When Mark Twain quoted Benjamin Disraeli as saying “There are three kinds of lies: lies, damned lies, and statistics,” he was in fact telling a non-truth. Disraeli apparently never said that. But whoever did say it some time in the 19th century could not have begun to appreciate the significance of his words.
Quantitative data was just coming into its own back then, and its impact on the way people saw the world was small. Today we’re bombarded by numbers and with the rise of big data it’s only going to get worse. Few important decisions are taken without the aid of data nowadays; data itself is starting to make the decisions, like the news we see based on Facebook algorithms.
In economics, it hard to imagine what we would know without gross domestic product figures to tell us how big the economy is, how fast its growing and how much wealth it is delivering. GDP is the uber-measure of a country’s success, and along with numbers like unemployment and inflation, it is stuff that politicians can brag about when they’re in power and complain about when they are seeking it.
But GDP, the greatest economic number of them all, was only devised in the 1930s and only came into its own after World War II. Since then, its power has become so immense that it has spurred a movement to discount it in favor of a wider measure that includes factors like health and education and even happiness.
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The power of GDP and the other economic data we live by is so great that there’s an inevitable temptation to fake it. In Israel, we’ve had a small case of that with the Finance Ministry apparently moving around government spending figures at the turn of the year in order to make the 2018 budget deficit look smaller (albeit at the expense of making the 2019 deficit wider). The State Comptroller is looking into the shenanigans.
In this case there was no actual lie: it was simply numbers being adjusted to make Moshe Kahlon look like a more successful finance minister than he is. He desperately needs some image polishing ahead of the elections, since his “social” policies aren’t getting him votes. He doesn’t need the added burden of looking fiscally irresponsible, too.
But as a recent study by the University of Chicago economist Luis Martiniez found, the real problem with fake data is in autocracies.
Martinez parsed about the real rate of economic growth by comparing official GDP figures to growth of nighttime lights recorded by satellites. What he found was that in democracies each 10% increase in nighttime light was associated with a 2.4% increase in GDP; in autocracies, the same increase in light came with a 3.4% rise, a difference that could only be explained by faking the data.
Turkey in the dark
The disparities turn out to be quite significant: Martinez estimated that authoritarian regimes typically exaggerated their GDP growth by 1.15-1.3 times the real figure. Even though elections in these countries are fake, too, leaders were more prone to exaggerate in voting years.
We’re seeing that now in Turkey where Erdogan’s AKP is facing voters in local elections this Sunday at a time when the country has plunged into recession and inflation is soaring. As it is, Erdogan’s government has in recent years played with official statistics, most notably two years ago when the statistics bureau revised its methods for calculating GDP to suddenly make the economy much bigger.
More recently the Erdogan government has played with the sensitive inflation figure and fired the statistician in charge of consumer prices.
The government of China, however, is in a league of its own. Beijing has long been accused of massaging its GDP figure for years to the point that a recent Brookings Institution paper estimated that GDP growth from 2008 to 2016 was 1.7 percentage points lower than the official figure.
Chinese growth is inflated by local officials sending the statisticians in Beijing exaggerated numbers to make themselves look good. The central government doesn’t object because it wants to project an image of sound economic management and seamless growth, lest protests or worse break out.
But Beijing is playing with dangerous fire. If the Chinese economy is much smaller than is conventionally believed and expanding at a much slower rate, its debt load it is in reality much heavier and the risks it is taking on as the debt grows are much bigger. Tripped by its own fake data, the China could fall off a cliff and take the world economy down with it.