The Worrying Trend of Faking Numbers

Earlier this month Stanford University Economics Professor Michael J. Boskin wrote an article on the Wall Street Journal called “Don’t Like the Numbers? Change ‘Em.”  In it he discussed how lately, politicians and scientists who don't like what their data show have simply taken to changing the numbers. They believe that their end - socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française - justifies throwing out even minimum standards of accuracy. He further highlights that it appears no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail, Mr. Boskin concludes. While Boskin’s article is really well written, it highlights a worrying trend of people of influence, be it elected officials, scientists or figures of authority, fudging the numbers to show balance and order in their domain.

Boskin illustrates his point with some great examples. On GDP he highlights how politicians from Europe to South America are clamoring for alternative measures that make them look better (GDP is a measure of national income accounts that indicate real GDP and inflation). A commission appointed by French President Nicolas Sarkozy suggests heavily weighting "stability" indicators such as "security" and "equality" when calculating GDP. And voilà! - France outperforms the U.S., despite the fact that its per capita income is 30% lower. Nobel laureate Ed Prescott called this disparity the difference between "prosperity and depression" in a 2002 paper and attributed it entirely to France's higher taxes.

With Venezuela in recession by conventional GDP measures, President Hugo Chávez declared the GDP to be a capitalist plot. He wants a new, socialist-friendly way to measure the economy. Maybe East Germans were better off than their cousins in the West when the Berlin Wall fell; starving North Koreans are really better off than their relatives in South Korea; the 300 million Chinese lifted out of abject poverty in the last three decades were better off under Mao; and all those Cubans risking their lives fleeing to Florida on dinky boats are just loco. Yet Chávez has devalued the currency (again), essentially moving the line on the economic situation of the average citizen.

Professor Boskin points out that there is historical precedent for a "socialist GDP." Having served under President George H.W. Bush, Baskin spent time in the former Soviet Union to help Mikhail Gorbachev with economic reform, He found out that the Soviet statistics office kept two sets of books: those they published, and those they actually believed (plus another for Stalin when he was alive).

Sadly, America has not been immune from this dangerous numbers game. Every president is guilty of spinning unpleasant statistics. Currently, the administration is pushing counting the number of jobs “created or saved” by the stimulus bill, an attempt at transparency that has absolutely no merit. Worse than the notion of jobs “created or saved” is the statistic of “jobs saved” to take credit where none was ever taken before. This has caused confusion in the numbers whereby it misses the jobs lost or diverted by the fiscal stimulus. Throw into the picture the hyped numbers of “green jobs” congress claims are likely to be created from the vast spending, subsidies, loans and mandates, while ignoring the job losses caused by its taxes, debts, regulations and targeted penalties of the banking industry, and you have anything but transparency.

Based on flawed data like this, governments are regulating and radicals are pushing agendas impacting energy, environment, the economy, national debt, inflation and security without truly understanding their impact. Take the deeply flawed cap-and-trade bill as an example. Instead of honestly debating the trade-offs and impact of this ill-conceived piece of legislation, they confidently pronounce that it boosts the economy, when in reality it simply boosts favored sectors and firms at the expense of everyone else.

Boskin sites the example of radical environmentalists focused narrowly on their green agenda. He states “It's gotten so bad that the head of the California Air Resources Board, Mary Nichols, announced this past fall that costly new carbon regulations would boost the economy shortly after she was told by eight of the state's most respected economists that they were certain these new rules would damage the economy. The next day, her own economic consultant, Harvard's Robert Stavis, denounced her statement as a blatant distortion.”

Scientists are expected to make sure their findings are replicable, to make the data available, and to encourage the search for new theories and data that may overturn the current consensus. This is what Galileo, Darwin and Einstein -among the most celebrated scientists of all time - did. But some climate researchers, most notably at the University of East Anglia, attempted to hide or delete temperature data when that data didn't show recent rapid warming. They quietly suppressed and replaced the numbers, and then attempted to squelch publication of studies coming to different conclusions.

Fortunately, the public around the world do not believe much of this out-of-control spin, be it on the environment, health-care legislation or the state of the economy. Large majorities believe the health-care legislation in the US will raise their insurance costs and increase the budget deficit, and their views were heard around the country and the world when a young Republican no-name won the late Senator Ted Kennedy’s seat in Massachusetts, a seat the Democrats had held since 1972 in a State where Democrats outnumber Republicans by 3 to 1. This was not a vote on parties as much as it was a vote for checks and balances. Most Americans are highly skeptical of the claims of climate extremists. And they have a more realistic reaction to the extraordinary deterioration in our public finances than do the president and Congress.

As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous. In times like this I like to fall back on a little saying we have in my family, something we teach our young from an early age. We call it “Discipline”. Discipline is when we do the right thing, for the right reason, at the right time, no matter how difficult. Do the right thing, at the right time, for the right reason, no matter how difficult. We need discipline more than ever today and our elected officials, authorities and people in position of influence would do well to understand this. The people are watching.