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"Der US-Datenglaube wird teuer" / statistics fraud

by Martin Tue May 13th, 2008 at 08:19:34 AM EST

From FTD:
(The link is in German, here a free translation of this funny piece)
Productivity growth in the US is 3.2%. The consumer deflator growths only slightly faster than than in the Eurozone, despite the dollar collapse. At the same time car sales and home building starts are lower than 30 years ago. Nobody asks why there is this discrepancy. A mistake.


More surprising than the US econ statistics is only the good faith with which they are taken. Nobody has an interest in questioning the numbers, the least banks and economists. But it begins to be awkward, and it helps nobody. Let's take the most recent GDP numbers, which were interpreted that inventory pile up and net export growth allowed a slight increase of .6%. Rubbish. The growth came from real consumption of service purchases growing for whatsoever reason 3.4%, which contributed 1.43% to the GDP increase (inventory .81%); alone the defense spending has contributed .28% which was more than net export (.22%).

Last week then productivity increase was announced as 3.2% in the first quarter (yoy, ex agrar). In the middle of a downturn that is excellent. But why is the BoL assuming that worked hours were down .6% yoy, while reporting elsewhere the hours of 'simple' workers were up .8 %? Are the bosses not working these days?

The production shall be up 2.6% yoy. That assumes that the consumers in this time consumed .5% (in real terms) more goods, despite they have spend .8% less for the stuff - despite a dollar decline of about 9%. Cumulative is the US consumer goods deflator since 1995  dropped by 22% - meaning it is now only double as high as in the 50s. If you believe that all the increases in quality have given an adequate increase benefit, you may ask an 75 year old about the good old times.

Apart from similar challenges to the investment deflator or the measure of rents, it may explain why in the US currently less cars are sold than 30 years ago - with a population increase from 222 M to 304 M, and a drop in the savings rate from 9.4% to 0. Because if all the hedonistic tricks which reduce the impact of price increases are not accompanied by nominal wage increases, at some point people can't buy that stuff any more. Interesting as well that home building starts are lower than 30 years ago. Despite all the wimping about falling house prices, one needs today 100 weeks gross wage more than 30 years ago to buy a house.

One can ask some other questions. Is the break down of the connection between money growth and inflation not because of money growth defining problems? Isn't the US fiscal deficit accounting a bit strange?
But one more maybe wrong-headed statistic: Calculating the US GDP in DM/Euro, taking the German CPI, the is grown since 1970 only 1.5% per year in average. The extremely bad performance of the US stock market compared with Europe is then not so surprising. And if one thinks US stocks are now cheap, PER is still above 20.

Something harmonic in the end. The Deutsche Bank, as the Commerzbank and Dresdener Bank (all German institutes) denies an earnings forecast, while its boss talks about the end of the credit crisis. The worlds largest insurer AIG (don't know country) doubles its losses to 30 bn $, but points to its operative core business. But the Citigroup takes the biscuit. It want get rid of a fifth of its balance sheet. This problem stuff is not core business. Of course, as for AIG business is only core business as long as it is profitable.

Display:
Ok, probably not too much new for the people here around, but the size of some numbers, like the deflation of US consumer goods is probably still surprising.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Tue May 13th, 2008 at 08:21:06 AM EST
Maybe so, but still very entertaining.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Tue May 13th, 2008 at 09:27:08 AM EST
[ Parent ]
Actually, this is the one that caught my  eye:
one needs today 100 weeks gross wage more than 30 years ago to buy a house.

Has impact. Should be common knowlege in the US. We need statistics, but stats comprehensible to everyone, relevant to everyone.

How many work days are needed to pay the rent today, as compared to 1980?

How many hours a day do most people need to work, to provide an adequate food/shelter state?

Long ago I read, in one of those radical rags published by commie pinkoes like myself, that in the middle ages in the couple centuries before the industrial revolution, it was about 5 hours a day--less than today.

I am reading afew's excellent diaries (linked below), but it's a necessary thing to find ways to make the real numbers (or more reality-based numbers) widely accessible.
Good diary, important subject.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Thu May 15th, 2008 at 12:24:47 PM EST
[ Parent ]
Veerry interesting.  Maybe the statistics have been inflating a bit too....

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 13th, 2008 at 11:30:50 AM EST
On misleading economic indicators: I'm not sure if this was posted recently, but Kevin Phillips had an article in Harpers, titled "Numbers Racket, Why the economy is worse than we know" (subscription only) of which an shorter (?) version can be found here,  and a summary here) in which he shows that the public measures of the US economy's state do not show what they say they show. This is well-charted territory here at Eurotrib of course, but certainly it isn't generally widespread knowledge.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed May 14th, 2008 at 08:20:04 AM EST
Kuznets must be turning in his grave.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Wed May 14th, 2008 at 08:22:22 AM EST
[ Parent ]
I'm skeptical of one part of the article
The truth, though it would not exactly set Americans free, would at least open a window to wider economic and political understanding. Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent), and average annual growth in the 1 percent range (instead of the 3-4 percent range).
I'm tempted to answer "not much". I suspect most voters base their choice on their own financial situation, and that of people they know, not on statistics. The statistics are mainly for policy-makers, journalists etc. Once these get detached from reality, you have pundits asking why the electorate is so dissatisfied with Bush's policies, when the economy is doing so well....
by gk (gk (gk quattro due due sette @gmail.com)) on Wed May 14th, 2008 at 08:36:46 AM EST
[ Parent ]
Whatever the domestic influence, sparkling statistics on the American economy are used (by economist-talking heads, pundits, journalists) throughout the world to maintain the image of infallibility and success of supply-side, free-market, neo-liberal policies.

The story is that, while most of us blunder about, the US has got it right. Even when everything's wrong...

by afew (afew(a in a circle)eurotrib_dot_com) on Wed May 14th, 2008 at 10:16:26 AM EST
[ Parent ]
Of course. Non-Americans only really have two sources of information, the statistics (for the specialists and the journalists) and popular culture (for the rest), both of which tell them how great things are. But the American electorate itself has a third source of information, which is their own experience. If you can't get a job, or can't afford food, you won't be happy, even if the statistics tell you you should be, and that is more likely to affect your vote.

Of course, this only works if at least some politicians offer a genuine choice, which is another matter.

by gk (gk (gk quattro due due sette @gmail.com)) on Wed May 14th, 2008 at 01:49:11 PM EST
[ Parent ]
I knew already some of the mentioned adjustments.
However, what I found interesting in the FTD is the comparison with the DM/Euro development, e.g. it seems that in Germany/Europe these statistics are much less manipulated than in the US - while it seems to me that people in the US tend to have a higher degree of trust to their gov than Germans. But of course the causality might be the opposite direction.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Wed May 14th, 2008 at 08:43:04 AM EST
[ Parent ]
it seems that in Germany/Europe these statistics are much less manipulated than in the US
Actually that was one of the things I wanted to ask. Is the US the most egregious practicioner of this sort of numerical revisionism? And: Do harmonized indicators even exist among EU member-states (or even eurozone members), such that we know, say, the unemployment, under a common definition, in all member countries? I mean when the Belgian Economy Minister states that unemployment (or any indicator) in Belgium is X% and his Greek counterpart states that in Greece it is Y%, are X and Y necessarily directly, or pretty close to directly, comparable?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Wed May 14th, 2008 at 09:04:08 AM EST
[ Parent ]
There's an EU Labour Force Survey overseen by Eurostat, and OECD also does "comparative" employment stats.

See my diaries on comparative employment statistics:

by afew (afew(a in a circle)eurotrib_dot_com) on Wed May 14th, 2008 at 10:09:24 AM EST
[ Parent ]
Unemployment is special, but there is quite a lot of harmonised statistics. E.g. fiscal deficit has to be reported under very clear rules to the EU and this numbers are cited in public.
For inflation there exist Eurozone numbers, as for many other relevant things. The Maastricht treaty has requirements for a country to be able to join the Eurozone. That would not make sense, if every country could define on its own how those numbers are measured, although I think Greece has tried...


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Wed May 14th, 2008 at 12:58:00 PM EST
[ Parent ]
Not so much trust in my experience as lack of knowledge and sophistication.

A certain form of anti-intellectualism accentuates these two elements, making the divorce of ones views  from ones own interests all the more easy, in the short term at least, to acheive.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed May 14th, 2008 at 10:29:03 AM EST
[ Parent ]


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