Tag Archives: GDP

Technology paradoxes

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I’ve started reading James Bessen’s [amazon_link id=”0691143218″ target=”_blank” ]Learning By Doing: The Real Connection between Innovation, Wages, and Wealth[/amazon_link], and it promises to be very interesting. He starts with a paradox: That “the effects of the new technology are all around us,” but for one place: our paychecks. “Since the beginning of the personal computer revolution, the median wage in the United States has been stagnant.” (I’ve yet to get far enough to know whether the book only talks about the US – phenomena like the stagnant median wage and increased income inequality are at their extreme there.)

[amazon_image id=”0300195664″ link=”true” target=”_blank” size=”medium” ]Learning by Doing: The Real Connection Between Innovation, Wages, and Wealth[/amazon_image]

It set me thinking that actually there is another paradox that’s the twin of Bessen’s: that the main (only?) thing that has benefitted many people in economic terms in the past couple of decades is – technology. People greatly value their smartphones and other ever-cheaper/better consumer electronics, internet access, free online content and services. This consumer surplus story is well-known; among others, Brynjolfosson and McAfee point it out in [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link].

So we have the meta-paradox of limited if any gains in monetary incomes and potentially large gains in non-monetary consumer surplus (although there are some reasons for caution about the scale as ‘free’ is not free), and no obvious way to evaluate these, You can’t eat consumer surplus but people see internet access as a basic right (pdf), a sign that they put huge value on the technology. I’m spending a lot of time thinking about these measurement/welfare questions.

Statistics in a disordered world

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I’m writing about GDP in particular and economic statistics in general again – can’t keep off the subject (& by the way, [amazon_link id=”0691169853″ target=”_blank” ]GDP[/amazon_link] is out now in paperback!) Today I picked up Adam Tooze’s marvellous 2001 book [amazon_link id=”0521039126″ target=”_blank” ]Statistics and the German State 1900-1945[/amazon_link]: “This book … has sought to portray the construction of a modern system of economic statistics as a complex and contested process of social engineering … A functioning statistical system … implied a particular model of political order and in particular a vision of the relationship between state and civil society.”

The national accounts framework in place today is a modernist project. Like so many of these, it is being unravelled in unpredictable ways by technology, globalisation, and the changing character of the state. My writing task today is responding to the call for evidence on the current Review of Economic Statistics. It’s a tall order to say something succinct about getting from the categorisation of the world coded into current statistics to something closer to (disordered) realities, especially when there is an important element of performativity in statistical categories.

[amazon_image id=”0521039126″ link=”true” target=”_blank” size=”medium” ]Statistics and the German State, 1900-1945: The Making of Modern Economic Knowledge (Cambridge Studies in Modern Economic History)[/amazon_image]   [amazon_image id=”0691169853″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]

Accounts and holding to account

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This is the last of my posts drafted on holiday last week, and is particularly timely despite being retrospective because my review of Jane Gleeson-White’s [amazon_link id=”0393246671″ target=”_blank” ]Six Capitals, or Can Accountants Save the Planet[/amazon_link] is published in the new issue of Foreign Affairs today.

I *loved* Jacob Soll’s [amazon_link id=”0718193628″ target=”_blank” ]The Reckoning: Financial Accountability and the Making and Breaking of Nations[/amazon_link]. It gives a long historical perspective on accountancy – no, wait – and particularly its importance in literally holding leaders and politicians to account. It is also extremely well written and lively. I got much joy from learning of the 1604 book Accounting for Princes, and that there was a real Musketeer called Captain D’Artagnan, he isn’t just a [amazon_link id=”1853260401″ target=”_blank” ]creature of fiction[/amazon_link]. That Jacques Necker’s [amazon_link id=”1246639963″ target=”_blank” ]Compte Rendu[/amazon_link] sold more than 100,000 copies in one year, 1781, alone. And this description of Josiah Wedgwood’s legacy: “Sound industrial management and tableware for the middling sort.”

[amazon_image id=”0718193628″ link=”true” target=”_blank” size=”medium” ]The Reckoning: Financial Accountability and the Making and Breaking of Nations[/amazon_image]

The book’s message is that there is a constant tension between the increasing sophistication of methods of accounting to hold to account, literally, kings or powerful companies or political leaders and the scope that sophistication creates for new ways of defrauding the people or the shareholders. So the methods of accountancy need to be embedded in a culture of honest dealing. Soll concludes that we lack that now: “Accountants have become separated from everyday culture. … All countries, rich and poor, hide the true costs of their pension benefits and health care as well as of infrastructure, off their balance sheets.” But there is no public outcry about bad public accounting, while deceitful bankers and financiers have not been held to account for the crisis. (One of my arguments in [amazon_link id=”B004NNUWY4″ target=”_blank” ]The Economics of Enough[/amazon_link] was that this situation is seriously unsustainable.)

Soll cites the proposal by Timothy Irwin of the IMF that governments should publish 50 year ahead balance sheets, but queries whether it is possible. “By separating finance into its own sphere, we have lowered our financial and political aspirations.” The numbers should be an integral part of society but are not: “If there is any historical lesson to be learned here, it is that those societies that managed to harness accounting as part of their general cultures flourished.” These have been rare – Renaissance Italian city states, the early American republic, Britain of the Glorious Revolution or for a time in the Industrial Revolution. They have been brief: Charles Davenant, one of the earliest national income accountants, tried to calculate the public finances after 1689 but by the time his Discourses on the Publick Revenues was published complained that information was being withheld.

My sole regret (as the author of [amazon_link id=”0691156794″ target=”_blank” ]GDP[/amazon_link]) about Soll’s book is that he does not cover economic statistics more generally, but rather public finances. They too matter for political accountability and are no longer doing that job (as I argue in my recent working paper). Still, it’s good to want more of a book rather than less. I highly commend [amazon_link id=”B00JK2H1ME” target=”_blank” ]The Reckoning[/amazon_link].

Final couple of days of holiday now. I have Sarah Bakewell’s [amazon_link id=”B00SLSG08O” target=”_blank” ]How To Live: A Life of Montaigne in one question and twenty attempts at an answer[/amazon_link]; and [amazon_link id=”077103850X” target=”_blank” ]Sapiens: A brief history of humankind[/amazon_link] left to read.

Angry statisticians and fiddled figures

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Merijn Knibbe (@MerijnKnibbe) alerted Twitter yesterday to an extraordinary statement on the website of ELSTAT, the Greek official statistics agency. It was issued by the Members of the European Statistical System – the professional group of official statisticians in Europe  – and includes this statement:

“Therefore, we confirm our concern with regard to the situation in Greece, where the statistical institute, ELSTAT, as well as some of its staff members, including the current President of ELSTAT, continue to be questioned in their professional capacity. There are ongoing political debates and investigatory and judicial proceedings related to actions taken by ELSTAT and to statistics which have repeatedly passed the quality checks applied by Eurostat to ensure full compliance with Union legislation.”

The story – told in the opening pages of my book [amazon_link id=”0691156794″ target=”_blank” ]GDP: A Brief But Affectionate History[/amazon_link] – is that at the start of the Greek crisis, one of the most benign conditions required by the IMF was that the Greek government stop fabricating its GDP statistics, which it had been doing for some years in order to keep the loans flowing. The EU statistics body had refused to approve the statistics but international lenders (hello Goldman Sachs) didn’t seem to mind.

So the Greek statistical agency was dissolved, the new one (ELSTAT) created, and a former IMF economist, Andreas Georgiou, was appointed to lead it. One of his graduate school friends told me Mr Georgiou is one of the most honourable people he has ever known. Yet, almost immediately after his appointment to the job, some of the sacked former board members accused him of treason for cleaning up the Greek statistics and brought legal proceedings. “I am being prosecuted for not cooking the books,” Mr Georgiou said at the time. The continuing legal and political shenanigans are what the new statement refers to.

The independence and integrity of official statistics really matters. We take economic statistics far too seriously in one sense, often ignoring the margins of error and the judgements involved in their calculation (so it’s encouraging to see a vigorous debate about these issues), not to mention the fact that the categories we define are social constructs. Yet independent and freely available official statistics are a vital part of the fabric of a democracy, one of the key tools for holding governments to account – see my new working paper on this. The only OECD country moving away from independence for its official statisticians has been, bizarrely, Canada; all others have moved in the opposite direction. The statisticians’ statement this week about Greece does not augur well for how things there will turn out.

[amazon_image id=”0691156794″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]

The largeness of small errors

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I enjoyed Oskar Morgenstern’s trenchant observations about the (in)accuracy of economic statistics in [amazon_link id=”0691003513″ target=”_blank” ]On The Accuracy of Economic Observations[/amazon_link]. Here are a few more examples:

[amazon_image id=”0691003513″ link=”true” target=”_blank” size=”medium” ]On Accuracy of Economic Observations[/amazon_image]

“The idea that as complex a phenomenon as the change in a ‘price level’, itself a heroic theoretical abstraction, could at present be measured to such a degree of accuracy [a tenth of one percent] is simply absurd.”

“It behooves us to pause in order to see what even a 5 percent difference in national income means. Taking the US and assuming a Gross National Product of about 550 billion dollars, this error equals + or – 30 billion dollars. This is more than twice the best annual sales of General Motors…. It is far more than the total annual production of the entire electronics industry in the United States.”

(Updating and relocating this exercise, a 5% error in the £1.7 trillion GDP of the UK would be almost the same size as the entire UK motor industry including the supply chain, more than the total profits of the financial services sector, or about the same as households spend in total on food and drink.)

The errors don’t get the attention they deserve, Morgenstern writes: “Instead, in Great Britain as in the United States and elsewhere, national income statistics are still being taken at their face value and interpreted as if their accuracy compared favourably with that of the measurement of the speed of light.” And he points out that arithmetically, when you are looking at growth rates of figures each measured with some error, even proportionately small errors in the levels turn into large errors in the rate of change. He gives an arithmetical example, of a ‘true’ growth rate of 1.8% being measured as somewhere between -7.9% and +12.5% for measurement errors of up to 5% in the two levels.

It’s interesting that every economist and statistician would acknowledge the errors problem and yet virtually all ignore it. We’ve invested so much that to admit great uncertainty would undermine the totemic value of the figures and the ritual pronouncements about them. At a talk I did at IFN in Stockholm yesterday about [amazon_link id=”0691169853″ target=”_blank” ]GDP[/amazon_link], one of the respondents, Karolina Ekholm, State Secretary at the Ministry of Finance, said it made her uneasy that key policy decisions such as cutting government spending depended so much on the output gap – the difference between two imaginary and uncertain numbers. Of course we have to try to measure, and how marvellous it would be if the official statisticians got some extra resources to improve the accuracy in the raw data collection, and yet I think she’s right to be uneasy.

Next on my reading pile: [amazon_link id=”B00SLUQ5HS” target=”_blank” ]The Politics of Large Numbers: A History of Statistical Reasoning[/amazon_link] by Alain Desrosières and [amazon_link id=”069102409X” target=”_blank” ]The Rise of Statistical Thinking 1820-1900[/amazon_link] Theodore Porter.

[amazon_image id=”B00SLUQ5HS” link=”true” target=”_blank” size=”medium” ]The Politics of Large Numbers: A History of Statistical Reasoning: Written by Alain Desrosieres, 2002 Edition, (New Ed) Publisher: Harvard University Press [Paperback][/amazon_image]  [amazon_image id=”069102409X” link=”true” target=”_blank” size=”medium” ]The Rise of Statistical Thinking, 1820-1900[/amazon_image]