On The Accuracy of Economic Observations (second edition)
by Oskar Morgenstern
Princeton, 322 pp., $6.50
A book that attacks habits ingrained in a whole profession, implicitly threatens several academic and civil service reputations, and names a few names is likely to arouse passions. The reviewer should then state his bias and interest. I have read this attack on the use of statistics with tranquility, indeed with Schadenfreude. An anxious glance reveals that my name is not in the index, my speciality (Sovietology) but lightly touched upon. Indeed this is no accident: the Sovietologist is by hard experience wary of all statistics; he customarily footnotes each single one, shows his working, records his inaccuracies and makes samokritika by publicly revising his mistakes. Mr. Morgenstern has little, though not nothing, to teach him. Indeed he could also learn.
The thesis is very simple: economic statistics are much more inaccurate than economists admit, and do not bear much of the heavy superstructure of assertion, prediction, and theory erected upon them. The thesis is demonstrated in regard to international trade (country A’s exports to B never correspond to B’s reported imports from A, the discrepancy reaches immense heights); price indices (a price is an extremely complicated notion if you take into account varying qualities, kickbacks, delivery dates etc.); and agricultural output (the Bureau of the Census disagrees with the Department of Agriculture, and the latter makes the most shameless revisions of old figures). A longer chapter, and a good one, takes us round the maze of employment and unemployment; the different data from different sources, the impossibility as yet of international comparison, the impossibility of defining unemployment, etc.
Most of the time the author’s touch is sure. In particular he does not overplay his hand, and allows that differences of definition and other legitimate causes may be more important than error in explaining discrepancies. With a dramatic thesis of this kind, Mr. Morgenstern is indeed to be congratulated on keeping his head; his book will have all the more ultimate influence. Perhaps rightly, too, he keeps off statistical theory. His eye is solely upon the accuracy of statistical observation, and he hammers this single point home well.
But in one chapter the author’s error is surely greater than his victims.’ It is quite true as he claims, that sheer estimates of the national income in a given year embody gross error, of the order of 10 per cent after ironing out all differences of definition. But it surely does not follow at all that in a normal estimate of the growth of national income these errors can be added. Thus if the national income in year 1 is really 100, and the estimate made is 92, Morgenstern will have it that in year 2 the truth might be 110 but the estimate 119. I.e., we might easily move from an 8 per cent underestimate to an 8 per cent overestimate, obtaining growth of 32 per cent instead of 10 per cent. It seems to me most improbable that the error in the second year …