Reinhart and Rogoff story shows how important it is to check your indicators

This month two academic researchers showed that there were errors in the calculations behind the claim by economists Carmen Reinhart and Kenneth Rogoff that the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one [...]

Armstrong Affair shows USADA uninfluenced by measurement

The US Anti-Doping Agency says it has “overwhelming proof” seven-time Tour-de-France winner Lance Armstrong was cheating by doping himself with performance-enhancing substances. What is the evidence? Armstrong was tested for drugs perhaps hundreds of times during his cycling career. Every single test pronounced him clean. That is strong evidence against doping. According to the USADA, [...]

Obama’s chained inaccuracy

(This article by Philip Green and George Gabor first appeared as a special to the Financial Post on August 16 2012). The Obama administration is considering adopting the “chained consumer price index,” as the principal measure of inflation upon which increases in payments to such things as Social Security would be tied. The Chained-CPI is [...]

Dillusions of importance

Economist Fredrich Hayek, in his 1972 Nobel lecture, criticised what he called the “scientistic” approach to economics. His criticism applies today to those who over-emphasize the importance of measurement in management. He said: Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects [...]

Beliefs, prejudices and data

When you see a bunch of things moving around in a flock on a pond in the distance, making quacking sounds, and occasionally becoming airborne, you do not ask for DNA evidence to determine that they are ducks, because you already have a lot of background information about swimming ducks. If someone told you they [...]

Brilliant propaganda, but lousy indicator of rate of growth of US debt.

There is a little graphic being circulated around the Internet intended to show that President Obama has recklessly doubled the total US debt accumulated since President Washington. As a piece of political propaganda it is brilliant. It implies that President Obama’s administration is worse than [...]

A leading indicator of business cycles that have already happened

A “leading indicator” is supposed to forecast, or at least to help the person using it, to make a forecast. The Conference Board recently announced that it was changing its Leading Economic Indicator to address structural changes that have occurred in the US economy in the last few decades. The new indicator was released on [...]

Are Americans getting wealthier or poorer? It depends on how you measure “wealth.”

The standard measure of wealth is GDP per capita. The chart below shows that Americans have been getting continually wealthier for decades, with a few blips here and there (source of data). The measure of wealth—Gross Domestic Product, is based on the dollar value of economic transactions. Such a measure depends crucially on the definition [...]

misLeading Indicator suggests world exporting to aliens

When I do calculations on a performance indicator, I usually do the calculation more than one way. This gives me a good check on my method, and gives me assurance that the indicator is meaningful if both calculations match. In some cases this task is simplified if there is some constraint that must be met, [...]

The definitions of performance indicators are critical: the case of unemployment.

The US Bureau of Labor statistics calculates inflation several different ways. The mostly widely reported is U-3, and what people generally call the “unemployment rate.” U-6 has a broader definition and includes discouraged workers and those that work part time because they cannot find full time work. In the 1930’s depression many workers were given [...]

Will anybody ever trust inflation measurements?

About 200 years ago Joseph Lowe said that “the interest of government, the greatest of all debtors, [is] to prevent the public from fixing its attention on the gradual depreciation of money.” It seems like the Argentinian government is doing its best to prove Lowe right. Recent reports (see here and here) suggest the Argentinian [...]

Why measurements don’t always bring opposing views together

Can measurements resolve opposing views about the truth or falsehood of controversial claims? That indeed is one of the most important purposes of measurement. But it does not always work out that way. Take a chemical company at which plant managers and laboratory staff around the world were at loggerheads over measurements of product brightness. [...]

Good definitions needed for reliable measurements

The trustworthiness of any measurement depends crucially on the definition of the thing you are measuring. This in turn depends on having adequate background information to define it. Even apparently simple things can be devilish to define: take on-time delivery. What is on-time? What counts as a delivery? Or try absenteeism. Is an employee ‘absent’ [...]

Good luck to G-20 leaders with their early warning indicators

Leaders at the G-20 meeting in Korea last week agreed they will establish early warning indicators of economic imbalances. The G20 communiqué said : “We will strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Persistently large [...]

Stimulus job counts are actually anecdotal macroeconomic estimates

A few weeks ago we wrote about how the US Government Accountability Office slammed US stimulus job creation numbers. Last week the Canadian Auditor General did the same. Sheila Fraser’s report on the Canadian numbers said (emphasis ours): …the project-level information on jobs included in the quarterly reports was largely anecdotal and did not present [...]

Eat oats!

Official inflation numbers are very low and do not correspond with the reality people face when they shop. The US Bureau of Labour Statistics reports inflation at 1.1%. This post shows year-over-year increases for basic staples such as wheat (74%) beef (18%) and coffee (27%). I have been occasionally recording food prices to do my [...]

Don’t trust the stimulus job-creation numbers

Politicians love telling voters that stimulus spending creates jobs. Just Google “stimulus created jobs” and you will get about 3,200,000 results. For example, the Congressional Budget Office says President Obama’s stimulus package created up to 3.3 million jobs in the second quarter of this year. Arnold Schwarzenegger said Obama’s stimulus program created 150,000 jobs in [...]

Who is misleading on flu death count?

The US Centers for Disease Control and Prevention (CDC) reports that: during the 1990s, flu-related deaths ranged from an estimated 17,000 during the mildest season to 52,000 during the most severe season (36,000 average). Studies going back to 1976 have found that flu-related deaths ranged from a low of 4,700 to a high of 56,600 [...]

How do you measure the money supply?

Inflation is a general increase in the supply of money at a faster rate than the supply of goods and services to purchase. It is usually measured by changes in the Consumer Price Index. Could inflation be measured directly by measuring the money supply? The money supply is measured in terms of the number of dollars. [...]

Trying to measure poverty directly rather than inferring it

What is poverty? How much stuff do people have to have before they are not considered poor? There is no iron clad definition of poverty. How do you measure the preponderance of something that is ill-defined? The lack of definition has not stopped people from measuring something they call poverty, or the poverty rate, without [...]

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misLeading Indicators: How to reliably measure your business

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