National accounts as metaphor

I happened to be reading (as you do) an essay by Thomas Schelling in an out-of-print 1958 NBER volume, [amazon_link id=”B0006D9M14″ target=”_blank” ]A Critique of the United States Income and Product Accounts[/amazon_link]. It’s a very thought-provoking challenge to the very idea that the double (or in fact quadruple) entry system is appropriate for aggregate economic measurement. He argues that they are an elegant theoretical construct but few of the numbers have any practical interest. He suggests the drive for consistency can be counter-productive: “There is no need to impose consistency on our tables if, in fact, businessmen evaluate a significant magnitude wrongly, or just differently from the economist; both estimates are of economic significance.”

Schelling also writes: “The fact is that the real accounts do not balance, only money accounts do. I think this point is insufficiently appreciated. …[W]hat we call “real” magnitudes are not completely real; only the money magnitudes are real. The “real” ones are hypothetical.” Real values don’t follow the rules of accounting, he emphasises.

This brought to mind the illustrations in Andre Vanoli’s [amazon_link id=”1586034693″ target=”_blank” ]A History of National Accounting[/amazon_link] (another out-of-print volume – is this a theme?) of the simplified social accounting matrices set out by Richard Stone in his work in the early days of modern national accounting. Increasingly large, they have only a small proportion of cells with anything in them. The actual numbers don’t matter; the point is the logical relations between them. As Schelling says in his essay, they might just as well be asterisks or emoticons (well, he doesn’t say emoticons but they would do fine). It’s ironic that what appears to be the area of economics closest to the coal face of actual data – national accounting – is no less saturated with theoretical (‘hypothetical’) constructs than any other area of economics.

The famous Punch cartoon of the Phillips Machine still has bite

The famous Punch cartoon of the Phillips Machine still has bite

HT [amazon_link id=”0141187123″ target=”_blank” ]Susan Sontag[/amazon_link] for the title of this post

Poetry in statistics

In a tremendous public service, Count Bayesie (Will Kurt) has put together a series of his blog posts that amount to a superbly clear and accessible guide to Bayesian statistics. Highly recommended, especially for doctors but also for economists – great teaching material here too.

Generously, the guide starts by recommending another book, Nate Silver’s excellent [amazon_link id=”0141975652″ target=”_blank” ]The Signal and the Noise[/amazon_link], something I would put on the reading list of all students, even those who only need to be minimally numerate to get their degree. (After all, how else can we grow them into intelligent voters?)

Encouragingly, Will Kurt himself started with an English degree before becoming a data scientist. Code is language too, and there is poetry in it. Even in probability and statistics.

[amazon_image id=”0141975652″ link=”true” target=”_blank” size=”medium” ]The Signal and the Noise: The Art and Science of Prediction[/amazon_image]

A radical GDP rethink needed

This is possibly stretching the definition of ‘book’, but at 259 pages, the Bean Review of Economic Statistics certainly has the heft to be classed as one. Either way, it’s worth a post here. This is not only because it covers one of my favourite subjects, [amazon_link id=”0691169853″ target=”_blank” ]GDP[/amazon_link], but also because it signals a milestone in economic thinking.

Professor Charles Bean launching his report

Professor Charles Bean launching his report

Since the 2009 report of the Sen-Stiglitz-Fitoussi Commission (summed up in the book [amazon_link id=”B00E32LW1C” target=”_blank” ]Mismeasuring Our Lives: Why GDP Doesn’t Add Up[/amazon_link]) there has been some policy traction for the ‘Beyond GDP’ agenda, not least because it builds on a long-standing set of critiques from environmentalists and researchers on well-being. Indeed, this week’s Economist argues for including unpaid ‘home production’ in GDP, something debated in the 1940s and campaigned for by feminist economists ever since.

The Bean Review is to my mind more radical because it questions the ‘GDP’ part. It contains considerable detail (and kindly citing some of my work) on the multiple ways conventional national income accounting is more and more a mismatch for the structure of the economy – looking at intangibles, the gap between market output and consumer surplus, the production boundary, the consequences of digitisation and lack of business model invariance of the statistics, and more.

[amazon_image id=”B00E32LW1C” link=”true” target=”_blank” size=”medium” ]Mismeasuring Our Lives: Why GDP Doesn’t Add Up by Stiglitz, Joseph E., Sen, Amartya, Fitoussi, Jean-Paul published by New Press, The (2010)[/amazon_image]

There is a great deal of interest in the question of economic measurement now. The additional challenge to the existing statistics from the digital sector has helped with policy traction – although it does mean the GDP question is seen largely through the prism of whether mismeasurement ‘explains’ the productivity slowdown – as in this new paper by Byrne, Fernald and Reinsdorf, Does the US have a productivity slowdown or a measurement problem? These are not mutually exclusive in the way the title suggests. There’s an embarrassment of possible causes of the productivity slowdown, ranging from demographic trends to under-investment related to the crisis, and it isn’t sensible to consider that measurement issues predominate.

More interesting than how much of current measured productivity growth is due to mismeasurement is the deeper question of whether the national accounts definitions remain the best way to conceptualise a largely service-based, increasingly intangible, increasingly customized and globalized economy, while failing to measure systematically non-market activities when the production boundary is blurring, and ignoring entirely the depletion of capital in the form of infrastructure or natural capital. (That’s a rhetorical question.) The Bean Review essentially poses the same question and indicates firmly that the UK and the ONS should take the lead in the debate. I’m a stats geek of sorts, but to me that seems very exciting. As Mario Pisani of the Review team tweeted:

Mario_Pisani
UK was pioneer of national accounting – we need to take stats ‘back to the future’ or miss parts of modern economy https://t.co/Ln4u5xqhN5
11/03/2016 08:53

Economic progress

It’s reading week here so I’ve had the luxury of an afternoon in my office, thinking quietly about my favourite subject, economic statistics and their meaning. I picked up Colin Clark’s [amazon_link id=”B016S90XYO” target=”_blank” ]The Conditions of Economic Progress [/amazon_link]from the shelf: “The securing of an abundant supply of these goods and services, though among the most important objects of economic science, is by no means the only object. We properly include among the objects of economic science the attaining of a just distribution of wealth between individuals and groups, and security of their livelihoods, the mitigation of economic fluctuations, and the increase in leisure, though recognising that these objects are sometimes inconsistent with each other.” To improve the trade-offs, he continues, we need “disciplined study of the facts.”

Hear, hear. The question of the aims of economic policy (and economic science) came up at the conference I attended this morning, organised by my politics and development colleagues in honour of the late, great Sammy Finer. For policy debate has become narrowly focused on GDP growth, and it isn’t obvious how anybody can break out of the cycle: media criticise politicians on economic growth record – politicians obsess about GDP – statistical effort is dominated by GDP figures – published GDP figures grab media attention.

I guess my hope is that modernising economic statistics will inject some humility about taking the GDP statistics as accurate gospel, and ultimately lead to some conceptual work on measuring economic welfare better than current statistics allow us to do. Hence some of my recent posts – this for the latest NIESR Review and this for the FT’s The Exchange blog.

Back to Colin Clark.

Statistics in a disordered world

I’m writing about GDP in particular and economic statistics in general again – can’t keep off the subject (& by the way, [amazon_link id=”0691169853″ target=”_blank” ]GDP[/amazon_link] is out now in paperback!) Today I picked up Adam Tooze’s marvellous 2001 book [amazon_link id=”0521039126″ target=”_blank” ]Statistics and the German State 1900-1945[/amazon_link]: “This book … has sought to portray the construction of a modern system of economic statistics as a complex and contested process of social engineering … A functioning statistical system … implied a particular model of political order and in particular a vision of the relationship between state and civil society.”

The national accounts framework in place today is a modernist project. Like so many of these, it is being unravelled in unpredictable ways by technology, globalisation, and the changing character of the state. My writing task today is responding to the call for evidence on the current Review of Economic Statistics. It’s a tall order to say something succinct about getting from the categorisation of the world coded into current statistics to something closer to (disordered) realities, especially when there is an important element of performativity in statistical categories.

[amazon_image id=”0521039126″ link=”true” target=”_blank” size=”medium” ]Statistics and the German State, 1900-1945: The Making of Modern Economic Knowledge (Cambridge Studies in Modern Economic History)[/amazon_image]   [amazon_image id=”0691169853″ link=”true” target=”_blank” size=”medium” ]GDP: A Brief but Affectionate History[/amazon_image]