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Don't Trust Statistics You Didn't Falsify Yourself

"To most people, whether the GDP rises or not doesn't matter. Whether they can afford the necessities is ultimately important to them. For many people, a statistic on the likelihood of losing their job would be much more interesting.. Politicians like to use statistical manipulation to present themselves in a better light.. the unemployed who report sick are not included in the unemployment statistics." Translated from German
Don't Trust Statistics You Didn't Falsify Yourself

On Economic Statistics and Their Persuasiveness

By Norbert Rost, Dresden and Thomas Koudela

[This article originally published in the cyber journal Telepolis, August 2, 2003 is translated abridged from the German on the World Wide Web.]

Statistics should offer objectivity. Inaccuracies and misinterpretations impair the persuasiveness of economic data and lead to wrong decisions of political misuse. This happens with the selection of cited statistics that are seldom oriented in human needs. These statistics are usually depersonalized indicators for expert analysis. Thus things are asserted that can't be scrutinized by the average reader.

"What's in a name?" is a popular saying. What is said should be more important than how it is said. Since statements of persons always contain opinions, people like "objective" numbers for analyses. On account of their "depersonalization", numbers seem freed from subjective influences and represent purely objective insights. However in mathematics lessons, most people have learned that a problem cannot be simply answered with numbers. Rather the number should be set in a context with the help of a sentence. Only in this way does the number have a meaning.

In economic publications and discussions, numbers are encountered again and again whose meaning seems clear to everyone. Nevertheless these numbers on closer examination can be manipulatively abused or are completely inadequate in describing facts of the case.

Our Gross Domestic Product (GDP) and Ardently Desired Economic Growth

The GDP seems very important since the increase of the GDP from one year to the next represents so-called economic growth [1]. The GDP must be increased to achieve economic growth. Since economic growth is often regarded as vital in the capitalist social order, the calculation of the GDP is important [2].

The gross domestic product (GDP) stands for the total goods and services produced in a country during one year. Thus an increase of the GDP can be reached by expanding the quantity of production. Even if the additional number of produced goods don't find customers, the additional production still increases the GDP and constitutes economic growth. Produced goods, not sold goods, are counted.

What is the significance of the number measured in Euros described as the GDP? What is the significance of the aggregate called "economic growth" derived from the GDP? Is it socially useful to calculate the sheer quantity of produced goods irrespective of whether the society wants or can afford these goods?

From this view, conservatives [3] and [4] plead for expanding weekly working hours. Longer working hours means more production. More production means increased GDP. An increased GDP represents economic growth. Economic growth is the panacea or cure-all of neoliberal policy. But who uses products that once produced only rot away in warehouses since no additional purchasing power was created through the mere production? Isn't this purchasing power necessary so the products can be sold?

This calculation of the GDP and economic growth causes another problem that borders on self-deception: the valuation of products according to market prices.

When unsold goods are included in the calculation, they are valued at the price of sold products on the market. However the law of supply and demand says that prices fall when supply exceeds demand. Consequently a sale of the warehouse product at the past price is unlikely. The additional sales of products would occur at a lower price. These products are correspondingly over-valued. Thus critical analyses are vital.

To most people, whether the GDP rises or not doesn't matter. Whether they can afford the necessities of life is ultimately important to them. For many people, a statistic on the likelihood of losing their job would be much more interesting. Statistics on the share of wages or capital costs in the different product prices would also be revealing. Whether the non-wage labor costs in Germany are really too high or whether this discussion only diverts from the actual problems could then be explained. [5]

Does Inflation or Deflation Threaten?

The experts disagree. The German government opposes the International Monetary Fund (IMF) analysis of a deflation danger for Germany. [6] Can several experts in opposition be right at the same time?

Deflation represents a general lowering of prices. Consumers could be glad about this. Deflation is a danger since a deflation spiral can develop from continually falling prices, lower salves and higher unemployment. The inflation rate should specify how the price level develops. If the inflation rate is above zero, rising prices or inflation occurs. If the inflation rate is below zero, falling prices or deflation happens. Price stability, the actual goal of the European central bank, would exist with zero inflation. Even 2% inflation, a reduction in half of purchasing power over 35 years, is regarded as "stable".

The EU-statistics agency Eurostat [7] now criticized for corruption [8] reports that the inflation rate in the Euro-zone was 2% in June and 0.9% in Germany. According to statistics, prices in Germany have risen even if insignificantly.

A "discount mania in German retail trade" resounds [9]. The beer price at the Munich October festival has remained constant since 1969. Like the clothing industry [10], the auto-industry undercuts itself in a discount battle [11]... Movie prices have fallen in Berlin! [12] Who could have thought this would be possible?

The mystery of the contradiction between this subjective perception of falling prices and the supposedly objectively rising prices lies in the way of calculating the inflation rate. Discounts don't enter the calculation [13]. Thus retail trade realizes lower prices through discounts. This general price reduction is not reflected in the official inflation rate.

The development of the inflation-adjusted net income of employees may be a more revealing picture of the future development of a national economy and more interesting for many people or a trust index in which voters are asked how much trust they have in their representatives.

If this were coupled with salaries for politicians, a more honest politics could be expected.

More Proposals for Interesting Statistics

Much data which unfortunately isn't published and discussed like the development of the economic strength of a country would be far more interesting for the life of people.

How is the state of health of the population developing? Are behavioral breakdowns or heart attacks increasing or decreasing? Such analyses would say something about the functionality of the economic system. Are single parents increasing? Is the social exclusion of people a problem? Are people becoming more tolerant or not? Is the stress of the population increasing or decreasing? Does the quality of life of the citizen come before economic output? Quality of life is largely ignored by politics and only rarely described in statistics.

Is the Economy Going Through the Roof?

Or is this only the economic indicator of the ZEW (Center for European Economic Research)? The positive news of the ZEW was recently announced in different gazettes. Spiegel was even titled "Hope for Upswing: Economic indicator goes through the roof" [14]. Whoever still thinks the German economy or even capitalism is running poorly will be given some advice...

There is no obvious connection between expectations of financial experts and development of the economy. Relatively little confidence in the red-green German government exists among the interviewed financial experts. The decline of the ZEW-index after the electoral success intimated the change in government in the fall of 1998.
Is the ZEW-index a political index?

The ZEW-index obviously involves prognoses of an overrated target group. Is that astonishing? Economic growth involves real goods and services while financial experts are often occupied with the pseudo-world of speculation. Questioning retailers and the middle class would probably be more convincing. These groups influence the development of the real economy and simultaneously are influenced by that economy.

For the average consumer, the question how many jobs will be brought by economic growth is important... the German economy in 2000 grew 2.9% while unemployment was substantially higher than in 1992 when only 2.2% growth was achieved. Obviously many factors influence the development of unemployment. The growth rate of produced goods is not the only factor.

Edmund Stoiber, conservative chancellor candidate, sees this differently: "This deficient growth is a decisive cause of our high unemployment." Every natural growth process sooner or later falls into a satiation phase. Economic growth is no exception (Growth, Growth above everything [17]). Even the "greens" and Foreign minister Fischer still see economic growth as the "crucial question".

Even economic editors have problems in interpreting certain data. The contradictions between the rise of unemployment figures in the US and the rise of the business activity index becomes simply "diverging US data". This contradiction contributes to omitting concrete statements about the economic situation. One must question the supposed independence of such news producers when a higher unemployment rate is described by the same station as stagnation of the US labor market.

Politicians like to use statistical manipulation to present themselves in a better light. For example, the Federal Labor Office regards its successes as successes of the red-green German government. Their idea is not to include the unemployed who report sick in the unemployment statistics. Thus the next flu epidemic may create a good mood in the government, the employment office and economic press authorities. However the problems of missing jobs (officially 4.7 million and unofficially over 7 million) are not really remedied.

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