Lies and GDP Statistics

BusinessWeek’s Michael Mandel has been hinting for weeks at

a huge story he’s been working on, and it’s

finally arrived. What’s the scoop? Well, it seems that Mandel has a beef

with US statistical methodology. And the upshot is that GDP has been overstated

– we don’t know by how much – due to the US importing various goods

that it didn’t import in the past.

Mandel’s a very good journalist, but even he can’t make this story exciting.

What’s more, he weirdly saves his best

explanation of the effect he’s talking about for his blog, rather than including

it in the story.

My take on all this is that official government statistics, of any country,

should never be considered the last word on how any given economy is doing.

They’re the best that we’ve got, and economists generally have a pretty good

handle on just how good they are. But as Alan Greenspan knew

full well, they don’t tell you everything. That’s why he would spend hours poring

over all manner of obscure manufacturing statistics in order to get a more nuanced

and detailed idea of how the US economy was doing.

When Republicans say that the economy is doing great, and pull out carefully-chosen

statistics to back up their claims, Democrats generally cry foul and point to

other statistics to show how the economy isn’t doing nearly as well as the Republicans

say. A similar thing happens, in reverse, during Democratic administrations.

But perhaps it’s the populists who have it right: never mind the statistics,

they say, we know what reality is by looking at what’s going on in our constituencies

and using our own two eyes.

The own-two-eyes school of economics has many weaknesses, of course: it tends

to overstate the effect of layoffs, and understate the impact of new jobs in

the economy. (People remember being laid off from the local factory much more

vividly than they remember the nail salon opening on their street.) But statisticians

don’t have a stranglehold on the truth.

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