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We often imagine the study of economics today to be
mostly about manipulating statistics. However, that is a new phenomenon.
Today's government-compiled statistics are mostly a post-World War II
phenomenon. This fascination with statistics is really an outgrowth of the
statist trend of economics in those days, particularly the explosion of
Keynesian economic management fads.
Before 1950, governments didn't really have much in the way of statistics.
What existed was often compiled by academics. Maybe this was a good thing?
Consider, for example, Sir John Cowperthwaite, who
was Hong Kong's Financial Secretary from 1961 to 1971. Cowperthwaite
is generally recognized as a premier architect of Hong Kong's amazing success
since 1950.
What was Cowperthwaite's primary suggestion for
other countries that wanted to follow Hong Kong's path?
Asked what is the key thing poor
countries should do, Cowperthwaite once remarked:
"They should abolish the Office of National Statistics." In Hong
Kong, he refused to collect all but the most superficial statistics,
believing that statistics were dangerous: they would led
the state to to fiddle about remedying perceived
ills, simultaneously hindering the ability of the market economy to work.
This caused consternation in Whitehall: a delegation of civil servants were
sent to Hong Kong to find out why employment statistics were not being
collected; Cowperthwaite literally sent them home
on the next plane back.
http://www.quebecoislibre.org/06/061029-5.htm
This might seem odd, but one of the characteristics of Keynesian central
planning, or what we know as "mainstream economics" today is an
excessive fixation on statistics like GDP or the unemployment rate. This
tends to lead to various measures to jigger the statistics, often in ways
that don't fix any underlying problems, and often make problems worse. Two
such examples are aggressive government deficit spending and, closely
related, the expansion of government employment in the face of declining
private sector employment.
You don't really need GDP statistics to know if the economy is doing well or
not, or if there is adequate job creation. This should be readily apparent
from anecdotal data, talking with businesspeople, and so forth.
Abolishing GDP
Jeroen C. J. M. Van den Bergh
VU University Amsterdam - Department of Spatial Economics
February 2007
TI Discussion Paper No. 07-019/3
Abstract:
Expectations and information about the growth of GDP per capita have a large
influence on decisions made by private and public economic agents. It will be
argued here that GDP (per capita) is far from a robust indicator of social
welfare, and that its use as such must be regarded as a serious form of
market and government failure. This article presents an update on the most
important criticisms of GDP as an indicator of social welfare and economic
progress. It further examines the nature and extent of the impact of GDP
information on the economy, revisits the customary arguments in favour of the GDP indicator, and critically evaluates
proposed alternatives to GDP. The main conclusion is that it is rational to
dismiss GDP as an indicator to monitor economic progress and to guide public
policy. As is clarified, this conclusion does not imply a plea against
growth, innovation or national accounting.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962343
What if you didn't compile the hypercomplex
"Consumer Price Index"? Governments got by without it for
centuries. In that case, you would probably focus a lot more on stable
money, which has always meant a gold standard system. Let prices take
care of themselves. Most of these efforts to compile such statistics, in the
1930s, were really tools to promote Keynesian management. Since
"prices" fell a lot in the 1930s, there was "deflation"
and thus the need for a monetary response. It was just a roundabout argument
for currency devaluation.
Another one that has fascinated economists for
centuries is the "balance of payments." This is perhaps the
strangest statistic of all to focus on, because it is completely irrelevant.
The "balance of payments" always balances, without any government
intervention. Have you noticed that, when you buy something, the seller wants
to get paid? Funny how that is. And, even, if you didn't pay the seller, they would have what amounts to a financial asset
on their books, in the form of an accounts receivable, thus balancing the
"balance of payments."
The same jealous fear, with regard to money,
has also prevailed among several nations; and it required both reason and
experience to convince any people, that these prohibitions serve to no other
purpose than to raise the exchange against them, and produce a still greater exportation.
These errors, one may say, are gross and palpable: But
there still prevails, even in nations well acquainted with commerce, a strong
jealousy with regard to the balance of trade, and a fear, that all their gold
and silver may be leaving them. This seems to me, almost in every case, a
groundless apprehension; and I should as soon dread, that all our springs and
rivers should be exhausted, as that money should abandon a kingdom where
there are people and industry. Let us carefully preserve these latter advantages;
and we need never be apprehensive of losing the former.
It is easy to observe, that all calculations concerning
the balance of trade are founded on very uncertain facts and suppositions. The
custom-house books are allowed to be an insufficient ground
of reasoning; nor is the rate of exchange much better; unless we
consider it with all nations, and know also the proportions of the several
sums remitted; which one may safely pronounce impossible. Every man, who has
ever reasoned on this subject, has always proved his theory, whatever it was,
by facts and calculations, and by an enumeration of all the commodities sent
to all foreign kingdoms. The writings of Mr GEE
struck the nation with an universal panic, when they saw it plainly
demonstrated, by a detail of particulars, that the balance was against them
for so considerable a sum as must leave them without a single shilling in
five or six years. But luckily, twenty years have since elapsed, with an
expensive foreign war; yet is it commonly supposed, that money is still more
plentiful among us than in any former period.
David Hume, "Of the Balance of Trade," 1752
http://socserv2.socsci.mcmaster.ca/%7Eecon/ugcm/3ll3/hume/trade.txt
Imagine, today, if there were no government statistics, not even the most
rudimentary ones such as GDP, the CPI, and the unemployment rate. We would
still know that the economy stinks. However, instead of trying to jigger the
economic statistics in various ways, to produce an illusion of health where
there is none, we might just try fixing the problems instead.
December 16,
2011: Economic Management Without Keynesianism
January 27, 2008:
Crisis Management
Today, governments have simplified the process still further. Instead of
spending money and so forth to jigger the statistics, they just jigger them directly.
Today's CPI is widely thought to be unrepresentative of current conditions.
John Williams of Shadowstats (shadowstats.com) has
gone to great lengths to show what the government's statistics would look
like without the various revisions of the past thirty years. Once you jigger
the price statistics, you also jigger the GDP statistics, since
"real" GDP is computed using price statistics. Unemployment
statistics are also jiggered, to remove people whose unemployment benefits
expire and so forth.
I think the SGS numbers themselves are a bit
exaggerated, but you get the idea. So, you could say that although we have
statistics today, they are so fictionalized that we might as well have none
at all. Their only purpose is to obfuscate economic reality.
Another problem emerges when trying to use long-term statistics. Any sort of
GDP or CPI statistic from before 1920 or so is basically a wild guess. Even
worse, it is quite common for what amounts to a commodity price index -- much
like the Commodities Research Board Continuous Commodity Index -- to be used
as a proxy for a "consumer price index." This seems to show huge
variation in the "CPI" prior to 1920, in other words, during the
gold standard era. This is wholly erroneous.
Hong Kong has been one of the greatest success stories of the past
half-century, without the use of statistics. They are of use to historians,
but not much good for policymakers.
Nathan Lewis
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