Why does economic power grow with each major revision by the statisticians?
When Germans came to their offices on Thursday morning, they found they were both richer and poorer than before, thanks entirely to the Federal Statistics Office. The office announced that the nation’s economy shrank slightly in the second quarter compared with the first three months of the year, yet a revision of the method for calculating the gross domestic product led to an overall economic performance that is 3 percent higher than before the revisions, or roughly €80 billion ($107 billion). That translates to €1,000 per German citizen.
There is reason to celebrate. Our percentage of national debt is declining, we are investing more, tax rates and federal expenditures have dropped along with our much-criticized high current account surplus.
The goal of the extensive statistical revision throughout Europe is to provide a more accurate picture of reality. The statisticians assure us that better account will be taken of altered economic circumstances, problematic issues and the wishes of people who use the data.
There is a catch when statistics are changed. Major revisions always lead to an increase in economic performance.
It’s generally a good idea for statistics to take account of new developments. In modern economic life, for example, non-material goods such as patents, rights of utilization and software play roles that cannot be given sufficient weight using a statistic framework dating from the 20th century and oriented toward production. We need a better way of measuring expenditures for research and development. And, in view of the enormous transformations in the economy, 15- to 25-year intervals between major statistical revisions are probably far too long.
But there is a catch when statistics are changed. Major revisions always lead to an increase in economic performance. So, the drama in Greece becomes less compelling, Europe’s mountain of debt shrinks and, just maybe, a country cited for violating its deficit limits is suddenly in compliance.
This is a stark contrast to the promises made by former German minister of finance Theo Waigel — considered “the father of the euro”– who said a common currency would make economic projections and statistical analysis more accurate and truthful. In this case, it is simply not true that a deficit of 3 percent means an increase of 3 percent. This is a statistical revision with a bitter aftertaste.
Axel Schrinner is a Handelsblatt editor. He may be contacted at email@example.com