Interpreting Economic Statistics through Normative Lenses

Do economic statistics represent a value-free picture of the economy's performance, or are such judgments necessarily value laden? This is Stanley Fish:

The All-Spin Zone, by Stanley Fish, NY Times Blogs: ...And now in 2007 comes “unSpun,” by Brooks Jackson and Kathleen Hall Jamieson. The book’s subtitle tells it all: “Finding Facts in a World of Disinformation.” Once again (for the umpteen-thousandth time) we are given a report on the sorry state of things linguistic – “We live in a world of spin” – and a promise that help is on the way... The idea is that while “we humans aren’t wired to think very rationally” and are prone to “letting language do our thinking for us,” we can nevertheless become “more aware of how and when language is steering us toward a conclusion.” In this way, Brooks and Jamieson promise, we can learn “how to avoid the psychological pitfalls that lead us to ignore facts or believe bad information.”

It all sounds so – well – rational: There’s a world of fact out there waiting to be accurately perceived, but the distorting power of words, abetted by the psychological disorders of passion and bias, tends to obscure it and lead us astray. And the remedy? Watch your words and watch your mental processes, paying particular attention to your “existing beliefs” lest they “reject evidence that challenges them.” In short, Jackson and Jamieson recommend, “practice active open-mindedness.”

But some of their examples suggest that active open-mindedness (even if it could be practiced, and I don’t think it could) may not be enough. The first example in the book of the spin you should be able to see through if you are sufficiently alert is a 2006 statement by Karl Rove to the effect that “Real disposable income has risen almost 14 percent since President Bush took office.” Jackson and Jamieson regard this claim as “so divorced from reality as to seem unhinged.” Why? Because the real disposable income Rove cited “was a statistic that measures the total increase in income, not how that income is distributed.” That is to say, the 14-percent increase did not benefit everyone, but went largely “to those in the upper half of society”; the disposable income of the lower half had “fallen by 3.6 percent.”

Does this prove spin? I don’t think so. What it proves is that in Rove’s view, the health of the economy is to be gauged by looking at how big investors and property owners are doing, while in Jackson’s and Jamieson’s view, an economy is not healthy unless the fruits of its growth are widely shared. This is a real difference, but it is a difference in beliefs about what conditions must obtain if an economy is to be pronounced healthy. It is not a difference between a clear-eyed view of the matter and a view colored by a partisan agenda. ...

Suppose there is a change in tax policy that cuts taxes on the wealthy. An economist can tell you what is likely to happen as a result, i.e. expected changes in variables such as output, prices, employment, who is likely to be helped and hurt, how the change might impact the distribution of income and wealth. etc.

The point narrow point here, which is part of a larger essay about the use of language and perceptions of reality, is that the interpretation of those statistics is a normative (value-laden) exercise. We see this, for example, when the economy is growing and average income is rising, but one group's income is rising much faster than others. All groups are better off as measured by their income since all incomes are growing on average, but some people will object to the widening inequality. Others will argue the economy is doing well.

On spin, let me put it this way. If you ask me as an economist to tell you how the economy is doing, I would want to present a variety of measures to characterize performance in as many dimensions as possible, and part of that consideration would be to allow people with different value frameworks to judge the economy for themselves.

I wouldn't view my job as one of judging good or bad or persuading you one way or the other, but rather to fully characterize the performance statistically so that you can make the judgments you need to make. If the distribution of income is important to you, I need to be able to tell you what has happened to it over time. If the price of gasoline is your concern due to your job as a trucker, I need to have that information too, or get it for you if you ask.

Stanley Fish is right, there is no way to judge the health of the economy without a set of principles for what that means, and those principles will vary according to what each individual thinks is important. The authors of the book, though, are right in this sense. Given each group's value framework, i.e. their ideas about what constitutes a healthy economy, cutting through the "spin" means sorting signal from noise and finding the information needed to judge the economy's performance. If Karl Rove has only talked about average income, then ask the questions and find the information needed to judge the distribution of income more broadly if that is your concern. And one more thing. Quit listening to Karl Rove.

Update: There is a follow-up at The Most Mendacious Man Alive?.

Comments

[Barry]

Of course Rove is spinning. Does anybody think that, if he were discussing this in public, and somebody pointed out the win/lose nature of the changes, that he'd admit to that? He'd throw in a bunch of BS to persuade as many GOP voters as possible that *they* were benefitting (or, if necessary, that they were *about* to benefit).

[calmo]

Lovely. Quit listening to Carl Rove.
Can I assume I've been misspelling his first name all these years? [I've been spun by the Left Wing Media!]
Quit listening to Press Secretary Snow, too.
We want to hear it from the Decider, not his deciders. [Ok, I too have a pipeline to God and aren't interested in redundant information.]
But part of the feature of this administration is that the President is such a charismatic opportunity for just about any other less "wooden" speaker...he drives us to listen to Cheney, Rove, Rummy, Snow, Rice...
Isn't the media's role enhanced by this undistinguished gentleman's performance as President?

[robertdfeinman]

The real issue is can one tell when what is being said is spin?

Look at some famous examples: the health effects of tobacco, the side effects of Vioxx, the causes of climate change and the current rise in gasoline prices.

In every case (at least for a significant period of time) what the facts were was unclear. In some cases the facts continue to remain unclear. So what is the average bloke to do? Which set of authorities should he rely on? I'm not about to sit down and try to make sense out of the health data from the Vioxx studies, even if I had access to the (proprietary) data. So who do I believe?

Issues have become so complex that it is impossible for most of us to make intelligent judgments on many of them. So what happens is we pick leaders we trust and then follow what they say. It is only after they have been proven to have broken that trust that we start to look for replacements.

Of course this only pushes the evaluation issue one step further. How do we decide who to trust? Lately leaders have been chosen as a result of an increasingly effective PR campaign of its own. We are sold candidates using the same techniques as toothpaste and our ability to wade through the material is just as limited.

Do we, even at this late stage, know what Reagan's mental capacity was like at any point in his presidency? How about Bush?

[calmo]

Do we, even at this late stage, know what Reagan's mental capacity was like at any point in his presidency? How about Bush?
Yes.
Insufficient....at all points...in his presidency and out of it...before and after. A directable actor...for some not very demanding audiences.

Unspinnably otherwise...by those who can discern stages and whether this is a late one or not.

We have an immature media with Ronnie and a mature/decadent one with Bush.

[eightnine2718281828mu5]

The Jackson/Jamieson narrative acknowledges both the aggregate figure as well as the distributive context; Rove keeps his audience in the dark about one of these pieces of information.

This tells us that Rove's views are 'colored by a partisan agenda'.

[Bruce Wilder]

Recycling a comment (and so soon!)

"One thing only do I know for certain and that is that man's judgments of value follow directly his wishes for happiness - that, accordingly, they are an attempt to support his illusions with arguments."

Sigmund Freud

[eightnine2718281828mu5]

---
they are an attempt to support his illusions with arguments.
---

the "conviction" of the philosopher mounts the stage: or, to say it in the language of an ancient mystery: the ass arrived, beautiful and most brave.

-nietzsche

[Bruce Wilder]

Brooks Jackson and Kathleen Hall Jamieson, for years, have run FactCheck.org for the Annenberg Foundation. FactCheck.org devotes itself to "fact-checking" various claims, focusing particularly on ones made in particular political advertisements.

They make a big show of "balanced" contempt for the claims of groups aligned with both parties, and adopt a voice laden with high-minded arrogance. But, the quality of their write-ups is, generally, quite poor. The actual work is done by young people, barely out of the internship stage of their political careers, and, judging by the quality of their output, supervision is inadequate. Even elementary errors in their own write-ups often go uncorrected. And, their critical method is ad hoc and unsophisticated, at best.

[Stephen Heyer]

Robertdfeinman: “Lately leaders have been chosen as a result of an increasingly effective PR campaign of its own. We are sold candidates using the same techniques as toothpaste and our ability to wade through the material is just as limited.”

Yes, I believe the economic term is “Cost of Information”.

Strangely, although well known, it seems to be missing from about all the economic models: Perhaps because it favors the big end of town and disadvantages Joe 6pack.

So, as I understand it, does running a mild inflation rate economy rather than one with no inflation, or the mild deflation that technological progress would naturally give us, given that unions have now been effectively destroyed. In fact I suspect that a lot of the dangerous economic distortions that have built up are a result of central banks trying to force economies to be mildly inflationary.

[Mark Thoma]

That wasn't good - nice to have you all as editors - Rove spelling corrected....

[Stephen Heyer]

“We see this, for example, when the economy is growing and average income is rising, but one group's income is rising much faster than others. All groups are better off as measured by their income since all incomes are growing on average, but some people will object to the widening inequality.”

I think we need to go back to that point about deciding whether people are better off by measuring their absolute income as it is so favored by economists, government, big business and of course the Neocons. It seems to be the default method and it shouldn’t be.

I think it is now pretty obvious that once humans can meet their basic needs (that does not mean a McMansion with 2 SUVs in the driveway) it is RELATIVE income that decides their happiness and yes, their welfare.

Humans have real, deep evolutionary NEEDS not to be inferior (in wealth and other ways) to their neighbors (those that were are not our ancestors). They also have real wants to be better off then their neighbors which kind of poisons attempts at egalitarian societies.

In short, some of the hens always turn into foxes at the first opportunity. This seems to be something that few economists seem to be able to see, let alone include in their models, perhaps because it is the foxes who pay most of them.

You could in fact make a pretty strong argument that, in any reasonably advanced/wealthy society it should be equality of income/wealth that is the default indicator of community welfare.

[Jim Harrison]

What about the values-orientation that is built into the definitions of the economic statistics themselves? Hedonic accounting, for example, which certainly effects the inflation numbers and therefore Fed policies, makes a lot more sense from the point of view of well off people than lower middle class people. From a class standpoint--talking about values here is something of a mystification by generalization--what matters is whether it is food or computing that gets cheaper. My point is not that there is something wrong with one accounting method or another, but simply that we should be aware that the spin doesn't begin after the stats are published. The books are always already cooked to somebody's taste.

[Arne (not anne)]

"Humans have real, deep evolutionary NEEDS not to be inferior"
But I would feel inferior if I ran a monthly balance on my credit card, and someone else would feel inferior without the toys that cause him to run a balance.

[Barry]

Bruce, I bet I know just how those interns think. Sophomoric crap like 'if both sides criticize me, I must be right'; 'split the difference and that'll be the truth.

Forget wearing black - the above is the really irritating thing about pseudo-intellectuals.

[Bruce Webb]

I think certain economists are not willing to admit the logical consequences of their theory.

If you really believe that wage rates are set at marginal productivity and that that is the proper rate for them to be set, the fact that gains from productivity flow disproportionately to holders of capital is a feature not a bug. Which is to say that Karl isn't spinning anything, within his system rich people getting richer is not a bad thing, indeed it is the whole point.

There has always been a social structure in this country and indeed almost everywhere where being born within the 'right' people has been fully recognized and socially valorized. And it works at all levels, it is not a mystery why in a small town the banker's son gets the nice position at the insurance agency, the broker and banker socialize and belong to the same clubs. This was not particularly seen as a problem until the Civil Rights movement came along. Suddenly the comfortable system of awarding county construction contracts over lunch at a segregated Elks Club or discussing business during a round of golf at an exclusive Country Club or simply sticking your friends kid in a management track got a little more difficult and in some cases illegal.

It explains in part the Rights hostility to Civil Rights and Affirmative Action. Because the whole system up to the sixties had been organized around affirmative action for people with connections, indeed it is inherent in the whole concept of 'connections'.

So for the last forty years the Bushes and their lackeys have been forced to operate on a rhetorical playing field where the assumption is that there are no social weights on the scale, that it doesn't matter who your father was, that compensation flows right to merit.

Of course no one actually believes this, being the child of an actor doesn't guarantee you a slot in the pantheon of stars but it sure gives you a shot and everyone knows it. And of course the same is true of internships, it really is what you know and not who you know that opens a lot of doors, even if merit has to take over at some point.

The Bushes are not naturally at ease in an egalitarian world. Bush felt perfectly comfortable to be on a conference call with JEB (John Ellis) Bush and John Prescott Ellis on election night in 2000, after all John was his first cousin and the family is tight-knit. That John P Ellis was also Fox News guy in charge of making the election call that night and was the first to make it apparently was not felt to be a conflict by anyone involved. In the world of the Bushes that is just how things work, for them cronyism and self-dealing are not crimes, instead they are just the way their world has worked right from the beginning.

Which is a round-about way of saying that economists to some degree are talking past each other. Capitalism doesn't work best for the holders of capital when every transaction is arms length, it works best when you can operate within a network. Insider trading and preferential placement are not aberrations to Capitalism and the controls on them were deliberate external limitations that have been resisted and resented ever sense.

So a certain amount of the discussion of the relation between free trade and income inequality kind of misses the fundamental point that to the classical Capitalist that doesn't matter, that he manages to take a bigger gain from the transaction is self-validating, that is how winning is defined.

Which is to say that inequality is not actually an economic question but instead a philosophic and political one and has to be recognized as such. Capitalism is by design aimed at maximizing returns to capital, it is at this point in history restrained by politics and is struggling to remove those restraints and get back to a time when you can forget equity and focus on profit.

So I would say that economic statistics are by nature going to be normative, seen through one prism if you examine them equity and fairness, and another when examined for their potential to produce profits.

[calmo]

Arne (not anne or ammie or arnie..) [Go to a bigger font people] digs up:
"Humans have real, deep evolutionary NEEDS not to be inferior" [As if 'eightnine' can call the brave and beautiful at will.]
So the alpha male syndrome was only a pack of wolves conning some pyschologist? Me, I'm an inferior parachuter and would always defer to my colleagues to go first...until the plane landed, then and only then would I make that mighty leap to the ground.
I can evolve. I must. But can the psychologists...the ones the wolves aren't eatin?

[Bruce Wilder]

Human beings are story-telling animals; our stories are more important in distinguishing human society and its functioning, than our tools or opposable thumbs.

In human evolution, the employment of language to tell stories gave rise to cultural evolution and is a key to organizing political societies of vast scale and historical persistence.

The tension, on the one hand, between the emotional hold of persuasive narratives, which gives subjective meaning to events and conditions, and, on the other hand, (scientific or technological) analysis, which merely identifies objective functional and systematic relationships, drives much of the confusion of our political discourse.

In the hyper-rational context, say, of scientific research or corporate engineering, the functional is paramount and people try to tame, isolate and channel the part of human nature that wants narrative meaning to dominate understanding. The role of narrative in organizing individual personalities, as well as social groups, cannot be escaped, but there are adaptations. The demands of disparate personalities for assent to disparate narratives can be resolved into competing "points of view" or "values", and their energy channelled into productive searches for "objective" measures, into competitive endeavor, etc.

In a political context, though, people don't necessarily want to "know" or understand in a scientific sense. They want someone to simply tell them "what it all means".

People often find science disturbing because it isn't, ultimately, concerned with "what it all means". Science merely wants to find out what is and how it works.

And, finding out what is, and how it works, tends to undermine treasured narratives, that give meaning. It was a tough thing to discover that the sun did not revolve around the earth, or that the earth was not the center of the universe.

Narrative dramas are how people organize their own personalities as well as their families, work groups and the larger society. Narrative dramas give meaning, create the illusion of safety and predictability, assign roles, establish a basis for self-evaluation, etc. A lot of politics is about giving speeches and presiding in rituals, telling jokes, where the value and meaning of being an American [or being young ("the future"), or being an employee of Acme Widgets, or being "free" or being part of a family, or, or, or ] is defined, developed and confirmed, and related to collective action or inaction.

I really don't think anyone can completely dissassociate narrative meaning from social science. The real trick, in my view, is creating new narratives, which are, at least superficially compatible with a sound understanding of how things work.

Astronomers, centuries after Copernicus, were debating the Big Bang, motivated by points of view about "meaning" of differing conceptions of a universe with a beginning and an end. Einstein could never reconcile himself with a view of universe where "God played dice" in the form of quantum mechanics.

Economists, whose subject matter is inextricably linked to organization of society, are even less able to depart from the effects of narrative and myth. People are going to be interpreting the balance of trade as an indicator of national competitiveness with meaning for how well the country is doing from now till doomsday. Ditto for a "strong" currency versus a "weak" currency, or a "sound" currency, or the value of thrift or a balanced budget.

There's some hope, though, in becoming more aware of narrative, more facile in techniques of narrative deconstruction and critical analysis.

And, even more hope, in learning to construct persuasive narratives that do accord with a sophisticated understanding of social, economic and political reality and function. (In replacing narratives of hard money and balanced budgets and conspiring banks, say, with narratives of responsible fiscal and monetary management.)

Karl Rove is frightening, because he is, apparently, a master of narrative persuasion and motivation, and more than willing to serve an authoritarian and sociopathic worldview, which is destructively devoid of any appreciation for how the world works.

It isn't just about "values". It isn't just that Karl would like the rich to be richer.

The deep problem, here, is that authoritarians like Karl do not appreciate that "meaning" is not all that is, or all that matters. The "functional" consequences of policy are ignored, completely.

It is as if Bush and Cheney (and McCain and a lot of other Republicans in Congress) really believe that the dramatics are all that matter, because they establish beyond question the meaning of events. So, if we say we are in a titanic struggle against evil, or some such, that casts, say, Bush in the heroic role, and the "meaning" of all Bush does is established, and the outcome, like the end of a child's fairy tale, is treated like an utterly predictable, if not foregone conclusion.

If we say, in a deep dramatic voice, that banning tweezers and 4 oz bottles of shampoo from airplanes makes us safer, no one is supposed to question whether these are sensible measures or represent a reasonable allocation of resources.

The Bush or McCain policy on North Korea and nuclear proliferation, for example, turns not on techniques of economic or political persuasion and cooperation, but on dramatic gestures and posturing. A functional analysis leads, inevitably, to a policy of subversive gifts or bribes, to induce cooperation. But, because such a policy can be spun as extortion, it is unacceptable. To let narrative dominate in such a way in such a grave matter borders on insanity, but there it is. (My understanding is that grown-ups at the State Department have managed recently to return to the Clinton-era policy of subversive bribes after the long, destructive detour engineered by McCain and Cheney and their ilk; we'll see how long that lasts.)

Similar things happen in debates over economic policy. Analyses that focus on the supposed effects of marginal tax rates are really just thinly-disguised narratives of risk-taking and hard work, where the functional relationships and trade-offs are, often, completely lost. Fundamental functional relationships, like the ones between productive investment and economic growth, or between risk and income distribution, get lost in the fog.

The war in Iraq has become a tragic nightmare, where the pro-war view seems mired in dramatics completely unconnected to a realistic view of the relationship of policy to interests, objectives, costs or effectiveness.

From the beginning, rational assessments were lost in a public relations exercise to bamboozle the country and the world into permitting Bush to do what he wanted to do, without exposing to critical assessment what he hoped to achieve or how he hoped to achieve it. At base, I don't think Bush actually knows that policy and planning processes are necessary for an organization to identify objectives and achieve those objectives, by elaborating general directives into operational plans. So, no rational assessment or planning ever happened at the top, and whatever was delegated to lower levels was uncoordinated, the conflicts among various organizational elements unresolved, and dilemmas in matching resources to objectives unaddressed.

Now, we are having an absolutely idiotic pubic debate, with Bush at the center declaring that "leaving is losing" and that his "goal is success".