“The Invisible Hand of the Indicator: How Economic Numbers Shape Our Politics and Lives – and What to Do about it?”

Political Economy Research Group Opening Guest Lecture on October 10th 2016

presented by Prof. Daniel MÜGGE

 

Event summary

Why do we measure our economies the way we do, and what implications does this have? In his guest lecture, Dr. Daniel Mügge – Professor of Political Arithmetic at the University of Amsterdam – gave a critical insight into the issues of measuring macroeconomic indicators such as GDP, unemployment rate and inflation in the 21st century. Having stayed for a long time in the shadow of more prominent disciplines such as Political Economy and Statistics, Political Arithmetic (going back to the British Economist William Petty (1623-87)) and its main object, macroeconomic indicators, are today crucial components of political debates, news and data. As Mügge explained, the measurement of these indicators has always been ground for critics, but the effects of contestations have been rather limited.

In case of the GDP for example, the question is not only which components are taken into account for the measurement, but above all how these components can be quantified. For goods, this is less problematic but natural resources are productions ‘out of nothing’ with temporary existence only. Military devices are productions as well but it can be questioned whether they are likely to be used one day at all. For many public services (such as education for example) the added value is likely to exceed the costs – not speaking about the entire informal economy that may exist in a state. As Mügge illustrated with different examples, the impact on the obtained GDP amount can be significant depending on how the components are measured. The issue is quite similar for unemployment rates since quantifying non-working but available and job-seeking persons depends on what counts as available and job seeking. Are people in prison, in training, or even in mini-jobs included? Is occasionally reading the job advertisements in newspapers considered job seeking? The obtained rate varies again substantially. Mügge suggested that an interesting approach could be to reverse the point of view and to speak about ‘employment’ rather than unemployment rates as the European Union does for example. Lastly, quantifying inflation is challenging as well since costs of goods do not measure the costs of living. People can indeed not only change their consumption habits over time but even substitute different goods or services with another depending on price evolutions. The comparability of goods is equally problematic because the same product can maintain its price while increasing its quality over time. When one starts to differentiate between age groups or population categories with different needs and behaviors, things get even more complicated.

Although these different issues are far from being straightforward, they are well known by economists and statisticians. One may wonder then why there is nevertheless only little reactivity in the field. Mügge explained that beside the problem of a certain path dependence to assure continuity in the measurements, it is often difficult to reconcile the contradictory objectives of accountability to the specificities, on the one hand, and objectivity on the other. In the 21st century, the issue becomes even more salient. The work pattern has indeed evolved from an 8-6 week for men to a highly flexible and multiple job market for both genders. Production is seen more and more in terms of intangible goods and living standards have become defined in new transcended terms as well. More to the point, Mügge declares, is that taking these new realities into account while measuring economic indicators is not only difficult, but sometimes simply impossible.

That might also be one reason for the growing cleavage between what numbers can tell about our economy and what people are confronted with in everyday life. This “measurement-experience gap” feeds the increasing doubts of citizens about the actual accuracy of the so-called “expert-reality”. Does this mean that macroeconomic indicators have become entirely inaccurate and without use for the understanding of political realities? Of course not, but Mügge advocates political economy researchers should have a healthier number skepticism to “uncover the invisible hand of indicators” and, while going back to the basics, be sure about what we actually measure and moreover what we do not.

Christoph Niessen, CEU Political Science MA program

 

All Photos by Stefan Roch