John Robb and Dave Winer take at face value Alan Greenspan’s assertion that his data are free of spin. Winer writes,
Very interesting note on John Robb’s weblog about Alan Greenspan’s number crunching that routes around the noise added by corrupt management. “We do have a set of profits data which, for all practical purposes, are free of spin,” says the Federal Reserve chief.
Not. In fact the quarterly estimates of National Income and Product Accounts — which Greenspan is referring to — are as often just as much smoke and mirrors as are corporate profits. The bottom line is that once you get past a certain point, finding a way to measure things like earnings or productivity that everyone agrees on becomes very difficult.
As Joseph Ritter, a researcher with the Federal Reserve Bank of St. Louis, noted in a report on the NIPA numbers,
Second, the data BEA uses to construct the NIPA are generally reliable, but they are far from perfect. They may be inaccurate, or they may not be precisely what are needed. Indeed, for quarterly estimates of some components, no source data are available, and BEA must substitute judgment and statistical methods. This is especially true of quarterly estimates published shortly after the end of the quarter, as data collection and processing often take more than one or two months. Furthermore, since the NIPA are the result of a complex process based on many inputs, it is impossible to construct formal measures of their statistical reliability, as is done for the unemployment rate, for example.
Just imagine a CEO stepping forward today to say that he is going to start estimating his company’s earnings based on a method that he knows is not accurate and, moreover, a method whose accuracy cannot be reliably tested. Oy.
Which is not to trivialize what NIPA attempts to do. That they can put together a “best guess” for measuring one of the largest economies in world history on a quarterly basis is amazing. But NIPA numbers are not the end all be all when it comes to routing around errors in other sectors.
Source:
Feeding the National Accounts. Joseph A. Ritter, Federal Reserve Bank of St. Louis, March/April 2000.