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Fudging It

June 1, 2010

Michael J. Boskin in Hoover Digest:

Politicians and scientists who don’t like what their data show have taken to simply changing the numbers. They believe that their goal—socialism, global climate regulation, health care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: gross domestic product, inflation, budget, job or cost estimates, or temperature. A CEO or CFO issuing such massaged numbers would land in jail.

The late economist Paul Samuelson called the national income accounts that measure real GDP and inflation “one of the greatest achievements of the twentieth century.” Yet politicians from Europe to South America are now clamoring for alternatives to make themselves look better.

A commission appointed by President Nicolas Sarkozy of France suggests heavily weighting “stability” indicators such as “security” and “equality” when calculating GDP. And voilà!—France outperforms the United States, despite the fact that its per capita income is 30 percent lower. Nobel laureate Ed Prescott called this income disparity the difference between “prosperity and depression” in a 2002 paper—and attributed it entirely to France’s higher taxes. [More]

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