entirely due to his exclusion of useless government activities that had distorted growth statistics.
Eliminating government spending from official GDP data is not the most corrosive form of data manipulation. Such tampering is at least transparent. Rather than creating manufactured economic statistics, the administration is simply trying to redefine existing measures. However, the administration's desire to change the content of GDP makes the threat of seemingly more secretive and destructive data manipulation more valid, due to political concerns.
The issue of Elon Musk's case against GDP
There is a specific logic behind the Trump administration's complaints about traditional estimates of GDP. Governments often aim to increase GDP growth, and public investment could mechanically increase such growth.
This dynamic is a real problem in China, where the dominant Communist Party sets explicit goals for GDP growth and fills them by building economically useless infrastructures like “ghost cities.”
Nevertheless, there are some issues with the Musk and Lutnick discussion.
Firstly, it is true that governments sometimes make bad investments, but this increases GDP without providing much economic value, which also applies to the private sector. Juicero's production contributed to GDP, but was virtually useless to consumers. And this happens on a much larger scale whenever an investor's enthusiasm for a particular asset, such as an internet company or a home, generates a larger supply of that asset than the consumer can support (such as “Dot com” in 2000 or home in 2008).
Ultimately, GDP is not intended to measure wise or socially valuable economic activity, as such metrics are subjective in nature. Perhaps it is clear for Elon Musk that government investment in highway repairs and public education is less economically valuable than his own investment in the Hyperloop. But I don't think most people find this self-evident.
It is useful to have a fair tally of all the goods and services produced in the US economy. This is true even if GDP is not correlated with other indicators of prosperity, but that is true.
Second, the US government is already creating what GDP estimates without public production. This is a measure known as the real value of private industry. Businesses and consumers have already accessed this information. There is no need to modify the GDP calculations to provide them.
Third, this does not mean that the US government is using public spending to artificially inflate GDP. As Mike Conxal, a former White House economist, points out, GDP measures that rule out public spending will show stronger growth during Joe Biden's presidency than actual GDP data.
Meanwhile, the changes in actual value generated by private industries over the longer horizon are almost completely correlated with changes in GDP. If the US government supported growth with large investments in useless infrastructure, there would be a huge gap between these two numbers.
Why the Trump administration's stupid criticism of GDP is ominous
The context of Musk and Rutnick's remarks makes them particularly troublesome.
On Friday, the Atlanta Fed's forecast for first quarter GDP growth was negative after a commerce division report showed a 0.2% decline in personal spending in January. At the time of writing, the Atlanta Fed currently forecasts GDP will fall at an annual rate of 2.8% over the first four months of the year.
Musk suggested that this obvious economic downturn was entirely attributable to his exclusion of a useless government program. Therefore, Lutnick's proposal to remove published goods and services from GDP appears to be politically motivated.
When that happens, masks are in fact completely wrong about why America's economic outlook is getting sour. According to Harvard economist Jason Furman, if Atlanta federal government strips public sector production from forecasts, GDP will pace with a 3.8% contraction this quarter. What actually drives the pessimism of the Fed model is the slower consumption and private investment. The latter is part of Trump's tariff policy.
Nonetheless, Musk thought he was proposing a change in GDP measurements that would make the Trump administration look better. And a few days later, the US Secretary of Commerce proposed that he pursue that very change.
This is an ominous development. Currently, the Trump administration does not have any particularly strong incentives to manipulate economic data. Midterm elections have been over a year and a half away. And while GDP forecasts are declining, we are not in a recession yet. In fact, some forecasters still project healthy growth over the quarter. If this White House is now trying to disrupt GDP, they are likely interested in curbing more negative inflation and employment readings in the future.
It's not easy to stop such operations. Any secret attempt to change how government statistics agencies report data will almost certainly lead to mass resignations and leaks to the press. And further attempts to redefine economic data points in politically convenient ways can achieve so much. The private sector generates a lot of economic data, and if government figures paint dramatically different from other sources, business and mainstream media could dismiss the former.
Nevertheless, further attacks on the integrity of government data will be expensive and will undermine the ability of governments, businesses and households to make informed economic decisions.
White House officials should try to understand them better, rather than planning to change economic indicators they haven't overlooked. Proposing how GDP is calculated – in reality, worsening your own economic management is not the best way to reassure the skeptical public that they know what you are doing.
