Friday, January 15, 2010

Boskin on GDP Fudging

Michael Boskin notes that:

Politicians …  who don't like what their data show lately have simply taken to changing the numbers. They believe that their end … justifies throwing out even minimum standards of accuracy. … A CEO or CFO issuing such massaged numbers would land in jail.

He offers a couple of examples:

A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà!—France outperforms the U.S. …

With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot …

Boskin is a former Republican cabinet member, so it isn’t surprising that he criticizes the Obama administration (so keep your intellectual guard up).

… President Barack Obama has taken it to a new level. His laudable attempt at transparency in counting the number of jobs "created or saved" by the stimulus bill has degenerated into farce and was just junked this week.

… It seems continually to confuse gross and net numbers. …

… The numbers game being used to justify health-insurance reform legislation … Medicare "savings" and payroll tax hikes are counted twice—first to help pay for expanded coverage, and then to claim to extend the life of Medicare.

It isn’t just Obama either:

… The head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.

I would add that this sort of stuff isn’t unusual, but it may be increasing.

Also, I think that the amount of fudging on GDP is proportional to the focus that we place on it. They fudge because we’re looking. This means that you should be looking at deeper numbers (although in Macro we really do need to focus on the broadest data we can get, whether or not it is solid).

Also, keep this in mind when thinking about China’s economic growth. The Chinese government — with Communist, statist, totalitarian, and nationalist roots — releases data that should not be believed.

Read the whole thing, entitled “Don’t Like the Numbers? Change ‘Em” in the January 14 issue of The Wall Street Journal.

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