Anyone driving a car knows it's difficult to get from here to there in one piece unless you can see through the windshield. Federal economic statistics are the equivalent of the auto windshield for the many "drivers" steering our economy. Although phased-in cuts in many government programs are clearly necessary to put our fiscal house in order, it's crazy to cut money for gathering data that not only our economic and budget policy makers, but all private actors in the marketplace, need for intelligent decision-making.
We know that for many citizens and policy makers, economic statistics are a classic "MEGO" (my eyes glaze over) subject. But one of America's great innovations after the Depression was adopting a comprehensive set of national income accounts that measure economic output by different categories (investment, consumption, exports, and so forth) and by sectors. Price data tell us about inflation. Data on R&D spending and the numbers of scientists and engineers help us understand at least the inputs to the innovation process.
Policymakers need all these data to estimate and forecast GDP and the federal budget itself. Businesses, too, rely on government statistics for reliable and timely information on output and pricing trends, in the aggregate and in specific sectors, to help them decide when and where to invest, and of crucial importance now, when and how many people to hire. Investors rely on these data to determine which financial instruments to buy and sell, and when. Consumers look to the government for inflation, GDP, and unemployment statistics to gauge their confidence in the economy, which is critical to their spending decisions that collectively account for 2/3 of total output.
Simply put, our economic engine would not run nearly as fast without data showing how the economy is performing at any point in time. Despite these straightforward propositions, some in Congress are taking their deficit cutting fervor to slashing funding for key statistical agencies, including the Census Bureau and the data collection arms at the National Science Foundation.
The House, in particular, proposed a 25 percent year-over-year cut in the Census Bureau budget. Few cuts will come to the Decennial Census because that flagship project is constitutionally mandated and has only limited flexibility. Accordingly, the Census Bureau says that if a budget cut of this magnitude were implemented, it would terminate the Economic Census. This outcome would be devastating since this effort provides fundamental data on the performance of the nation's businesses, as well as crucial information about the rate of new business formation, which research by our Foundation has demonstrated is a critical driver of job creation.
Meanwhile, over at the National Science Foundation, the Science and Innovation Policy program is making great strides in setting up a system to measure the economic outcomes of NSF's investments in cutting edge R&D. If NSF can use these data to figure out what types of investments have the largest payoffs, it can better ensure that the U.S. maintains its worldwide technological leadership. Nonetheless, some in the Senate want to fully defund this innovative program's parent, the Social, Behavioral, and Economics Directorate.
It may be a sign of the times, but we cannot think of a more short-sighted way to cut the budget than by dramatically reducing the quality and timeliness of our economic and innovation statistics. We are already having much difficulty driving our economy as it is. We don't need to cloud the windshield and make the problem worse.
Carl Schramm is the president and CEO of the Kauffman Founation, where Robert Litan is vice president for Research and Policy.
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