Deceptive statistics



By Phil Grant

Some of the economic statistics put out by the government and parroted by the mainstream media for general public consumption are downright misleading. It is not that they are inaccurate, false or biased. It is just that what they imply is different from what actually is. It is more that they give an incomplete perspective. It is what they don’t say that causes much of the misinterpretation.

For any statistic to have real meaning it must be viewed in context and usually must be presented with a batch of other related statistics. Often a statistic doesn’t have much meaning unless it is compared to something such as a standard, or the same measurement taken in different time periods, or in different organizations or situations. Statistics that do not acknowledge uncertainty, or a possible error range, can lead to exceptionally flawed interpretation. Stats that are presented as a single number could often have much more value to the reader if they were presented in a ratio format. For example, the federal debt of $18 trillion would be more readily interpreted if presented as debt per person which comes out to be about $53,000.

Sometimes economic metrics blur the picture because it is not apparent whether or not they are adjusted for inflation or whether or not they are seasonally adjusted. To help with perspective, stats that are part of a trend, or part of some larger data set, should be presented acknowledging that trend or set. Is the stat an estimate, a projection, or computation from hard, actual data? If the stat is an average, is it a normal average or a weighted average? Often these kinds of questions are left to the reader to wonder about.

Let’s look at seven statistics the government and mainstream media commonly publish, and briefly highlight some reasons each of these stats is deceptive for the average, non-technical consumer of such information.

Unemployment rate: This is a popular ratio metric that divides the number of unemployed workers in the country by the number of workers in the labor force. Right now it is about 6.2 percent. This number is particularly deceiving because it does not count approximately 75 percent of the unemployed workers. It only includes unemployed workers who have been looking for work during the four weeks preceding the computation of the stat. Midterm (5 to 27 weeks) and long-term (27 weeks on up) unemployed workers are left out, so the statistic substantially understates the seriousness of the unemployment situation.

This statistic also is misleading because it does not count as unemployment any portion of the decreased hours worked by the nation’s increasing body of part-time workers. It counts part-timers as full-time employees. Further, the stat does not account for the increasing number of mismatches between job requirements and worker skills that causes under-employment.

Job growth: This is a very popular metric that highlights how many net new jobs are created in the economy each month. At present it is running around 200,000. But this figure is not reconciled with the net number of new people coming into the labor force each month, so it doesn’t correctly indicate any improvement (or deterioration) in the employment situation. Normally, the new people coming in are around 100,000 to 150,000, meaning that the real number of jobs added to reduce unemployment is only 50,000 to 100,000, not the 200,000 erroneously implied.

What if, say, only 50,000 new jobs are created in a month? Then there would be no reduction in unemployment but rather a net gain in unemployed people of 50,000 to 100,000 because of the new people (100,000 to 150,000 of them) coming into the labor market. But all that typically gets reported is the 50,000 new jobs created, implying employment is getting better and the economy is growing. Also, this job growth figure does not make evident that new jobs are, more frequently than not, low-wage jobs, temporary and/or part time. They tend to be marginal jobs with marginal rewards, certainly not clear from the metric.

Jobs and gross domestic product (GDP) can increase steadily, but if the population increases faster and if income growth is increasingly concentrated among a relatively few people at high-income echelons, the economic health of most individuals can go south in a hurry.

Inflation: This is often measured by the consumer price index (CPI). It can be a most deceiving index. First, it measures price change of certain consumer goods in a limited number of cities. It is a one-size-fits-all metric that actually does not measure real inflation for millions of rural Americans who purchase a different market basket.

But even more deceiving is that often certain key components of the index are left out of the computation if they are deemed by the government to be too volatile. For example, energy and food prices, though they are key components of the CPI, often will be ignored in the inflation calculation if they change too much too quickly. Energy and food prices may remain changed for six months or more, but their contribution to inflation is often not officially recognized in the index.

Average income: Average personal income is often published for our country to give an idea of how well off we are economically — to give an idea of consumer purchasing power. When U.S. average income is compared with average income in other countries it portrays our relative standing in the world with respect to people’s ability to buy goods and services. But the average income figure ($43,000 not long ago) is very misleading because it doesn’t tell you that approximately 73 percent of the working population makes less than the average wage. In fact, 50 percent of the people made less than $27,000 (the median) when the average was $43,000.

This country has a few very rich folk who keep the average high. It takes millions of people with their relatively low incomes to bring the average down. Because of the nature of an average we see, in many countries of the world, lower average incomes than in the United States but actually higher standards of living for a majority of their people. This is because income is more evenly distributed across all citizenry in those countries.

Percent of people on welfare: Welfare has gone through the roof in this country in the last five years or so. We now see about one-third of the country on welfare. That is about 100 million people. We think of welfare as a temporary safety net to allow people who fall on hard times to sustain themselves. But millions of people stay on welfare for five years or more, indeed, many for a lifetime. What is most deceiving about this metric is that approximately 47 percent of the people receiving some kind of welfare are not poor; they do not have a need for the welfare. Some on welfare are rather well-to-do financially, but they meet a single test to qualify for the help. Many on welfare have good full-time jobs. It is not the need-based program we are led to believe.

Federal debt and federal debt per capita: When the total federal debt of $18 trillion is interpreted by the reader it really doesn’t mean much at all other than that it is a pretty high figure compared to most things we attach dollar amounts to. You can translate this figure to $53,000 per person in this country. That probably means a little more. It says that every man, woman and child in this country owes $53,000 to eliminate the federal (not national) debt. But this can be very deceiving because what the debt really costs us is what we pay in interest on the debt. That is around 20-25 billion dollars per month, which translates to about $83 per month for each person. This is something we can relate to. However, how much you will actually pay depends on your tax bracket. Half of all Americans won’t pay anything on the debt because they don’t pay any taxes. One-fourth of the taxpayers will pay $2 to $20 or so per month. A relatively few, with high incomes, will pick up most of the tab.

Also, the federal debt is a rather uninterpretable figure unless you compare it with something such as the gross domestic product (GDP), trend in federal debt level or the country’s ability to pay off the debt. For example, federal debt is running about 110 percent of GDP right now. That isn’t bad for our debt servicing capability, but noting that federal debt continues to rise as a percent of GDP, and that it has almost doubled in magnitude in the last four years, may be cause for concern.

Stock market indices: Of course, non-government groups such as the New York Stock Exchange publish these, as does the government. Stock market values and trends are usually interpreted as signs of the health of the economy. But this is deceptive. Stock values and trends measure the economic health of a relatively few, albeit, important businesses. There are only 2,800 firms on the NYSE. There are 24 million businesses in the country. Firms represented in the stock market are a rather small sample. They tend to be much larger businesses than those not on the stock exchange. They are not highly representative of Main Street America.

What stock market values measure has more to do with profitability of a few, large companies than with the economic health of the majority of families throughout the country. A good example is what has happened in the last year or so: Large, stock-traded companies have made money and stock values have soared, but the economic life of the average American has not improved, with wages remaining low, benefits being cut and real unemployment staying high. Companies frequently make higher profits by trading off relatively expensive labor for less costly automation.

Statistics such as these are valuable for helping judge the performance of the economy. But you have to look behind the statistic to acquire a true understanding. And keep in mind, you can have rising stock prices, an expanding gross domestic product, high job growth, increasing average wages and so on and still have a stagnant or declining standard of living for the majority of Americans.

 

Phil Grant, a resident of Birch Harbor, is professor emeritus at Husson University. He is the founder of the Law of Escalating Marginal Sacrifice and author of 10 technical books, including “The Mathematics of Human Motivation.” He has spent his career advancing the sciences of human performance and performance econometrics. Grant’s new book, “Reformulating the Foundations of Microeconomic Theory,” is coming out soon.

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