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PaperclipPerfector  2d ago (text post)   8445 thread views

Culture War Roundup for the week of December 22, 2025

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US GDP figures are in and they're surprisingly strong:

Real gross domestic product (GDP) increased at an annual rate of 4.3 percent in the third quarter of 2025 (July, August, and September), according to the initial estimate released by the U.S. Bureau of Economic Analysis. In the second quarter, real GDP increased 3.8 percent.

https://www.bea.gov/news/2025/gross-domestic-product-3rd-quarter-2025-initial-estimate-and-corporate-profits

These are truly enviable numbers. In Australia we get half that and almost totally driven by immigration, no productivity growth. Europe and the UK barely get real GDP growth at all. US immigration is down, yet growth is up.

But are the US figures made up?

The federal government shutdown that occurred in October and November resulted in delays in many of the principal source data that are used to produce estimates of GDP. This initial estimate of GDP for the third quarter of 2025 reflects a combination of data and methods that are typically used for the advance and second current quarterly estimates.

I imagine that there was pressure on the statisticians to fiddle the figures to put Trump in a better light.

Yet there is also the example of the Fed resisting Trump's demands for interest rate cuts. One also imagines that the economists who calculate GDP are unlikely to be Trump/tariff fans. I don't know how these factors balance out. It does seem rather surprising for US GDP growth to be so high, especially since it seems to be consumption driven rather than investment driven via the AI boom.

Personally I've long thought that GDP figures (real, PPP and especially nominal) are overvalued. Making houses more expensive by raising demand via financial schemes or immigration isn't productive economic activity, nor is much of the financial services industry (high speed trading for instance). There is obviously a role for banking and capital allocation, futures and derivatives yet it should be weighted lower compared to production of goods like iron, food, energy and aircraft engines. In many rich countries there's a whole class of highly paid consultants, officials and managers who disrupt productive activity. The food and health sector also seems rather unproductive, encouraging people to gorge on unhealthy food and then expensively treating the symptoms of obesity, shovelling money into keeping the very old alive for a few more, low-quality years... You could have a society with lower GDP but higher real-world prosperity and national power.

But the GDP figures do tell us something. More growth is usually good, especially if it's derived from productivity gains.

Do people think that the US economy is doing well? Faked numbers? K-shaped growth? Or just a result of massive deficit spending?

I don't have a sophisticated enough opinion on how GDP figures are collected and controlled to speak on them directly, but I agree that as an indicator they don't mean a whole lot for me as an individual citizen. Sure, overall the economy may be trending up, but it's clear that it's a tale of two cities. As far as I can tell, some sectors, mainly tech (AI) and finserv, are carrying the rest, and recent economic gains haven't been felt by most consumers. This year, the only sector to really gain jobs has been healthcare, which is hardly an economic engine more than it is an indicator of our aging population. Time will tell if these GDP gains are sustainable across sectors or just reverberations of the continued siren song of AI.

As far as I can tell, some sectors, mainly tech (AI) and finserv, are carrying the rest, and recent economic gains haven't been felt by most consumers.

In terms of GDP, consumer spending has increased in both Q2 and Q3. In Q2 it was finance and tech at the top, but nondurable goods increased by quite a bit as did professional and technical services and durable goods. In Q3 the top was health care services and recreational goods and vehicles, mostly "information processing equipment", but the detailed info won't be out until mid-January.

Gotcha, thanks for the extra detail. Interesting to hear consumer spending has had some gains despite the "vibecession."

The vibecession is mostly a vibe among democrats, indicating at the very least that it isn't a general poor economy- it might be localized or something, but you'd expect everyone to have a negative outlook if it there were truly broad-based economic problems the official metrics are missing.

I'm a rightwing chud who voted for Trump 3 times and I've got bad vibes about the economy too, but maybe that's because I work in tech and am waiting for the AI bubble to pop.

There's a few other possibilities to explain it too:

  1. Some stuff is cheaper, some stuff is more expensive; if the more expensive stuff is essentials, but the cheaper stuff is everything else, people can feel squeezed by the economy without actually being squeezed. (Picture a toy model where someone has $10, food costs $1, shelter costs $1, and consumer goods cost $4 each; if the costs of food + shelter go up to $2 apiece, and consumer goods go down to $2 apiece, each person can individually afford more consumer gifts, while still having less space in their budget for consumer gifts).
  2. People are able to substitute goods for cheaper substitutes, which means that their spending is relatively unimpeded, but they are accepting a lower return on each purchase they make. (So for example, maybe I used to buy steak at $4.00/lb. Steak is now $8.00/lb, but ground beef is $4.00/lb, so I now buy ground beef).
  3. Everything went up by a specific percentage, including wages; wage increases feel like a benefit of me working hard, while price increases feel like people trying to take more money from me. As a result, I feel like I'm not doing as well, because my hard work to get more money was invalidated by everything else becoming more pricey as a part of it.
  4. People have given up on certain staples like housing; as such, instead of saving for housing, they're spending the money they would be putting towards it towards consumer goods.
  5. Some demographics are spending way more, while others are spending way less.

Here's what I would assume would be observable in each case:

  1. Breakdowns of spending will reflect higher percentages of household income spent on housing and food than per usual. This would be disprovable if the percentage is similar.
  2. "Budget" companies have their share prices improve, while luxury companies start offering more budget goods. Companies that only offer luxuries start struggling.
  3. Average income goes up by a similar percentage basis to costs. This should be observable based on the fact that people have published stats on average income for many years, so I assume that someone somewhere is observing it.
  4. The boom in consumer spending is almost exclusively in luxuries; it would also die off in a few months to years, but that's probably indistinguishable from the natural flow of the economy.
  5. Spending is concentrated amongst goods that some portions of the population use. For example, if healthcare spending is way up, but bars are struggling, I'd consider this to be met.

Some stuff is cheaper, some stuff is more expensive; if the more expensive stuff is essentials, but the cheaper stuff is everything else, people can feel squeezed by the economy without actually being squeezed.

For what it's worth I feel like this is the opposite of what is happening, and I think this may explain much of the disconnect between how different demographics view the economy. I Imagine that for a single urban professional living in the city the current economy kind of sucks, housing is at a premium and consumer goods (especially imported consumer goods) have gone up in price. In the meantime, if you are a married couple with 2.5+ kids and a dog living in the 'burbs, two of your biggest expenses, food and transportation, have not only stabilized after climbing steadily for 4 years but in some areas are starting to trend downwards so naturally those people are feeling more optimistic about their situation than they were a year ago.

Unfortunately the household spending report doesn't come out until almost a year later, so most of these are not testable.

Who said they had to be testable now? We can always look back in a year.

I feel similarly, but "bubble" always feels like a Russell's Conjugation: I am getting in on the ground floor in a promising new technology, you are investing, and that guy over there is inflating a bubble that is obviously going to pop and make a mess for the rest of us.

I'm a visionary, you're an early adopter, he's buying a lottery ticket.

Is that even irrational necessarily? If the 'fair value' of the opportunity is say $1 a share and the founder's getting in at 10 cents, the VC is getting in at 50 cents and the general public is getting in at $2 it can still be a good bet for the first 2 but also a stupid lottery ticket for the general public.

vibecession

Partisan media hacks on both sides are always incentivised to sell how [opposite administration] is handling the economy poorly. Whether or not this effects reality is a separate matter. As is whether reality is reflected at the ballot box --- it's conceivably quite possible for the median voter to see a different economic direction than the sum (mean) economic measures.

I can't think of a time in my life in which there weren't bear headlines from time to time. Some of those times were, in hindsight, very good.

I'm pretty sure most people don't care that much about GDP. The directly important figures for the man on the street (Main Street, anyway) are the components of the old misery index -- inflation and unemployment. With job creation numbers basically at zero, unemployment seems likely to increase. Inflation is not great either. It's a jobless expansion.

Chained CPI was also uncomfortably high.

Making houses more expensive by raising demand via financial schemes or immigration isn't productive economic activity, nor is much of the financial services industry (high speed trading for instance). There is obviously a role for banking and capital allocation, futures and derivatives yet it should be weighted lower compared to production of goods like iron, food, energy and aircraft engines.

Used house sales are not part of GDP. Realtor fees are, but those don't seem to be a significant part of this growth (we'll need to wait for final numbers to be sure). HST, futures, and derivatives do not (directly) contribute to GDP. For that matter, neither does iron, and usually neither do energy or aircraft engines, at least when the purchasers are domestic.

Guys, GDP is the value of final goods and services produced in an area. In other words, it's (consumer spending) + (investment) + (government spending) + exports - imports.

Boeing buys a GE engine? Does not count towards GDP.

Lockheed Martin buys steel? Does not count towards GDP.

I buy onion futures? Does not count towards GDP, except any transaction fees, which, even when they are high, are a small part of the transaction.

Delta buys an airplane? That's investment, it counts.

The government buys a missile? Government spending, it counts.

Simple as.

I'm reading that financial services contribute about 8% to US GDP which is awfully high. 'Imputed rent' of homeowners living in their own homes is 8% in the US, 12% in the UK, which is in part derived from house prices being propped up by various measures. Imputed rent is not a real thing, it's imaginary. Enjoying a house that's built is the whole point of a house, that's why people buy them.

Guys, GDP is the value of final goods and services produced in an area. In other words, it's (consumer spending) + (investment) + (government spending) + exports - imports.

Boeing buys a GE engine? Does not count towards GDP.

Building engines is measured as part of GDP. It's going to be investment for somebody who finally buys the plane or perhaps an export, this is one of the fields where US manufacturing still leads the world. More importantly, building engines is clearly related to prosperity, technology, productivity and national power, which is what GDP is really supposed to be telling us about.

High frequency trading makes money, their workers certainly earn wages. I would be highly surprised that they weren't counted as part of GDP. But it's not nearly so clear that their work is productive or desirable, considering the level of high-quality brainpower that these firms soak up. Britain started counting production of illegal drugs as part of GDP at one point, that's not productive economic activity.

Anyway, one of my points is that GDP is not that helpful as a measurement, so if production of engines wasn't included, then it would only strengthen my argument. But since it is, why bring it up? Where exactly engines belong on some accounting category doesn't seem very useful.

Imputed rent is not a real thing, it's imaginary. Enjoying a house that's built is the whole point of a house, that's why people buy them.

Obviously, but it would be even weirder if renters contributed to GDP but homeowners didn't.

Building engines is measured as part of GDP. It's going to be investment for somebody who finally buys the plane or perhaps an export, this is one of the fields where US manufacturing still leads the world.

I covered the export case already. If the engine isn't exported and is instead bought by Boeing the value of the engine is not explicitly counted in GDP (hence final goods and services). Best you can say is that if the engine weren't made here it would need to be imported which would subtract from GDP.

More importantly, building engines is clearly related to prosperity, technology, productivity and national power, which is what GDP is really supposed to be telling us about.

Singapore is highly prosperous. How many jet engines do they produce? There's more than one way to prosperity and it's a mistake for you to shoehorn your vision of what it looks like into what GDP is actually measuring - the amount of goods and services produced in an area.

High frequency trading makes money, their workers certainly earn wages. I would be highly surprised that they weren't counted as part of GDP.

Capital gains, trades, etc do not contribute to GDP by definition.

Stuff trading firm employees buy with their salaries counts as GDP, but they mostly don't spend their money on the financial sector.

Anyway, one of my points is that GDP is not that helpful as a measurement, so if production of engines wasn't included, then it would only strengthen my argument. But since it is, why bring it up? Where exactly engines belong on some accounting category doesn't seem very useful.

It's useful for measuring goods and services produced in an area and the material standard of living. It's not useful for comparing who makes more jet engines - there are simpler approaches for that.

If the engine isn't exported and is instead bought by Boeing the value of the engine is not explicitly counted in GDP

But to address @RandomRanger's concern, the engine is implicitly counted in GDP. It's part of the value of the plane. That's also why an imported engine is subtracted from GDP - we want to only count the parts of the plane which were produced domestically.

Big topic, little time:

  • cost increases are the main driver; there are less goods and things being done in America, they're just expensive
  • at work we remove whole categories like government spending, legal, advertising and medicine (this is debatable, but important to normalize things later) which has long precedent in different systems of national accounting and, both from Socialist countries and libertarian analysts like Gavekal

You could have a society with lower GDP but higher real-world prosperity

We have plenty such examples today!

Do you think inflation numbers are wrong then?

Of course! I've lazy posted about this for years. Obviously, the basket of goods a person uses has gone up wildly more than the official numbers suggest - just compare the prices of food now and in your childhood. When you normalize different categories or baskets with wage increases, hours worked and labor productivity, it gets especially bad. We have also had wildly inflationary policy for decades now, which must increase to service debt while we're in a commodity supercycle where molecules matter again.

I've some sympathy with this view, but it's a broader sort of criticism than "how is the economy doing year over year". If inflation figures are fake now, then they also were 4, 10, 20 and 30 years ago.

4, 10

Yes.

20, 30

Probably. What's even the difference between fake and wrong?

It's really hard to measure things or make conclusions from them. E.g. if this recent paper is true, modern neoclassical economics and DSGE models etc. are wrong (because tariffs have the opposite impact). I don't think we can really know. But we've had unmeasured endogenous money creation for a long time. Asset prices and credit cycles seem to drive the economy lately, but IDK how to incorporate those into some metric doing what inflation measurements should do.

Unfortunately your previous post is nonsense.

Quality adjustments and awkward exclusions make CPI almost irrelevant - not counting housing/rent at all (while it's imputed to 10% of GDP).

Rent is included and 7.5% of the index. Owner occupied housing -- represented as owners equivalent rent -- is 25% of the index.

No, you just wildly misunderstood[1] my point and think I (or rather my company) am too lazy to understand basic metrics. I am saying that OER is bad and not correlated to actual housing costs. Neither mortgage and insurance payments nor differences in total purchasing vs. rental costs are captured (depending on the geography, renting can be twice or half as much as buying). BLS lags and assumes price increases are gradual such that the sampled month only shows 1/6 of the change but rental prices do not go up a few dollars per month but have big, occasional changes based on new tenants etc. (Yes, this should be smoothed and averaged out but... I am arguing that's not what's done here.) To be clear, I don't think housing is currently a big inflation driver e.g. the New Tenant index showed a much faster decline.

[1] fair, not like I effort post or think about word choice. I e.g. don't know why I focused on CPI vs. the others which I also have problems with. CPE's the only one with fed targets...

No, you just wildly misunderstood[1] my point and think I (or rather my company) am too lazy to understand basic metrics.

What I think, not to put too fine a point on it, is that you are claiming some sort of special expertise and knowledge you don't actually have in order to win an internet argument. It's one thing to not believe in the validity of the CPI or PCE or some other indicator. It's quite another to act as if there is some class of important people who are in the know about them being nonsense, and you are one of them. Particularly when you back that up with a rather confused notion of what's wrong with them.

Argument?

A hell of a lot of capital is being thrown into the AI space, so much so that it is disrupting the consumer computing market (much to my great annoyance and probably every PC gamer everywhere.) All of that growth into building datacenters and creating AI is a bubble: whether it will stabilize into consistent and regular growth like the Internet did or crash and burn remains to be seen.

Bubble or no, the statisticians say investment isn't the cause of these figures. Investment is down 0.02% while everything else is up.

stabilize into consistent and regular growth like the Internet did

Not a Cisco stock holder I take it?

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