Opinion Editorial | |
| Wednesday, February 17, 1999 | |
Dubious Economic Statistics |
A few weeks ago, China announced that its gross domestic product (GDP) grew 7.8 percent in 1998. Not only is this a remarkably high growth rate on its own terms, but its stands in stark contrast to the negative growth rates experienced by many of China's neighbors last year. While there is no doubt that China's economy is booming, many economists are starting to raise red flags about whether it is really doing quite as well as the official numbers indicate. If it is in fact massaging its growth statistics, China is not the first -- nor will it be the last -- country to do so.
In the case of China, observers have been skeptical of its economic data for years.
The same problem exists in many other countries, especially developing economies and those in transition from communism to capitalism, such as Russia. There the government has virtually admitted exaggerating economic growth in 1997 by adding an estimate for the underground economy to GDP that year, but failing to make a similar adjustment for the previous year. This made it seem as if growth increased in 1997 over 1996, when in truth it fell sharply. This sleight-of-hand was justified by the need to show dispirited Russians that the corner had been turned economically.
Other manipulations of data, however, were motivated by less high-minded motives. Last year, Russian police arrested the head of the national statistical agency for fixing data to help individual firms avoid taxes and for selling confidential data to their competitors. A search of his apartment turned up more than $1 million in cash. How this corrupt official's actions may have affected the general quality of Russian economic statistics is not known, but as in the case of China, Western economists have learned to take all official numbers with several grains of salt.
Of course, one often has to sympathize with countries where there are few trained economists or statisticians that suddenly are forced to provide "official" data to international bodies such as the United Nations and World Bank, as well as private bankers and others. Without established methods and procedures for acquiring such data, such as through surveys or regular reports from businesses, some countries have simply resorted to making the numbers up. A few years ago the director of statistics for Mongolia admitted as much. Other countries no doubt have done the same. Partly for this reason, a recent World Bank study found that just about all of the trade data for Africa was "virtually useless."
Even large industrialized countries have problems with their key statistics. Last year the Bank of England was forced to halt publication of a major data series due to doubts about its reliability. Federal Reserve Chairman Alan Greenspan has been openly critical of many European inflation statistics. Similar concerns have been expressed about the quality of U.S. inflation numbers as well. In any case, the frequent and large revisions to our key economic statistics must make one skeptical at least of initial reports, since they may often change radically in the future.
Poor data often lead to mistaken policies. Improving the quality of economic data both here and abroad should be a higher priority than it is.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 17, 1999.
Home | Support Us | All Issues | Social Security Debate Central | Contact Us |