The Complexity of Economic Data
by Billy Joe Mills • Sep 3rd, 2008 at 1:22 pm • 1 comment
Many people declare with great certainty that the American economy and its participants are in shambles. Because Bush has been President since 2000, it has usually been Democrats who have taken the most pessimistic views of the economy. If a Democrat had been President since 2000, I have no doubt that Republicans would be equally pessimistic. The problem is that economic data is incredibly malleable, and therefore, incredibly difficult to draw firm conclusions from.
Economic data can be looked at from an array of angles and terms can be defined in confusing ways. For instance, the unemployment rate (currently 5.7%) is calculated as the “number of unemployed as a percent of the labor force.” Unemployed persons are defined as:
Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.
That definition excludes many important people “in” the economy. It excludes “discouraged workers,” who are people that have given up looking for a job because they cannot find one. It also does not count the “underemployed.”
Something that has always bothered me about poverty data is that government subsidies and support are not included in its calculation. Pessimists enjoy talking about the shame of the world’s richest country allowing for ~12.5% of its population to live in poverty, but the data does not reflect the reality for the reason just stated. Poverty data only calculates cash as income. Congress is finally making an effort to clean up its data collection methods by introducing legislation that would make poverty data more accurate: “Bipartisan Calls for New Federal Poverty Measure.” This effort is an effective admission that past data is severely flawed. The poverty data is not the only deficient measure.
The point of my boring economic story is not liberal or conservative or political at all. I simply wish to warn that the accuracy and authority of economic data is always tenuous. Be wary and skeptical of every dataset and every statistician.
Comment by Brandon Ruiz on 3 September 2008 at 2:14 pm:
Good points. It also bears mentioning that the poverty line is completely arbitrary and even the economist who initially made it up thinks it’s bunk because it was a rough rule of thumb. I think they basically took the USDA’s low-cost meal plan and multiplied by 4 because most families spent about 1/4 of their income on food in the 1950s. That proportion is down and the low-cost meal plan was sort of an “if you are trying to get your balanced nutrition as cheaply and bare-bones as possible” number.
Fluctuations in labor force participation might be a better indicator of economic health than the unemployment number because that also takes into account people who drop out and stay home with the kids or go back to school, etc.