Zachary Karabell is on to something when he writes in the latest TIME magazine that much government economic policy is based on statistics that aren?t as valuable as they might appear:
If you examine almost any government statistic or calculation more closely, you will find that it is a guesstimate.
Why is this a problem?
The flimsiness of statistics and the way we assemble them are not the result of human stupidity. They are the consequence of increasingly complex systems and a globalized economy of supply chains that have evolved more quickly than our ability to measure them.
The problem is that politics in general and economic policy in particular demand simplicity and predictability. You can’t pass major legislation in the U.S. by saying, “Well, there are too many variables to know for sure how this will add to the budget deficit.” You can’t claim to have fixed problems unless there is clear evidence that you have done so, even if the whole idea of clear evidence is a fiction.
The problem with our data maps, in short, isn’t just that they’re inexact. It’s that we decide how to spend trillions of dollars, invest trillions more and answer the simple question “How are we doing?” using outmoded methods and questionable figures.
Having identified a real problem, Karabell stumbles in the next sentence when he suggests that the answer is ?better models.? While there?s nothing wrong with that idea, it signals a basic misconception about the economy.
Assuming that better models would lead to better economic policy means you?ve bought into the notion that government can plan economic activity better than invisible market forces can.
Advocate that belief, and you?ll believe that government experts can decide better than market actors how many loaves of bread should be on supermarket shelves, how much gasoline should be in filling station tanks, or how many cars should be on the auto dealer?s lot.
Ask the Russians how well that sort of government involvement in economic decision making worked out.
For a sense of how prices ? not government dictates based on statistical models ? work best in meeting people?s needs, perhaps Mr. Karabell ought to dig into a copy of Mises? Human Action.
