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March 20, 1998

Clinton's State Socialism

His economics ideas are outside the democratic mold

By Howard Hobbs, Daily Republican Contributing Editor

WASHINGTON, D.C. - There's a certain kind of misrepresentation at the core of president William Jefferson Clinton's economics rhetoric, and it's been plaguing the Nation for quite a while.

At his most basic level, Clinton doesn't know how to measure economic growth. So, he will always misunderstand the dynamics of economic expansion and attempt to take credit for a dynamic over which he had no influence.

The idea of growth that Clinton wants Americans to buy-into is one that is a vision of an economy that produces the same goods and services, except more of them.

What's wrong with thinking that way? While capitalism is always enlarging the economic base. It's constantly altering the mix - turning out different products, better products, a few worse products and even discovering what its true products are.

The method Clinton uses to estimate that kind of progress takes undeserved credit for any positive economic dynamics from prior administrations of reagan and Bush. It also avoids ownership for future unintended consequences of his own economic policies that will not materialize for five to seven years.

Here's the basic shortcoming of president Clinton economic policies. The Bureau of Economic Analysis (part of the Commerce Department)collects 'snapshots' of financial data that it bases its estimates of gross domestic product on. These are: consumption + government + investment + net exports. The formula yields an estimate for nominal GDP.

However, that figure does not take into consideration price inflation and price deflation. In order to arrive at real GDP, BEA consults the Bureau of Labor Statistics (part of the Labor Department) for the necessary price indexes.

Also, it's BLS's responsibility to report on growth in productivity, which it defines as output per worker-hour. It calculates the hours on its own (although with the help of the Census Bureau, also a part of Commerce). But for the output side, it borrows the figures from BEA. And to make things easier, it limits the scope to output in the nonfarm business sector, and in the process artificially excludes government.

So, in order to help the BEA arrive at a figure for real growth, the BLS has to provide the price indexes that adjust the nominal figures. And in doing so, one key question it has to answer is: When is a price rise not a price rise? The answer: "When the quality of the good or service has improved by an equal amount."

So, when the price of a good rises by 5% and the quality is enhanced by the same 5%, no price increase at all will be recorded. And in that case, $100 billion in nominal terms will become $100 billion in real terms.

However, if the price has risen by 5% with no increase in quality, then the $100 billion nominal will be reduced by 5% to $95 billion real.

But, just how do you measure quality? One thing is certain, it is not the type of knowledge president Clinton acquired in law school.

So, in the case of automobile production Clinton's Bureau of Labor Statistics wants the American people to believe that productivity actually declined from the late 'Seventies through the mid-'Nineties.

Karl Marx popularized the labor theory of value which pushes the preposterous notion that the value of a good is directly proportional to the labor time spent in making it. In the case of autos, the Bureau of Labor Statistics attempting to popularize the same production-line theory of value, which says that quality improvements are directly proportional to the cost of altering the production process.

However, under capitalism we subscribe to a consumer theory of value, which says that the value of a good reflects the satisfaction that buyers happen to derive from it.

Under Clinton's socialist fallacy the $trillion health care industry would determine prices for health care according to a per-diagnosis method. The economic impact of such a policy is undemocratic. In effect, Clinton argues, if you can reduce the average length of the hospital stay of a heart-attack victim, then the quality has risen.

So, he says, if the costs of treating a patient rise by 10%, and if we can get him out of the hospital 10% sooner, then there has been no rise in price.

Using the socialist fallacy, the BLS completely fails to include the capitalist quality revolution in customized products. Today, business is providing more novelty and variety than ever before in what used to be standardized products.

Defining capitalism down, the Clinton administration is giving customization no credit on the output side for increasing consumer satisfaction, Instead it is debiting [subtracting] it on the input side for increasing the cost of production.

Why? Clinton economists at the BLS mischaracterize consumer customization as a capitalist tool to subvert standardization. In other words, consumers should not want customization. If they persist in such demands, the BLS will ignore its economic dynamic by subtracting it out of its reports.

This is the type of faulty socialist thinking that has shaped the policies of president William Clinton, and will be with us long after his White House days have passed.

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