Distorted Government Statistics Endanger Our Economic Health

What is the real inflation rate, calculated using an accurate technique that doesn’t change with time? What is the real unemployment rate, one that counts all and not just some of the people out of work?

No one really knows.

How big would the federal debt be if it were reported under Generally Accepted Accounting Principles (GAAP)? How about the rate of GDP growth, the number of new housing starts, median household income, the producer price index—and countless other economic indicators—if they were reported without distortions caused by unstable concurrent seasonal adjustments, subjective hedonic deflators, chain-weighted substitutions, skewed sampling, delayed reporting, historical estimates in place of data gone unreported by failed companies, and other common bias factors?

More and more people are starting to look under the covers and ask, as they find it hard not to notice that the statistics reported by government agencies paint a picture that matches neither common experience nor privately collected and analyzed information.

It’s about time. The government statistics that are regularly announced with great fanfare are little more than passing headlines, to be forgotten by the next news cycle. Yet they inform the short and long term economic, personal, and political decisions made by millions of businesses and individuals. Those decisions have profound and lasting consequences.

Several economists and business leaders have stood up to challenge the official figures, braving fierce assaults on their reputations. The spectacle of being shouted down by a Greek chorus of political operatives and their media handmaidens defending the entrenched orthodoxy, who routinely cast their critics as political stooges and tinfoil hat-wearing conspiracy theorists, is enough to keep others silent.

Sadly, this is the new way of debate, with the nation increasingly divided into warring tribes of open mouths and closed ears. Appealing to calmer forms of deliberation, long out of fashion, is futile. So where are we headed? A world in which the old adage that everyone is entitled to their own opinion but not their own facts no longer holds true.

To some, the existential divergence over what “is” is represents a new reality we must come to terms with, as more and more people start to believe that facts are merely a social construct. To others, however, the increasingly frantic efforts to avoid scrutiny of the carefully constructed story that the economy is healing and not teetering on the brink of disaster signals that the illusion is nearing collapse.

That’s because despite all wishing to the contrary, facts remain stubborn things. The divergence between tangible reality and the things-are-getting-better, just-you-wait scenario has become especially pronounced in recent weeks. This is not because some puppet-master is pulling strings to fudge the data (a straw man rebuttal if there ever was one). No conspiracy is required to introduce a positive bias into government statistics. Nor is the veracity, or lack thereof, of government data a new problem. It stretches back decades through both Democratic and Republican administrations, each depositing new layers of false facts as yesterday’s distortions become accepted as today’s normalizing data.

Public choice theory explains the incentives and behavior of the tens of thousands of government employees who work in the bowels of the Bureau of Labor Statistics, Bureau of Economic Analysis, U.S. Treasury, Office of Management and Budget, Economics and Statistics Administration, and countless other agencies who generate and massage spreadsheets day in and day out. They all know where their paychecks and promotions come from. Who wants the checks to stop coming? Who seeks promotion by making the boss look bad? Does anyone in government service have their own money at risk based on the accuracy of their economic calculations?

Truth isn’t dying from a stake through the heart driven by some malevolent force. Rather, it faces death by a thousand cuts administered by unaccountable bureaucrats with plausible deniability that they are cooking the books. This doesn’t make them bad people. I’m sure most bureaucrats love their country, hug their children, and value integrity. But they are part of an insatiable machine with a life and logic of its own. A lack of any sense of personal accountability is precisely what makes change so hard, and why it usually takes a crisis to instigate corrective action.

Regardless of what happens on November 6, an economic crisis is surely on its way. While the apocalyptic view that we face an imminent inflationary depression may be reading too much into the tea leaves, relying on bad data is like flying blind in a storm. There is no telling what we might smack into if we don’t sort things out.

So what should those of us do who have neither the time, the training, nor the inclination to comb through the details seeking to divine the truth? Perhaps Groucho Marx offered the simplest advice on how to resolve contradictions in the face of limited information—Who are you going to believe, me or your lying eyes?