Statistical Flaws & Lost Opportunities

In a brief but extremely important commentary published in the March edition of AmStat News, the journal of the American Statistical Association, the Brookings Institution has outlined critical deficiencies in the maintenance and collection of federal economic statistics that have an enormously adverse impact on our ability to understand and manage our $14 trillion economy. These deficiencies could be remedied at relatively trivial expense compared to the extraordinary costs associated with faulty decisionmaking engendered by inadequate measures of our dynamic economy.

In a mere three pages of text, In Dire Straits: The Urgent Need to Improve Economic Statistics offers more good sense and marshals more vital arguments than many studies half an inch thick. Their fundamental point is that “at an annual cost of less than $1.3 billion to guide the workings of a $14 trillion economy and the geographic distribution of over $500 billion in federal funds, the economic statistical system is one of the federal government’s most cost-effective activities. Essentially, the cost of the system is extraordinarily low and the return on investment is almost infinite. Despite this, federal economic statistical agencies have been subject to significant budget shortfalls, with appropriations flat or declining for almost every one.” The consequence of this neglect is woeful. By way of example:

“The Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) still relies on the 1990 Census to construct its geographic area sample and housing sample.”

“The Bureau of Economic Analysis (BEA) will no longer publish metro and county estimates of GDP and earnings by detailed industry. So, for instance, the Detroit metro area will lose the ability to track auto manufacturing’s contribution to the region’s economy.”

“BLS no longer collects jobs data for 65 smaller metropolitan areas.”

“The Department of Housing and Urban Development (HUD) is discontinuing the Residential Finance Survey, which gathers data on mortgage debt, and has dramatically cut back the American Housing Survey, which examines current housing conditions and markets.”

“The Federal Reserve Board of Governors eliminated its Survey of Small Business Finances (SSBF).”

“The most recent detailed research and development data from the National Science Foundation (NSF) is for 2004.”

“The Federal Highway Administration’s National Household Travel Survey (NHTS), which guides hundreds of billions in government transportation spending, was delayed for two years and no longer covers long-distance travel.”

Yet, even worse than these egregious examples are the systemic deficiencies they mention. First, “our economic statistical system remains oriented to the mid-20th century manufacturing-based, oligopoly-dominated economy. It does not fully capture the major structural changes of the past several decades, including the enormous growth of services industries; large-scale technological innovation; geographic mobility, increased trade, and global competition; the rise of entrepreneurship; ongoing corporate restructuring (e.g., mergers, acquisitions, spin-offs, outsourcing, failures); and the extensive transformation of regional economies.” Second, and equally importantly, “the statistical system is not taking full advantage of remarkable advances in information technology and statistical methods (e.g., synthetic data). These advances offer agencies once undreamed-of opportunities to create data series that reveal the workings of the nation’s economy in breadth, depth, and detail, e.g., tracking business openings and closings, worker hires and fires, and worker flows from job to job by industry and location.”

Few such brief articles demonstrate so conclusively and cogently so overwhelming a need for immediate remedial action.

Published in: on March 10, 2009 at 4:48 pm  Leave a Comment  

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