Montreal, December 15, 2009 • No 273

 

Harry Valentine is a
free-marketeer living in Eastern Ontario.
 

 

 THE EMPEROR'S DERRIΘRE

Government Statistics Are Unreliable
 

by Harry Valentine
 

          The most recent government statistics revealed in early December that Canada's economy generated 79,000 new jobs, while during the same period the American economy only generated 11,000 new jobs. It is traditional for many businesses to hire new, temporary, seasonal personnel during the 3-month pre-Christmas period. Staff may be hired for part-time as well as full-time employment during that period. Government statistics are rarely able to reveal what percentage of new hires are temporary.
 

          In recent years, governments have changed the statistical methods by which they measure events. The credibility and validity of statistical measurements such as GDP and GNP have been and remain questionable. GDP, or Gross Domestic Product, is the monetary sum total of all sales and business transactions over a given time period. Government literally adds apples and oranges, along with hogs and automobiles and whatever else, to arrive at a figure that purports to reflect the health of the nation's economy. GNP, or Gross National Product, is determined using a similar method, arriving at a statistical number that is open to very wide interpretation.

          Government economists can easily get away with creating such numbers because most of the population has been led into believing that these numbers have some kind of credibility. People might have doubts if the Ministry of Public Health initiated a program to determine physical health by a similar method. That method might measure a patient's pulse rate and add it to the number of eye blinks per minute, breaths per minute and other measurements and divide the total by the person's weight to arrive at a statistical number. It is possible to use such an approach to create statistics indicating that a region that has undergone massive industrial layoffs and factory closures also has a low rate of unemployment.

          Government economic statistics in many nations suggest a low rate of consumer inflation, yet people in those nations are paying higher prices for a variety of food items in supermarkets. Such statistical "information" becomes possible when governments change the criteria of measurement and omit items that had been included in previous calculations. Political leaders ultimately want to look good in the public eye, and presenting favorable statistics indicating that government programs are actually working is certainly one way by which a government can be made to look good.
 

"There are literally thousands of examples from around the world that reveal the failure of government economic planning and economic regulation when that planning and regulation turned out to be based on statistical information that pertained to the economy as it had once existed."


          By way of illustration, imagine that some Minister of Public Morality has initiated programs that promote chastity among teenagers, especially teenaged girls. A politically well-connected company that specializes in collecting data for government statistical purposes is hired to undertake a survey to determine the effectiveness of the government chastity program in a region that has a very high teenage population. Police information suggests major black market activity involving teenagers importing and selling condoms and various medications related to intimate activity in the region, but this information is kept quiet. Sewage treatment plants in the region regularly suspend operations due to large numbers of used condoms entering the facilities and gumming up the works.

          The statistical survey personnel begin their study by visiting several all-girls schools run by very conservative religious denominations. They meet with school authorities to obtain permission to interview all unmarried teenage girls in the schools about fornication activities. All the girls are interviewed in the presence of school authorities and profess their chastity. The results are published as a sample survey of the female teenage population in the region, suggesting that an overwhelming percentage of the teenage female population observes a personal code of chastity. News reports subsequently announce the overwhelming success of the government chastity program.

          Government statistical information loses credibility when the statistics indicate consumer inflation to be at an all-time low when the prices of certain essential items are in fact rising in supermarkets. The regime of state ownership and control of the means of production has failed in communist nations worldwide. Even the regime of economic regulation of the means of production and several service related industries has repeatedly failed. Government statistics are often used as a tool to guide government economic planning and economic regulation.

          Statistical management of an economy might be possible in a fictional, stagnant economy where no new ideas, no new concepts and no new technology appear. Such ideas, concepts and technology change the way goods are produced and services are provided in a free-market economy. There are literally thousands of examples from around the world that reveal the failure of government economic planning and economic regulation when that planning and regulation turned out to be based on statistical information that pertained to the economy as it had once existed.

          While accurate statistical information can reveal significant information about the past, it can only rarely reveal significant emerging trends. It cannot predict the emergence of new technology or how such technology may on occasion influence or even create new emerging trends. Statistical information ultimately loses all credibility when it omits food prices so as to suggest near-zero consumer inflation. Governments that use such information as a basis by which to plan or regulate various sectors of their national economies create unnecessary hardship for a large percentage of their populations.