Why do we measure the economy the way we do?

Macroeconomic indicators are at the core of how we run our economies. Yet, they are largely shaped by hidden details and political choices.

Indicators are omnipresent

You can find macroeconomic indicators everywhere. They feature in the evening news. Politicians use them to extoll their own achievements, or denigrate those of their opponents. They serve as raw material when policymakers analyze economic performance and formulate policy proposals. And they populate the spreadsheets and data bases of academics as they study the economy and society.

Where do indicators come from?

In FickleFormulas we have asked where these indicators come from, why we calculate them in one way and not another, and how that matters to our lives and society at large. Such questions cut to the core of how we run our economies.

The devil is in the detail

It is not at all clear how we should measure any of the concepts that we populate newspaper front pages. We have rough ideas of what economic growth, inflation, trade balances, productivity and so on should mean. But for each of these the devil is in the detail.

How should health and education services, often provided by or subsidized by governments, show up in GDP statistics? How should people who work only a few hours per week but would like to work more, show up in unemployment figures? Do pension promises constitute government debt? And how should inflation statistics deal with changes in the quality of everything from vacuum cleaners to iPhones over time? Such seeming details quickly turn into major holes in our measurements.

Arcane questions, huge consequences

Pensions, public debt service, government employment programmes, even elections and investment in public goods like clean energy and elderly care hinge on these details and how we add up the figures. Macroeconomic indicators and the way we calculate them are political, even if they pose as hard, objective numbers. Because there are political choices built into these statistics, we have studied and talked about them as political animals, not just as technical details.

No con job, but a societal blind spot

Every now and then, politicians can’t resist to fiddle with the figures to spruce up their own accomplishments or conceal economic calamities. But that is the exception, not the rule. Macroeconomic statistics are mostly made by experts who understand their limits better than anyone else. Their intentions are good, and the dilemmas they face when designing formulas are real, and often unavoidable. With FickleFormulas we have reflected on a dimension of our social existence that is so consequential, but has typically remained under our collective radar.