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Saturday, November 15, 2014

Deceptive statistics by Phil Grant

Phil Grantprofessor emeritus at Husson University summarizes, "Some of the economic statistics put out by the government and parroted by the mainstream media for general public consumption are downright misleading."

It is not that they are inaccurate, false or biased. It is just that what they imply is different from what actually is. It is more that they give an incomplete perspective. It is what they don’t say that causes much of the misinterpretation.


For any statistic to have real meaning it must be viewed in context and usually must be presented with a batch of other related statistics. Often a statistic doesn’t have much meaning unless it is compared to something such as a standard, or the same measurement taken in different time periods, or in different organizations or situations. Statistics that do not acknowledge uncertainty, or a possible error range, can lead to exceptionally flawed interpretation. Stats that are presented as a single number could often have much more value to the reader if they were presented in a ratio format. For example, the federal debt of $18 trillion would be more readily interpreted if presented as debt per person which comes out to be about $53,000.

Sometimes economic metrics blur the picture because it is not apparent whether or not they are adjusted for inflation or whether or not they are seasonally adjusted. To help with perspective, stats that are part of a trend, or part of some larger data set, should be presented acknowledging that trend or set. Is the stat an estimate, a projection, or computation from hard, actual data? If the stat is an average, is it a normal average or a weighted average? Often these kinds of questions are left to the reader to wonder about.

Let’s look at seven statistics the government and mainstream media commonly publish, and briefly highlight some reasons each of these stats is deceptive for the average, non-technical consumer of such information.

Unemployment rate: This is a popular ratio metric that divides the number of unemployed workers in the country by the number of workers in the labor force. Right now it is about 6.2 percent. This number is particularly deceiving because it does not count approximately 75 percent of the unemployed workers. It only includes unemployed workers who have been looking for work during the four weeks preceding the computation of the stat. Midterm (5 to 27 weeks) and long-term (27 weeks on up) unemployed workers are left out, so the statistic substantially understates the seriousness of the unemployment situation.

This statistic also is misleading because it does not count as unemployment any portion of the decreased hours worked by the nation’s increasing body of part-time workers. It counts part-timers as full-time employees. Further, the stat does not account for the increasing number of mismatches between job requirements and worker skills that causes under-employment.

Job growth: This is a very popular metric that highlights how many net new jobs are created in the economy each month. At present it is running around 200,000. But this figure is not reconciled with the net number of new people coming into the labor force each month, so it doesn’t correctly indicate any improvement (or deterioration) in the employment situation. Normally, the new people coming in are around 100,000 to 150,000, meaning that the real number of jobs added to reduce unemployment is only 50,000 to 100,000, not the 200,000 erroneously implied.

What if, say, only 50,000 new jobs are created in a month? Then there would be no reduction in unemployment but rather a net gain in unemployed people of 50,000 to 100,000 because of the new people (100,000 to 150,000 of them) coming into the labor market. But all that typically gets reported is the 50,000 new jobs created, implying employment is getting better and the economy is growing. Also, this job growth figure does not make evident that new jobs are, more frequently than not, low-wage jobs, temporary and/or part time. They tend to be marginal jobs with marginal rewards, certainly not clear from the metric.

Jobs and gross domestic product (GDP) can increase steadily, but if the population increases faster and if income growth is increasingly concentrated among a relatively few people at high-income echelons, the economic health of most individuals can go south in a hurry.
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Additional resources 
Grant’s new book, “Reformulating the Foundations of Microeconomic Theory,” is coming out soon.

Source: The Ellsworth American