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| Economic Indicators have outlived their time |
Like the unemployment and inflation, housing starts, G.D.P. changes and other figures, these numbers arrive in metronomic waves. Financial services like Bloomberg, Dow Jones and Reuters blast them out the moment they’re released. Stock markets will often respond within seconds. Commentators and policy makers attribute to them a near-cosmic significance.
We act as if they are markers from time immemorial, but in fact they were invented for modern industrial nations after the Depression and World War II and are now seriously outdated.
Take gross domestic product. Derived from formulas set down by the economist Simon Kuznets and others in the 1930s, its limitations have long been recognized, none more eloquently than by Robert F. Kennedy in a famous speech in 1968 when he declared that it measured everything except that which is worth measuring.
GDP treats all output as a positive. When you buy LED lights that obviate the need to spend on incandescent bulbs and reduce energy consumption, GDP goes down and what should be an unmitigated good becomes a statistical negative. If a coal company pollutes a river, the cleanup costs are positive for GDP, as are any health care costs for those harmed.
What’s more, we have also come to assume that with output comes more spending and employment, but factories today are powered by robotics and software, and robots don’t buy more lattes and shoes.
GDP is a good number for a nation that produces lots of stuff made by lots of workers, but for an information economy grounded in services and intellectual property and awash in apps that cost nothing yet enable commerce, it is not up to the task. Nor are many of our indicators. Our trade figures treat an iPhone made—more accurately, assembled—in China with no reference to the intellectual property created by Apple in California.
Yes, large corporations have economists who attempt to draw correlations between macro-indicators and business trends, and companies decide on how to much to spend based in part on a read of future interest rates, growth trends, and inflation. But even here, the connection between big numbers and business realities has broken down. If national retail sales that measure big stores in malls are weak, that says nothing about how much e-commerce might be up. If consumer spending writ large sags, that says nothing about higher end spending at mass luxury stores like Michael Kors or lower-end retailers such as Dollar Tree. Making decisions based on what the indicators say is almost certainly a recipe for making the wrong decisions.
Weaning ourselves from our obsession with economic indicators is a vital step to grappling with the world as it is and making decisions that yield positive results. Individuals, companies, and governments will find their interests best served by creative approaches that craft indicators that draw on the wealth of big data information rather than cramming all reality into a few simple averages. The indicators of the 20th did yeoman service in taming the worst extremes of economic cycles. We should thank them, and move on.
Read more: The Zombie Numbers That Rule the U.S. Economy - Zachary Karabell - The Atlantic
