The statistics corner: economic statistics in the next century

Business Economics, Jan, 1996 by Martin Fleming

IN MY EXPERIENCE as a strategic planner, I have found it useful to step back and look at the big picture. It is very easy to get lost in the detail and not have the perspective senior managers must take - be it a CEO or a president. For that reason, the following parable may be useful in thinking about where the U.S. economic statistics system has been over the past few years and where it ought to be going.

Suppose that shortly after the presidential election in November, you are asked to meet with the president-elect to discuss the issues that you and he think will be most important in managing the economy over the next four years.

Like any good, competent professional you prepare diligently for your meeting. You read the nation's leading newspapers carefully, peruse the business press and review the recent publications from the major Washington research organizations. Of course, you also consult with your-colleagues who work as business economists in the private sector, with those who live and work in the academic world and, just as important, with those who are economic policy practitioners in Washington. Just to be completely prepared, you might reach out to scholars trained in history and political science and perhaps even to a prominent political strategist or two.

Having done your homework, the appointed day arrives and you travel to what is inevitably a remote location to visit with the presidential-elect. You expect him immediately to launch right into a serious, pragmatic conversation with little interest in small talk. However, much to your surprise you find that he is very relaxed and shows a great interest in many aspects of economics and economic policy. After an extended two-hour discussion, his surprising level of interest becomes clear to you. Apparently, the campaign has taught him that to maintain control of the presidency and the Congress beyond the current term, he believes that he and his supporters must be successful in translating their political victory into durable long-term economic benefits for the majority of the country. While he understands that the economic problems the country faces will by no means be solved quickly, he apparently believes that the sooner he starts, the greater are his chances of political and economic success.

To you, the most surprising aspect of this conversation is the topic he raises next. Someone has apparently told him that his ability to implement a successful economic policy, and therefore to achieve his political goals, may be seriously hampered by a badly deteriorated economic statistics system. He apparently believes that without the best information possible the chances of being blind-sided by unanticipated economic events increase significantly. He says that he thinks that the Government Accounting Office has recently prepared a report on this topic.(1) He also says that he would like to know if it is true the measurement problems, such as those related to the Consumer Price Index, trade data and measures of output and productivity, can affect the budget and economic policymaking. He is also concerned about the possibility of the sudden appearance of one or more adverse global economic trends that could have been developing for many, many years but that the statistical system is not equipped to uncover or measure.

Notwithstanding all the homework you have done, you find his interest in the topic of economic statistics to be very surprising. In fact, it is the one topic you guessed he would never raise in your discussions. However, because he seems to have an interest in the topic, you take the opportunity to lay out for him your view of some of the things that have happened in the economic statistics system in recent years and where the system should be going in the years ahead.

You begin, of course, by saying that, while the system has been seriously deprived of resources over the past decade, to say the system has badly deteriorated is an exaggeration. You explain to the president-elect that the major statistical agencies are staffed by professionals who are among the most competent in the government, and each month they produce an impressive set of major economic indicators that, if not from month to month then certainly over the long term, provide a reasonably accurate view of the U.S. economy.(2) However, you acknowledge that, beginning about fifteen years ago, substantial budget reductions began a process of stagnation in the resources available to the agencies just at the time when the pace of global economic change was beginning to accelerate from its already rapid pace.(3)

You explain to him that this combination of circumstances has reduced the ability of the economic statistics agencies to provide the president with the kind of timely, detailed information he and his staff require. It is not that statistical releases are being delayed by staff shortages or lazy federal bureaucrats, but that more and more of the estimates are made up of source data that are available only with a substantial lag. When we were principally a manufacturing or an agricultural economy, we could count and estimate output quickly, and the services that are more difficult to count and estimate were much less important to the overall economy. However, in what is now a knowledge-driven economy, services are very important. Unfortunately, we still estimate much of our data with many of the same programs we used thirty and forty years ago, when the economy was very different from what it is today.(4)