Measuring the new economy using archaic data

April 12, 2001

Free Market Foundation

Some key U.S. government policies are being developed based on suspect data from federal agencies. No less a number cruncher than U.S.Federal Reserve chairman Alan Greenspan has complained of the “bedevilling job” of trying to foresee the future and the “significant stress on our statistical systems.”

Manufacturing data is calculated by the U.S. Bureau of Labour Statistics (BLS) but it is suspect because it is calculated under a formula dating back to Gerald Ford’s era in the White House.

The BLS is also responsible for the Consumer Price Index measured by price changes in a “basket of goods” that hasn’t been updated since the mid-1990s.

The Commerce Department, which is responsible for tracking productivity, found after a 1999 data revision that it was way off on how worker output had grown since the Reagan years.

It turns out that productivity didn’t grow by just 1 percent a year from the late 1970s to the late 1990s – but by 1.6 percent starting after the Reagan tax cuts, and by 3 percent a year in the later years of the Clinton administration.

Some analysts defend the competence of the agencies, but say they are hampered by insufficient funding. Congress has increased funding for some data collection agencies in 2000. And President Bush’s budget includes an 18 percent boost to the Commerce Department’s statistical efforts.

Source: Joseph Guinto, Can We Measure the New Economy With Archaic Data? Investor’s Business Daily, March 30, 2001.

For more on Commerce Department
http://www.ncpa.org/pd/budget/budget-7.html