What if the real U.S. rate of inflation was 33% lower, business investment was 30% higher, and productivity growth was twice as high as people believe? The policy consequences would be awesome.
Get ready to be awed. A close examination by BUSINESS WEEK of the government's national economic statistics indicates that the numbers are seriously wrong. The consumer price index, gross domestic product, capacity-utilization number, you name it, may be sending out wrong signals to the major consumers of government statistics--the Federal Reserve, bond traders, corporations, and tens of millions of small-business owners and consumers.
It may well be, for example, that there is more capacity in the economy than acknowledged, allowing for higher growth without inflation. That is the most likely interpretation of the numbers. But no one knows. It is possible that just the opposite is the case--that GDP is actually growing so fast that the economy is burning hotter and closer to igniting inflation. We don't really know and we should.
How can the numbers be so far off? Easy. The economy is undergoing a rapid transformation that is not being picked up by traditional statistical techniques. Telecommunications, software, financial services, and entertainment, the stuff of the new information economy, are all poorly measured.
Even at a time of fiscal restraint, it's worth committing financial resources to improve the quality of economic statistics in the U.S. Making it easier and cheaper for corporations to report their numbers every month or every quarter would help. Pumping funds into the Bureau of Labor Statistics and Commerce Dept., which collect most data, would have the biggest impact. No one knows this better than Fed Chairman Alan Greenspan, who must tack against inflationary winds without knowing how strong they are blowing. That's why he favors spending the money needed to gather accurate stats. Washington--take note.