PRINCETON – Public debate, especially during economic crises, focuses on growth statistics, which become a kind of fever thermometer. But the readings are unreliable and change constantly, prompting statisticians to think about different ways of measuring an economy’s very different products. In particular, newly revised data have called into question the economic scope and role of financial services.
At the end of July, the United States Bureau of Economic Analysis released revisions to American GDP data going back to 1929. The main consequence was to demonstrate that GDP is more volatile than had previously been assumed.
The economy grew faster in good phases, and slumped more sharply in downturns. The annual growth rate from 1997 to 2008 was 2.8% rather than 2.7%. In 2008, the figure fell to 0.4%, rather than 1.1%, as previously assumed. The collapse in GDP in the first quarter of 2009 was also more substantial than previously thought.
The logic underlying these changes is more interesting than the relatively small revisions of growth rates that resulted. One key intention was to allow for more honest accounting. In particular, spending on financial services was treated in a different way and shown more transparently. For example, medical expenditure is lower in the new calculation, because the costs that are attributable to insurance rather than to provision of medical services are now shown as spending on “financial services and insurance.”