Clarke Dryden Camper is Senior Vice President, Head of Government Affairs and Public Advocacy at NYSE Euronext, a...
Are outdated economic statistics causing governments around the world to misdiagnose economic problems and prescribe the wrong policy solutions? That’s the contention of professional money manager and Columbia University faculty member Peter Marber in a recent article in the World Policy Journal and in his forthcoming book, Brave New Math: Why We Need New Economic Thinking in the Global Age.
“Despite dramatic shifts in the world over the last few decades,” Marber writes, “we are still using the same old gauges, nomenclature, and policies of the past. These outmoded statistics skew perceptions, leaving us with a distorted worldview and a shaky foundation as a base for policy.”
Consider GDP, which was developed in the 1930s to help government officials understand the impact of the Great Depression and remains the statistical benchmark of economic health. As far back as 1934, the economist who developed GDP warned “the welfare of a nation can scarcely be inferred from measurement of national income” and argued that GDP does not distinguish between “quantity and quality of growth.”
Seen through the GDP lens, Marber writes, “$100 spent on textbooks is sadly no more valuable to society than $100 spent on cigarettes” – and while the amount spent on smoking and treating smoking-induced illnesses accounts for about 1.5 percent of GDP, few would argue that boosting smoking is an effective way to spur economic growth. Yet despite its limitations, governments continue to rely on GDP, “regardless of how irrelevant it has become.”
Nor is GDP the only “statistical fetish in global economies,” according to Marber. Unemployment rates say “nothing about the quality or security” of jobs and the unemployment figure alone provides little guidance over whether “true progress is being made as a society.”
One problem with obsessing about the unemployment rate is that the data used to calculate it may result in a misleading picture about the strength of the job market. Marber suggests that if the same number of Americans were job-hunting today as in 2007, the unemployment rate would be more than 11 percent. However, the labor pool has been reduced by discouraged workers who have left the job market and “permanently drop out of the official numbers.” While “logic tells us more ‘discouraged workers’ are a bad sign for the economy,” this practice “makes the official unemployment rate look better.”
Economic data relating to productivity, inflation, and trade all suffer from similar distortions, according to Marber. “In the global age,” Marber writes, “new economic thinking needs to be oriented around developing human capital, not blindly stoking GDP…By digging deeper into trade data and devising a truer statistical picture of labor, productivity, and employment” government officials can develop more effective policies for improving the nation’s economic health.