Saturday, August 23, 2014

Lies, Damn Lies and Statistics

Benjamin Disraeli, the 19th century British Prime Minister said in the parliament, that there are three types of lies: Lies, damn lies and statistics.

The word statistics itself has statist (politica) roots. It was first popularized by the German political scientist  Gottfried Aschenwall.
"The word statistic indirectly comes from the medieval Latin word status, for a political state although there is also a closely related word in German (statistik) which is also used in a political sense. “Statistik” was popularized by German political scientist Gottfried Aschenwall (1719-1772) in his “Vorbereitung zur Staatswissenschaft” (1748).

According to Leiden University, it’s difficult to know exactly when the word ceased to have a meaning close to a “political state” and became more of a mathematical term. The first time the word was used in the Oxford English Dictionary is in 1770, in W. Hooper’s translation of Bielfield’s
Elementary Universal Education: “The science, that is called statistics, teaches us what is the political arrangement of all the modern states of the known world.” The Online Etymology Dictionary states that the first recorded time the word meant “numerical data collected and classified” was 1829 and the abbreviated form stats first appeared in 1961.

Webster’s 1828 dictionary defines statistics as:
A collection of facts respecting the state of society, the condition of the people in a nation or country, their health, longevity, domestic economy, arts, property and political strength, the state of the country, &c. (source:
Nation state governments around the world are crazy after statistics because they want to use them to centrally plan the economy. But, as Professor Ludwig von Mises a century ago said:
In the sphere of human action there are no constant relations between any factors. There is consequently no measurement and no quantification possible. Ludwig von Mises (Socialism, p. 62)
Nobel Prize winning economist Frederick von Hayek in his famous article The Use of Knowledge in Society said that no central planner can have and ever use the vast amount of complex knowledge to solve the economic problem of the society. Only individuals can use this fragmented knowledge to plan their own lives.   

Not only the central planners' socialist calculation is impossible, but there are gigantic problems even with the collected data themselves. These data are full of substantial errors as Oskar Morgenstern showed in his important but highly neglected work, On the accuracy of economic observations. In his book Morgenstern discussed various sources of errors and amongst those errors one of the error was, and I quote,
Governments, too, are not free from falsifying statistics. This occurs, for example, when they are bargaining with other governments and wish to obtain strategic advantages or feel impelled to bluff. More often, information is simply blocked for reasons of military security or in order to hide the success or failure of plans. (p. 19).
In this light of the political jugglery of data and abuse of statistics, recently there are spat of events which illustrates what Disraeli meant when he uttered those words in the English parliament. I give the list of this statistical manipulation below:

1) India poverty rate manipulation: The Indian planning commission's manipulation of the poverty line numbers is well known by now. Recently the talks of poverty rate reduction - on paper of course - were in the newspaper again when the World Bank decided to revise its base year for calculating purchasing power parity (PPP) from 2005 to 2011 (the news is here). So, just by revising the base years governments can reduce poverty! This is the brilliant (mis)use of statistics which Disraeli was talking about.
2) USA unemployment rate: When the American economy is going through the worst recession after the 1929 Great Depression, the US government is also desperate to manipulate the sensitive unemployment number. To bring down the unemployment rate figure they simply ignore those workers who are looking for job for a long time but because they couldn't find the job simply drops out of labor force i.e., the discouraged workers phenomena.

3) Europe GDP prostitute case: Many of the governments in the European Union's depressed economies are so desperate to boost their GDP numbers that they are now going to include the profession of prostitution as well as drug industry income into their official GDP calculation (see here for the case of UK government; and here for the similar case of the Italian government; and here for EU wide declaration of including both industries in the GDP calculation).

4) Chine manipulating numbers: Chinese government is also manipulating their official statistics, just like any other governments, since ages.

And many more such manipulation goes on everyday unabated and unknown from the eyes of the gullible public. In light of this knowledge of the use of statistics for fooling public it is important to keep in your mind George Carlin's wise words: I have certain rules I live by. My first rule: I don't believe anything the government tells me.

Update (12th September, 2014): It is not only couple of weeks ago that I wrote this blog on the misuse of statistics by the state officials, and Indian government politicians have decided to revise the GDP measurement for the Indian economy this year. They are saying that due to this changes the Indian economy will now be bigger than before (i.e., on paper!). You can read this news here. Here are some excerpts:
"India will soon revise the way it measures gross domestic product to reflect under-represented and informal economic sectors, two government sources said, in an initiative that is expected to show the economy is larger than previously thought...
The government of Prime Minister Narendra Modi, which is committed to raising economic growth and slashing the fiscal deficit, plans to adjust the measurement early in 2015, a senior official at the Ministry of Statistics said...
"We plan to release GDP data based on the 2011/12 base year by early next year, that could theoretically revise up the growth estimates," the official said."
So, this is how Narendra Modi and his government is going to raise India's GDP!!!

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