More statistics

Posted by: Michael Mandel on May 14

I’m travelling today to the “2008 World Congress on National Accounts and Economic Performance Measure for Nations.” (on the train down to Washington DC as I write this). Basically a full week conference on how to make sure that the economic statistics are measuring exactly what we want them to be measuring, given the changes in the world economy.

I hadn’t planned on going, but the program looked so appetizing that I changed my schedule. If you want to see the program, you can find it here


Frankly, I consider this stuff to be incredibly significant. When it comes to the economy, we depend on the statistics to tell us what is happening. If the statistics aren’t right, we run the risk of making bad decisions, both personally and in terms of policy.


Update: I was strong-armed into giving a short talk at lunchtime about the importance of economic statistics from the perspective of a journalist. Fun.

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Reader Comments

Brandon W

May 14, 2008 08:31 AM

"If the statistics aren’t right, we run the risk of making bad decisions, both personally and in terms of policy."

This is the best thing you've ever written in your blog. Consider that statistics need to reflect practical reality - i.e. "life on the ground" - and not be a numerical reflection of theory and life in the ether, if they are to be useful to managing (and reacting to) the real, functional economy.

Joe Cushing

May 14, 2008 01:32 PM

Oh Brandon, he has been saying this all along.

Brandon W

May 15, 2008 07:40 AM

Joe,
It would be nice if someone in mainstream media would point out the giant elephant in the room. The methodology used to create government "statistics" is more than simply suspicious; it is outright criminally fraudulent. This includes inflation numbers, unemployment numbers, GDP, and deficits, among others. They have no connection to reality.

To prove it, we don't need to make some theoretical argument. We don't need to create a fantasyland where the methodology is such to prove the point All we have to do is use the methodology that was used up until 1980!

If we use that same methodology, the inflation rate is about 11.8%, the comprehensive unemployment rate is 13%, and the economy has been in a continuous recession - except for a brief blip in 2004 - since early 2000. This was the methodology that said a steak is a steak, and a car is a car. The "new" methodology says a cheap burger is a steak, and a car is a unit of pleasure. Which is more honest? Additionally, if we apply the same GAAP accounting rules to the government as we require of our corporations, the yearly budget deficit is $4+ TRILLION/yr, not "only" $400 billion. Enron uses shady accounting and people go to prison. The government uses shady accounting and we smile and nod - perhaps out of ignorance, perhaps out of fear of reality.

All I am lobbying for is honesty in our methodology, honesty in our accounting. But that's a lot to ask of some people.

Brandon W

May 15, 2008 09:58 AM

This is CLASSIC...
a March 1980 cover story "Jimmy Carter vs. Inflation":
http://tinyurl.com/5ndqmf

This was, of course, during the Presidential election run of 1980, when both parties were still determining their nominee. One paragraph alone has two choice quotes:


"Campaign audiences for the President's numerous rivals are showing at least as much interest in the economy lately as in Iran or Afghanistan."

And this... THIS is fantastic:
"On the Republican side, Front Runner [for the nomination] Ronald Reagan has been hammering increasingly harder on economic issues. Said he, 'It's Government that causes inflation, and Government can make it go away by cutting out deficits and stopping the printing of money.'"

Tom Coss

May 15, 2008 03:27 PM

What's a government to do? Given the cost of living indexing that applies to a growing abundance of governmental services, that is government employee with COLA clauses in their contract; higher inflation reporting (more honest or not) comes at a hight price.

Still, ladys and gentlemen, some adult supervision is in order.

Am I wrong?

Dominic

May 16, 2008 12:57 AM


Brandon...

I could not have said it better myself...
BRAVO!!!!!

P.S.

Please don't be too technical and detailed!! you know "some" blog attendee's brain could short circuit!!!

Mike Mandel

May 16, 2008 03:19 PM

In my next post, I'm going to get into the question of what the purpose of the statistics is.

cm

May 18, 2008 06:45 PM

However metrics are designed, one general principle that is hard to circumvent.

As in complex systems (societies, economies, large enough business organizations) the goal function to be controlled by governance eludes formal characterization and quantification, metrics based on easily observable indicators have to be used that are thought to correlate with the system's performance -- e.g. counting units of somethings, and performing arithmetic on them.

However, few people like their, or their organization's, performance to be fully transparent and strictly monitored. So the inputs into the metrics, the metrics "algorithms", definitions, or the choice of metrics measured/published are fudged to make them look better.

OTOH, reality can never be effectively hidden, and metrics can be updated to reflect it better.

I guess it's another instance of "constant vigilance".

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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