On Government Statistics: Can most people be fooled most of the time?

Economists Seek to Fix a Defect in Data That Overstates the Nation’s Vigor

 

A widening gap between data and reality is distorting the government’s picture of the country’s economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation.

…The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.

 

American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises — in the national statistics.

 

…That may help to explain why the recovery from the 2001 recession was a jobless one for many months and why the recovery from this recession is likely to generate few jobs for many months.

 

In addition, more detailed import data would help to explain wage inequality, by linking some low wages more accurately to particular industries exposed to import competition.

 

On another front, many argue that labor productivity is rising faster than the pay of workers who made the greater productivity possible. That argument would be watered down if more accurate data showed that productivity had been overstated.

 

“What we are measuring as productivity gains may in fact be changes in trade,” said William Alterman, assistant commissioner for international prices at the Bureau of Labor Statistics.

 

The federal agencies that compile the nation’s statistics increasingly acknowledge that they lack the detailed data needed to calculate the impact of imported goods and services as imports rise from an insignificant 5 percent of all economic activity 35 years ago to more than 12 percent today, not counting petroleum. As a result, many imports are valued as if they were made in the United States and therefore higher in price than their imported counterparts.

 

The problem is particularly acute in manufacturing. Imported components constitute an ever greater share of the computers, autos, appliances and other finished merchandise that roll off assembly lines in the United States — and an ever greater share of all of the nation’s imports.

 

But the statistical system is not yet up to the task of sorting out which components are made here, which are made overseas and the resulting impact on employment.

 

…The same holds for services. An accounting firm in New York with 50 employees outsources some of its functions to less expensive accountants in India: the paperwork on an income tax return, for example. That work comes back to New York by computer transmission and is billed at New York rates, as if it were value added in this country.

 

…nearly all of the 80 experts at the conference, which was sponsored by the Upjohn Institute and the National Academy of Public Administration, agreed that the statistics now published tend to overstate the strength of the economy. That view was shared by those who attended from the Bureau of Economic Analysis, the Bureau of Labor Statistics and the Federal Reserve, all big players in measuring economic performance.

 

Louis Uchitelle

New York Times, November 8, 2009