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Poor statistics plague economic planners

THE BALTIMORE SUN

Washington -- Because the nation's chief enemy these days is red ink, President Bush has called on Congress to raise a bigger army of number-crunchers to keep closer tabs on the money you spend.

While demanding massive cuts from the Pentagon to battle mushrooming budget deficits, Mr. Bush wants to spend $200 million to find out more about you, your income and what you spend it on.

Uncle Sam also wants to know more -- and more quickly -- about wholesale and retail prices, factory production, inventories, trade and how, why and when businesses make hiring, firing and spending decisions.

Why? Because economic statistics are flawed, which makes forecasting harder. And unless they are improved, experts say, neither the captains of industry nor the president's

lieutenants can hope to rally the economy.

Mr. Bush's five-year Economics Statistics Initiative is aimed at righting wrongs caused by former President Ronald Reagan's raids on the coffers of statistical agencies to pay for his Strategic Defense Initiative.

Budgets for the biggest statistics mills -- the Bureau of Labor Statistics, the Census Bureau and the Bureau of Economic Analysis -- were cut 15 percent in the 1980s as the number of businesses, households and working people was exploding.

Although Washington's army of economists and statisticians still is 21,000 strong, as many as 1,000 lost their jobs.

"There were hiring freezes, people were encouraged to retire early, and programs were discontinued," said economist Larry Moran of the Bureau of Economic Analysis, which is housed in a creaky old building with elevators so slow that top officials routinely walk up and down three flights of steps.

The loss of so many experts, along with cutbacks that forced agencies to make do with outmoded technology, inflicted a heavy toll on the quality of data. Also, said Thomas J. Plewes, associate commissioner of the Bureau of Labor Statistics, the "shrinking resources came at a period when the economy was changing rapidly in terms of its structure."

The result -- fewer people to examine more data -- was like telling air controllers to track twice as many planes through a thickening fog. Experts say the agencies need more people and tools on a par with those the Pentagon used to drop bombs on Iraq.

It's a constant war to keep the economy moving, said Michael J. Boskin, chairman of the president's Council of Economic Advisers, and it can't be won without better weapons.

Unfortunately, many experts say today's economic radar is incapable of tracking very much. Economists who use the data for forecasts might as well be "shooting in the dark," said Joseph W. Duncan of Dun & Bradstreet Corp., formerly the government's chief statistician.

"If you have wrong information, you're going to have wrong policy," Mr. Duncan said. "People will make bad decisions."

Bad decisions by policy-makers may have caused the latest slump, Mr. Boskin said.

"Virtually none of us a year in advance saw the economy flattening out in 1991," he said. "Virtually everyone had the economy improving."

But it didn't. And, although the recession may have "technically" ended last spring, Mr. Boskin said, growth ever since has been so weak that most people can't see much improvement. Faulty data may be partly to blame.

"We found out the Labor Department had under-counted the unemployed by 650,000 in the first quarter of '91," Mr. Boskin said. "If we had known that, it might have led the Federal Reserve to be more aggressive sooner" in cutting interest rates to boost the economy. "It's vitally important that we have better economic intelligence."

In short, had the Fed known last spring what it found out in the fall, thousands of people who lost jobs last year might not have become casualties of the recession, consumer confidence might not be as low as it is, and the economy might be charging ahead.

Forecasting is "imprecise," Mr. Boskin said, and such mistakes as under-counting the unemployed -- which has never been explained -- make it even more difficult to diagnose the economy's ills.

That is why the Bush administration is pushing its plan to build a better statistics machine, even in the face of huge budget deficits. Over the next five years, the administration wants to hire more statisticians, devise new methods to measure a service-dominated economy and conduct more statistically valid surveys.

The goal, Mr. Boskin said, is to "improve the timeliness and the accuracy and the methodology and conceptual foundation of everything from better measurements of service-sector productivity to more timely measures of unemployment and employment, and more accurate measures of our international position."

That is a huge task, but the program is supported by Democrats as well as Republicans.

"After all, we're not talking about money that would be a budget-buster," said Thomas D. Boston of the Joint Economic Committee of Congress, headed by Sen. Paul S. Sarbanes, D-Md. "If we hope to be competitive in a global economy, we must have better statistics."

Because statistics are so questionable, many economists rely on anecdotal evidence. Mr. Boskin said he chats monthly with executives of businesses of all sizes. The administration even looks at things such as light bulb sales to get a feel of the economy's pulse.

"Even though it's anecdotal, it's more current than government statistics," Mr. Boskin said.

Without a better window on the economy, improving the nation's record of economic growth will be hard, because policy-makers will have to keep going on instinct rather than making decisions based on reliable facts.

"Under Reagan, there was this view that economic statistics weren't important," said Martin Fleming of Cahners Economics, who heads the National Association of Business Economists' statistics committee. "But we are seeing the cost of that neglect, because businesses make decisions based on the information that's available."

The association has criticized U.S. statistics, which Mr. Fleming said measure "the manufacturing economy of the 1940s. The economy is very different from that today -- 80 percent of activity is in the service sector."

The government doesn't do a good job of tracking how much consumers spend on services such as health, restaurants, dry cleaning, and video rentals and dozens of other businesses born in the past 30 years, Mr. Fleming said.

Also, reports on things such as economic growth are based to a large degree on stale information, he said, "so more frequent data collection is required."

In addition to setting up the necessary mechanisms, Mr. Boskin said, experts also need to take into account the fact that "the population and labor force is growing at a much slower rate than in the '70s and '80s."

The Bush initiative also calls for better ways to track exports and the use of new computer techniques to make statistical surveys more meaningful and useful.

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