The Ratio of GDI to GDP

Is at record highs (at least back to 1947, using latest available data).

Figure 1: Ratio of GDI to GDP (blue), and ratio of GDI to GDP in Q2 assuming real GDI constant in Q2 (light blue square). NBER defined peak-to-trough recession dates shaded gray. Red arrow denotes data to be revised in annual revision, Sept 29, 2022. Source: BEA, NBER and author’s calculations. 

Remember, GDI and GDP are supposed to measure the same object. The fact that GDI is so high relative to GDP suggests to me (following Furman (2016)) that GDP will eventually be revised up.

58 thoughts on “The Ratio of GDI to GDP”

    1. pgl

      “Government Spending in the United States decreased to 3318.33 USD Billion in the second quarter of 2022 from 3334.31 USD Billion in the first quarter of 2022.”

      You and Trading Economics are talking about government expenditures (purchases plus transfer payments) in nominal terms.

      BEA’s figures are not only in real terms but are limited to purchases (excluding transfer payments).

      Not insignificant differences. I would have hoped you would know you were mixing apples and oranges but maybe you don’t.

    2. Macroduck

      Hit the 10 year or 25 year periods and see how different the rate of change in the forecast is from historical behavior. That forecast, even if generally correct (we don’t have evidence of forecast accuracy) is likely to smoothed out in reality.

      Other forecasts anticipate spending in 2022 and 2023 to be well below that in 2021, contrary to the Trading Economics forecast. For instance:

      https://www.statista.com/statistics/217571/state-outlays-and-forecast-in-the-us/

      1. pgl

        This is Federal only (excluding state and local) and it is in nominal terms. Which makes that flat lining of Federal outlays starting in 2010 so appalling.

        Also note outlays includes transfer payments and is not the same thing as purchases. Now I know you get this but something tells me Brucie boy does not.

    2. pgl

      Excuse but our host has told us these series are noisy. Try reading the Furman paper which he linked to.

  3. pgl

    The fact that GDI is so high relative to GDP suggests to me (following Furman (2016)) that GDP will eventually be revised up.

    Get ready for it. Princeton Steve will scream this is changing the refs. After all – he has to be the winner no matter what.

  4. ltr

    https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&select_all_years=0&nipa_table_list=5&series=q&1=5&2=2007&3=2018&4=q&5=x&first_year=2020&6=0&7=survey&last_year=2022&scale=-9

    July 28, 2022

    Defense spending was 58.6% of federal government consumption and investment in April through June 2022. *

    $925.1 / $1,578.2 = 58.6%

    Defense spending was 21.5% of all government consumption and investment in April through June 2022.

    $925.1 / $4,295.9 = 21.5%

    Defense spending was 3.7% of GDP in April through June 2022.

    $925.1 / $24,851.8 = 3.7%

    * Billions of dollars

    [ Government spending, both federal, state and local and federal spending alone increased in the 2nd quarter. The spending increase was for defense. ]

  5. pgl

    https://abcnews.go.com/Politics/wireStory/sen-graham-challenges-2020-georgia-election-probe-subpoena-87749000

    ATLANTA — As promised, U.S. Sen. Lindsey Graham has challenged a subpoena to testify before a special grand jury that’s investigating whether then-President Donald Trump and others broke any laws when they tried to overturn Joe Biden’s win in Georgia. Graham, a Republican from South Carolina, received a subpoena that was issued on July 26 and orders him to appear before the special grand jury to testify on Aug. 23, his lawyers said in a court filing. Graham has challenged the subpoena in federal court rather than before the Fulton County Superior Court judge who’s overseeing the special grand jury. The senator is one of the Trump allies who Fulton County District Attorney Fani Willis wants to question as part of her investigation into what she alleges was “a multi-state, coordinated plan by the Trump Campaign to influence the results of the November 2020 election in Georgia and elsewhere.”

    Federal and not the state courts carrying out this investigation? So much for state rights.

    Of course Lindsey “rule of law” Graham thinks he and Trump are above the law. After all Graham did not commit adultery after all and treason is AOK if done by a Republican.

  6. Daniel

    Why does it suggest GDP will be revised up a lot rather than that GDI will be revised down a lot?
    Is GDI measured more accurately than GDP? If so, why do some economists recommend an equal-weight combination of the two compared to putting higher weight on GDI?

    This paper suggests that to the contrary, GDP deserves higher weight (though obviously “this time is different” may apply): https://www.bea.gov/system/files/papers/WP2011-8.pdf

    Would love your thoughts. Thanks.

    1. ltr

      https://www.bea.gov/system/files/papers/WP2011-8.pdf

      February 7, 2011

      Is GDP or GDI a better measure of output? A statistical approach.
      By Ryan Greenaway-McGrevy

      Abstract

      Gross domestic product (GDP) and gross domestic income (GDI) are in theory estimates of the same concept, namely economic production over a defined span of time and space. Yet the two measures are compiled using different source data, and the two measures often give different indications of the direction of the economy. This raises the issue of which of the two measures is a more accurate estimate of economic production. In this paper we present a time-series statistical framework for addressing this issue. Our findings indicate that the latest vintage of GDP has been a better measure of true output over the 1983-2009 period than the latest vintage of GDI. Our model also implies an optimal weighting of GDP and GDI can yield a more accurate estimate of economic output than either GDP or GDI alone. Our empirical findings indicate that a weighting of approximately 60% to GDP yields the best estimate for the 1983-2009 period. When we consider vintages of estimated output, we find that GDI often contains additional information to GDP regarding true output.

    3. pgl

      Interesting paper:

      Our empirical findings indicate that a weighting of approximately 60% to GDP yields the best estimate for the 1983-2009 period. When we consider vintages of estimated output, we find that GDI often contains additional information to GDP regarding true output.

      This says we should consider both with a somewhat higher weight for GDP. This is not inconsistent with what Dr. Chinn has been saying.

      Note also this was published 11 years ago covering the 1983-2009 period. Maybe Dr. Chinn has something more recent.

      1. pgl

        Thanks for this 2016 paper. With all that has happened since then – maybe the authors are thinking of an update.

      2. Daniel

        Thank you Menzie and Macroduck for the 2016 papers. Looks like the 2011 paper could have had an identification problem.

    6. Anonymous coward

      It would suggest *both* right? Unless GDI (or GDP) utterly sucks, it would suggest that the ‘true’ value of ‘the economy’ is somewhat in between, right?

  7. pgl

    I missed Morning Joe”s trashing of Donald Trump this morning:

    https://www.msn.com/en-us/sports/more-sports/morning-joe-slams-trump-as-heinous-human-being-for-trashing-brittney-griner-s

    “She knew you don’t go in there loaded up with drugs, and she admitted it,” Trump said last week. “I assume she admitted it without too much force because it is what it is, and it certainly doesn’t seem like a very good trade, does it? He’s absolutely one of the worst in the world, and he’s gonna be given his freedom because a potentially spoiled person goes into Russia loaded up with drugs.” “She went in there loaded up with drugs into a hostile territory where they’re very vigilant about drugs,” the ex-president added.”They don’t like drugs and she got caught, and now we’re supposed to get her out — and she makes, you know, a lot of money, I guess. We’re supposed to get her out for an absolute killer and one of the biggest arms dealers in the world — killed many Americans, killed many people.”

    Wow – Trump is a Putin poodle much like JohnH. Britney was not loaded up with drugs. And she was in Russia playing basketball because the WNBA does not pay their athletes that much. So Trump is lying as usual. But taking the side of Putin on the Britney issue is beyond disgusting. Yea we are giving up a thug but Putin and his pigs have given us little alternatives. But can Trump condemn Putin? Of course not.

    1. Noneconomist

      DJT would have preferred she do what many Russians do instead of “drugs”: drink plenty of vodka and smoke lots of cigarettes. The healthier alternatives!

    2. Ivan

      Let’s not forget that Griner is black and female, whereas Putin is white and male. No surprise that Trump couldn’t wait to jump in with team Russia.

  8. ltr

    https://news.cgtn.com/news/2022-08-01/Chinese-mainland-records-84-new-confirmed-COVID-19-cases-1c8s9oB2PUA/index.html

    August 1, 2022

    Chinese mainland records 84 new confirmed COVID-19 cases

    The Chinese mainland recorded 84 confirmed COVID-19 cases on Sunday, with 33 attributed to local transmissions and 51 from overseas, data from the National Health Commission showed on Monday.

    A total of 309 asymptomatic cases were also recorded on Sunday, and 6,875 asymptomatic patients remain under medical observation.

    The cumulative number of confirmed cases on the Chinese mainland is 229,594, with the death toll from COVID-19 standing at 5,226.

    Chinese mainland new locally transmitted cases

    https://news.cgtn.com/news/2022-08-01/Chinese-mainland-records-84-new-confirmed-COVID-19-cases-1c8s9oB2PUA/img/68a8fe1e0f934c6f87ea48830abb63c0/68a8fe1e0f934c6f87ea48830abb63c0.jpeg

    Chinese mainland new imported cases

    https://news.cgtn.com/news/2022-08-01/Chinese-mainland-records-84-new-confirmed-COVID-19-cases-1c8s9oB2PUA/img/41057416e0b04736aac3133110b5be05/41057416e0b04736aac3133110b5be05.jpeg

    Chinese mainland new asymptomatic cases

    https://news.cgtn.com/news/2022-08-01/Chinese-mainland-records-84-new-confirmed-COVID-19-cases-1c8s9oB2PUA/img/d02129e2a2464f3ab07049ccc8f63564/d02129e2a2464f3ab07049ccc8f63564.jpeg

    1. pgl

      Brucie gets to quote someone without taking a stand. Of course if Bruce got macroeconomics and had an ounce of integrity, he might asl Nathan Sheets whether having an unemployment of only 3.6% terrible economic performance. Yea growth has temporarily slowed which one would hope given the incredibly strong economy so inflation can taper. Nightmare? PLEASE!

      I guess this is why I never bank at Citibank. Besides they gave NYC some of the worst bikes I ever seen.

    1. Ivan

      Even better might be a kinetic energy storage system that lifted a whole mountain to store energy.

      1. CoRev

        Water battery, rising mountains or any other method storing electricity always takes electricity to operate. Unless they take less than they store they will always be parasitic on the existing grid. It’s almost guaranteed each of these methods are negatively efficient. Also worse than being parasitic they don’t even solve the unneeded problem of solving renewable intermittency. Unneeded without the implementation of this free electricity from renewables.

        I can’t say this often enough, adding renewables sources to a grid always adds costs to the grid.

        1. baffling

          corev, your comment is complete rubbish. obviously you failed physics, even you even took the class at all.

          I don’t understand your hostility here. what is so wrong with having a renewable that produces cheap energy, and then stores it in a battery (or some other equivalent energy storage system) for use when you need the electricity? is that concept so outlandish, to store power and distribute it when it is needed? because natural gas is simply a store of energy that is transported to where it is needed, and then turned into electricity on demand. in principle it operates the same way as a renewable power system. the only difference is the natural gas has more of a carbon footprint, which is a high cost you completely disregard.

          1. CoRev

            Baffled, asks, “what is so wrong with having a renewable that produces cheap energy, and then stores it in a battery (or some other equivalent energy storage system) for use when you need the electricity?” The issues are CHEAP, and using a battery is only needed to compensate for when the cheap energy slows or stops.

            It is not only stupid to add costs to the grid, by unneeded cheap energy, but more so to add a solution to only partially resolve the weakness of that unneeded cheap energy.

            Your misunderstanding is that renewables do not replace existing thermal sources on a grid. They augment them, but in augmenting they add unneeded costs to the grid. To get them added you and your fellow travelers lie about their costs, cheap energy source, but the full costs to implement and co-exist on the grid are never FULLY included.

            Stop the subsidies. Do a FCOE evaluation, including the cost of their added unreliability and it solutions to the grid, and then get back to me about cheap renewables.

          2. pgl

            “I don’t understand your hostility here”. He is paid by the Koch Brothers to lie 24/7. After all he is too incompetent to have another job.

          3. baffling

            corev, we going down the path where the production of renewables as well as the deployment of batteries is still going to be cheaper than fossil fuels. production is already cheaper. and battery development will be there soon. again, i simply do not understand the animosity. we build the wind turbines today, because they are cheap. tomorrow, we build the battery because it will then be cheap. cheap batteries are no longer an issue of if, but when. and that time is coming soon. in 10 years time, a natural gas plant will be obsolete compared to the renewable systems. that is why people are not rushing to build new thermal power plants. their shelf life is going to be extremely short, as they will soon be uncompetitive.
            corev, i understand you cannot see the long term view, because you are old and will die soon. but the rest of us have decades left, and we need to invest in infrastructure that will be of value years down the line. investing in thermal plants is simply a poor use of capital in the long run.

        2. pgl

          “I can’t say this often enough, adding renewables sources to a grid always adds costs to the grid.”

          You can repeat your lies all you want. Documentation that includes the social externality costs? Hello? Oh that’s right you deny negative externalities as you claim there are positive externalities. You do excel in disinformation after all.

          1. baffling

            in january of 2020, prior to covid, natural gas started the year at 2.20. today it is at 8.03. that is a 260% increase in the cost of natural gas over a 2.5 year period. corev, you are advocating for an electricity source that has increased cost 3.6 times in 2.5 years, and you have the audacity to argue that renewables increase cost? you have no credibility here, ghostbuster.

          2. CoRev

            Barking Bierka – the Disgusting NYC Jerk claims: “Oh that’s right you deny negative externalities as you claim there are positive externalities. ” Actually do not deny negative externalities, but you do deny positive externalities or benefits of fossil fuels.

            Two renewables negative externalities are:
            1) Unreliable output
            2) The need for backup to solve the unreliability.

            Or you could rewrite those negative renewables externalities into positive fossil fuel externalities. Or you could add a whole long, long list of positive fossil fuel-based benefits/externalities.

          3. Menzie Chinn Post author

            CoRev: Not sure those are externalities. Externalities are the costs or benefits not borne (or not completely borne) by the private agents. Now, if you are saying these are drawbacks associated with some types of renewables, then sure. But not clear to me the costs or benefits are not borne entirely by private agents.

          4. baffling

            notice corev has nothing to say when it is noted his preferred electricity generating fuel is up 260% in less than 3 years. what fool would recommend increasing the use of a fuel that has tripled in price in less than three years. do you think natural gas will get cheaper with more demand? everybody knows this will not end well.

    3. pgl

      “Switzerland has unveiled its latest renewable energy innovation: a giant water battery. Beginning operations last month, the water battery, called Nant de Drance, is a pumped storage hydropower plant that provides the same energy storage capacity as 400,000 electric car batteries. Located high in the Swiss Alps in the canton of Valais, the plant is equipped with agile, reversible turbines that offer new levels of flexibility, says Robert Gleitz, a delegate of the board of directors of Nant de Drance: with the flick of a switch, the plant can go from storing energy to providing electricity.”

      Sounds awesome. Of course expect a lot of barking from that mad dog chasing its own tail (CoRev).

      1. pgl

        Gee Brucie – I get why you would want to have CoRev’s back as he backs you even when you post utter stupidity. But come on dude – a story from 7 months ago? Dude – try to keep up with the conversation.

        1. CoRev

          Bwahaha, a 7 months old story about wind slowing/stopping. Barking Bierka – then Disgusting NYC Jerk, must think it won’t happen again and even more importantly it hasn’t happened in the interim. BTW was wind intermittency a grid problem before the addition of wind turbines to the grid? So are you solving a renewables problem that wasn’t needed before their addition to the grid?

          1. pgl

            You must have eaten some strange and dangerous mushrooms. A new technology that addresses an age old problem. Go ahead and madly bark as you chase your own tail. The kids in the neighborhood are either laughing at you or asking their dads to finally put you down.

      2. pgl

        Bruce – did you read this sentence from Ivan’s link?

        “Pumped storage hydropower plants, which have been around for over a century, are particularly important for renewable energy because wind and solar rely heavily on the weather and don’t provide a consistent power supply.”

        You find some story that notes wind power has ups and downs. Are you too stupid to realize that it is precisely why this new idea is so important? Come on dude – is it beyond expectations for you to THINK? Damn!

        1. CoRev

          Bark bark bow wow, it’s not weather its climate, and the change is detrimental to renewables. 😉 and /sarc

      3. baffling

        “That is an ingenious idea except under these conditions when there is a lack of excess power.”
        bruce, did you even read your linked article. the Swiss water battery is an ingenious idea EXACTLY when there is a lack of excess power. stop trolling, it makes you look like an idiot. your comment was simply stooopid.

  12. pgl

    Brucie gets to quote someone without taking a stand. Of course if Bruce got macroeconomics and had an ounce of integrity, he might asl Nathan Sheets whether having an unemployment of only 3.6% terrible economic performance. Yea growth has temporarily slowed which one would hope given the incredibly strong economy so inflation can taper. Nightmare? PLEASE!

    I guess this is why I never bank at Citibank. Besides they gave NYC some of the worst bikes I ever seen.

  13. ltr

    https://news.cgtn.com/news/2022-05-26/China-builds-largest-pumped-storage-power-plant-in-Israel-1alRBy5ybte/index.html

    May 26, 2022

    Chinese-built lowest-altitude power plant in Israel enters final construction stage

    A large-scale pumped storage power plant in northeastern Israel reached the final stage of construction on Wednesday, as a 200-ton rotor, crucial to turning water into electricity, was smoothly installed on a generating unit.

    The 344-MW Kokhav Hayarden pumped storage hydropower plant, located near the city of Beit She’an and some 120 km away from Tel Aviv, is expected to be operational in early 2023.

    The project is the largest of its kind in Israel, as well as the lowest of its kind in the world, as its powerhouse lies 275 meters below sea level, according to building contractor Power Construction Corporation of China (PCCC).

    Featuring two reservoirs at different heights, both with 3.1 million cubic meters, the hydropower plant can operate at a water head of 500 meters.

    The facility, usually connected to a grid, uses the off-peak power to pump water to its upper reservoir, and release the water to the lower one whenever it needs to generate electricity to help relieve peak demand on the grid.

    “During off-peak hours, it pumps water from the lower reservoir to the upper and stores it, and generates electricity with gravitational energy when needed,” PCCC project manager Han Hongwei told Xinhua….

  14. ltr

    https://news.cgtn.com/news/2022-05-29/Two-million-kilowatt-power-stations-operate-in-the-Greater-Bay-Area-1aqSRjgNshq/index.html

    May 29, 2022

    Power stations with high proportion of clean energy generation operate in China

    Two million-kilowatt pumped storage power stations in south China’s Guangdong Province were placed into full operation on Saturday, which has significantly increased the consumption capacity of clean energy in the Guangdong-Hong Kong-Macao Greater Bay Area, and made the region a world-class bay area power grid with the highest proportion of clean energy.

    The new Meizhou Pumped Storage Power Station and Yangjiang Pumped Storage Power Station have a total installed capacity of 2.4 million kilowatts, bringing the total installed capacity of pumped storage power grid in the Guangdong-Hong Kong-Macao Greater Bay Area to reach nearly 10 million kilowatts.

    The power supply from clean energy generation accounts for nearly 50 percent of the total, and the two stations can support the annual consumption of over 210 billion kilowatt hours of clean energy.

    The pumped storage power station works by pumping water from the reservoir at the foot of the mountain to the reservoir at higher level during the off-peak period at night, and releasing the water to generate electricity in the daytime to meet the demand for power consumption. It is often regarded as the “battery”, “voltage regulator” and “regulator” of the power grid.

    “The highest demand load of the Guangdong-Hong Kong-Macao Greater Bay Area during the daytime is about 100 million kilowatts, while at off-peak period at night, the demand stands at about 30 million kilowatts, which indicates a great peak-valley difference of power consumption. With the pumped storage hydropower capacity reaching 10 million kilowatts, more clean electricity such as wind power and hydropower can be absorbed at night. Thus a world-class bay area power grid with the highest proportion of clean energy has been built in the Guangdong-Hong Kong-Macao Greater Bay Area,” said Li Hua, deputy general manager of the Strategic Planning Department of China Southern Power Grid’s Peak and Frequency Regulation Power Generation Co., Ltd.

    The two new power stations in the Greater Bay Area have also made breakthroughs on many key technologies….

  15. ltr

    https://news.cgtn.com/news/2022-05-08/World-s-fastest-rotor-for-pumped-storage-hydropower-plant-in-operation-19RCkID2LL2/index.html

    May 8, 2022

    World’s fastest rotor for pumped storage hydropower plant in operation

    The fifth unit of the Changlongshan pumped storage hydropower station in east China’s Zhejiang Province passed its 15-day tests and started operation on May 4, according to China Three Gorges Corporation (CTGC).

    Unit 5 of the pumped power station has a rated capacity of 350,000 kilowatts (kW), or 350 milliwatts (mW), and a rated speed of 600 revolutions per minute – the world’s fastest of its kind.

    The station has six pumped storage power units designed and installed in the plant, with a total rate capacity of 2100 mW that can generate nearly 2.5 billion kilowatt hours (kWh) of electricity each year.

    Pumped storage hydropower (PSH) is a type of hydroelectric energy storage. It is a configuration of two water reservoirs at different elevations that can generate power as water moves down through a turbine from one to the other.

    The fact that it also requires power to pump water back into the upper reservoir means a PSH functions like a giant battery as it can store power and then release it when needed.

    The Changlongshan PSH has generated 1.3 billion kWh of electricity for the national grid during peak period and used 1.7 billion kWh of electricity to “recharge” during the off season since entering operation on June 25, 2021….

    1. CoRev

      LTR, I seldom read read your propaganda because of things like this: “The Changlongshan PSH has generated 1.3 billion kWh of electricity for the national grid during peak period and used 1.7 billion kWh of electricity to “recharge” during the off season since entering operation on June 25, 2021….” A net loss of .4B kWh, ~24% of peak output, which was derived from a heavily COAL reliant grid.

      Any mention of cost per kWh?

      1. pgl

        “I seldom read read your propaganda”

        Good boy – better to spend your time spreading Koch Brothers propaganda

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