A little known fact about John Maynard Keynes, detailed in Jane Gleeson-White’s book “Double Entry” is that he was responsible for the development of national economic statistics and that he expected them to be aggregated only on a temporary basis.
It was being done for the war effort, and would, he reasoned, not be necessary afterwards. This certainly puts “Keynesianism” in a different perspective, and poses the intriguing question: where would we be without economic statistics?
The Economist recently had a leader “Don’t Lie to Me Argentina” in which it accused Argentina of some kind of unforgivable treachery for politicising its economic statistics. As if economic statistics aren’t political in their very nature (a heavy bias towards capital and against labour, for instance).
So in contrast to H&H, who enthuses that without economic data we are “naked, bereft of meaning” I wish to present a very different perspective. I wish to briefly examine what it would mean not to have economic statistics. Here are a few implications, I submit:
1. We would have to stop being lazy in the way we construct meaning and do the work of creating meaning ourselves. The worship of economic statistics encourages a certain passivity of mind because it presents us with a picture ready made that we can then seek to interpret. Trouble is, that picture is heavily biased. Imagine, for instance, if it included unpaid housework as was proposed in Keynes’ time? Economics just presents transactions and makes little distinction between good transactions and bad ones.
A natural disaster, for instance, is generally thought to be bad, but in statistical terms it is not because typically the reconstruction creates a lot of economic activity (witness the Japanese growth figures post Fukushima). What happens is that transactions are not seen as a reflection of reality; rather reality has to be fitted into the transactions. “We all must change our behaviour because GDP is not growing fast enough, or productivity is not improving enough”.
2. We would embrace a broader sense of meaning, one that did not involve just what can be measured. Most economic growth statistics measure the exchange of consumer goods, because it is easy. Much harder to measure assets, because they are not continually transacted — that was why the asset bubbles in America were ignored for so long, because they are hard to measure – and harder again to measure long term infrastructure investment. It is impossible to measure culture, yet culture is essential to well being. Indeed, well being is not really measured, and when they have tried to use broader measures it is generally found that life has improved little despite the economic growth.
3. We would not have a financial/economics sector purporting to understand what they do not understand. For example, the “inter-relationships” between various economic indicators (such as Friedmanites v Keynesianism). This is for the most part an intellectual fraud. There are the obvious conclusions – you can’t spend more than you own, for instance – that derive from housekeeping (that being the etymology of economics). But anything beyond that is either unknowable or a circular argument (for instance Friedman’s maxim inflation is always and everywhere a monetary phenomenon is a tautology dressed up as insight).
4. We would have a greater sense of how we can impel affairs as thinking creatures with free will, rather than being pushed about by the “economic system”. There is a reason why economists are so poor at anticipating the future. Economic statistics are always retrospective and tell us little about what people are going to do – and it is what people DO that shapes the future. Of course the past will shape what people do, but it does not determine it. Money is a social construct and transactions are social arrangements. They are subject to individual and collective will, not the logic of a mathematical system.
5. We would not have the giant casino that is amusingly referred to as the global capital markets. The use of algorithms, which poses deep dangers to the system, is only possible because of the blizzard of data and statistics. That is exactly what is being codified and manipulated. Intriguingly, one of the geeks made an interesting comment, saying that a 2-3% variation, which makes all the difference in GDP statistics between acceptable growth and recession is all but inevitable in his geek world. he could not understand why it is considered so significant. But that is our world, dominated by economic statistics.
So there are five reasons why we would probably be a lot better without all that data. Far from being naked, bereft of meaning, I would suggest we could put on some decent clothes and find some more substantial, dare I say it, real meaning.
SoN, interesting post, thanks. I see similar things in my field (not finance) all the time. Data is not information, and information is not knowledge. This is why the EMH doesn’t make any sense.
One field that it progressing in leaps and bounds is network theory, based on the proliferation of social network data. It’s still years away, if ever, from being incorporated into any useful financial predictor.
You could argue that the libertarian view requires no economic data, right? No Govt intervention, hence no data required. Worked for the first 8000 years of human civilisation…
Boom bust for 8000 yrs and boom bust now. phooey. what will work then??
I’m not advocating anything jelmech, certainly not a return to the distant past, my point was far more eloquently made by hatless below.
Yeah cheers Jackson. The phooey remark was an internalized bang the head on the desk.
Sir John James Cowperthwaite was the Financial Secretary of Hong Kong for most of the 1960s.
According to his wikipedia entry:
“He was asked to find ways in which the government could boost post-war economic outlook, but he found the economy was recovering swiftly without any government intervention. He took the lesson to heart, and positive non-interventionism became the focus of his economic policy as Financial Secretary. He refused to collect economic statistics for fear it would encourage officials to meddle in the economy.”
They don’t make ‘em like they used to!
Took enuff stats to diggit then split. nope they do not make em like they used to
This is just one example of the logical fallacies of laissez faire political economy – in this case, the idea that “not meddling” is the same thing as not doing anything. In a real life economy, taking no action is equivalent to favouring the status quo and is meddling specifically against the interests of the powerless.
Apart from this, the underlying reality in HK, of course, has been the Government has always been activist with respect to the scarcest factor in the economy: land.
The HK Government has consistently regulated the supply of land and housing – sometimes in favour of the developers and speculative players; at others in favour of the thrifty-wage-earning echelons. It is just disingenuous to say the HK Government has or had an aversion to “meddling.” They are experts at it.
One thing that has always intrigued me is how much in the field and especially in markets are affected by the feedback of the economic data.
How would the underlying behaviour change if the actors were not being made aware at every step of the process about the data?
How would house prices change is there were no published index of house prices ? Would people be more likely to just buy a house because they need one ? Would they be more likely to just pay what they thought it was worth ?
Would stock markets crash after an incident, if everyone wasn’t watching the index?
When there is an earthquake in japan, its doesn’t change the profitability of woolies, but everyone sells out because they know everyone else is selling out.
This sounds like reflexivity. The idea has been around for long time, and Soros wrote a book about how it applies to finance.
any yet to read Alchemy, dont be surprised if alot of it resembles incoherent rambling… alot of it is
Zentao, that is THE question, it seems to me. No model of economic behaviour can include within it the knowledge people have of the model. That is why science must fail when applied to human behaviour.
The best advice I’ve ever read about economic stats comes from Taleb, in his book Fooled By Randomness. I think of Taleb every time I see a MB post about some minor uptick or downtick in and unending stream of numbers. It’s all data noise, but my god, the energy people expend talking about it.
To some extent, this is a manifestation of a well-documented phenomenon: more data makes people feel more confident about their beliefs, without making their beliefs any more reliable.
In other words, we’d make decisions just as well with a tenth of the data (and much older data!) as we do now. We just wouldn’t feel as confident doing so.
+1 Particularly the fevered debate following the minutest of moves! But we must pause to consider the poor analysts:
http://www.freakonomics.com/2012/02/29/the-life-of-the-number-crunching-analyst/
[...] Yves here. This post from MacroBusiness provides a good point of departure, and I’ll provide some comments further down. By Sell on News, a global macro equities analyst. Cross posted from MacroBusiness [...]
I’m all for collecting the data, but if the data is inaccurate, or is biased as you say then the results are meaningless. The CPI is a classic economic distortion.
If you consider economic models as a control systems second order effects can make that system unstable, and that’s why e.g. a politician or banker can make a statement which causes the market to overshoot or undershoot. From what I’ve seen, economic models don’t account for destabilising stimuli; SoN I agree with you on this.
This is a huge topic, and we’re not like to see any change soon to the causes of instability regardless of the data collection or its validity.
During a discussion on ABC radio that (from memory) was about health rather than economics, I was surprised to hear that visits to the doctor contribute to the nation’s GDP (i.e. more visits = improved GDP). I knew those useless 10-minute consultations must serve some purpose, ’cause they sure don’t serve the patient’s health. Where time spent travelling to consultation + waiting, waiting, waiting … waaaay exceeds duration of consultation, shouldn’t the statistics incorporate a negative contribution to GDP from aaalll that unproductive time foisted on the patient? Seems a bit sick to me that keeping people sick statistically is a productive thing to do.
To butcher a Dicken’s quote,” it’s a rum sort o’ thing … to go a-hankerin’ arter … [GDP], ven you’re assistin’ ‘em in illness.”
Then there’s this article about a different way to measure GDP, which seems to have merit http://www.wuzhengping.com/china/?p=77 Equalise the value of goods and services that are of the same quality, irrespective of fee charged in each country. Thus, the value of a visit to an equivalently trained Dr in China and USA should be equal because each citizen gets the same service.
If I understand the article correctly the PPP method is more practical because it values, for instance cooking oil, relative to Chinese citizens’ income, and cooking oil’s relatively higher status as a ‘staple’ food item in China. I gather the PPP method would predict “a national crisis” might occur if the price of cooking oil spikes too high. http://www.wuzhengping.com/china/?p=77
Oops. 2nd link should be http://www.wuzhengping.com/china/?p=29
This entire post is no more than a call to ignorance (or what SoN would doubtless term “a reformed model of understanding”, or something). How the hell does economic data debase life’s meaning? I am an economics student, I spend a lot of time looking at stats. I also have meaning in my life. I have family, friends, art, literature, music, travel, charity, humour, irony, and, above all, alcohol. None of this is diminished by the ABS. What a preposterous notion.
I’m not entirely sure what kind of statistics-free, pre-industrial nirvana you’ve managed fetishize in your mind, but if you’re really serious about it, wouldn’t the first logical step be to cease posting on an economics-focused superblog? If only for its readers’ sake.
A good rebuttal Lucius, but let’s keep it tidy hey?
Glad to see that all my bleating about GDP isnt for naught.
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