Basic Economics 4th Ed by Thomas Sowell

Author:Thomas Sowell [Sowell, Thomas]
Language: eng
Format: epub, pdf
Tags: General, Economics, Business & Economics
ISBN: 9781459610545
Publisher: ReadHowYouWant
Published: 2011-02-01T23:00:00+00:00

Statistical Trends

One of the problems with comparisons of national output over some span of time is the arbitrary choice of the year to use as the beginning of the time span. For example, one of the big political campaign issues of 1960 was the rate of growth of the American economy under the existing administration. Presidential candidate John F. Kennedy promised to “get America moving again” economically if he were elected, implying that the national economic growth rate had stagnated under the party of his opponent. The validity of this charge depended entirely on which year you chose as the year from which to begin counting. The long-term average annual rate of growth of the Gross National Product of the United States had been about 3 percent per year. As of 1960, this growth rate was as low as 1.9 percent (since 1945) or as high as 4.4 percent (since 1958). Whatever the influence of the existing administration on any of this, whether it looked like it was doing a wonderful job or a terrible job depended entirely on the base year arbitrarily selected.

Many “trends” reported in the media or proclaimed in politics likewise depend entirely on which year has been chosen as the beginning of the trend. Crime in the United States has been going up if you measure from 1960 to the present, but down if you measure from 1990 to the present. The degree of income inequality was about the same in 1939 and 1999 but, in the latter year, you could have said that income inequality had increased from the 1980s onward because there were fluctuations in between the years in which it was about the same. At the end of 2003, an investment in a Standard & Poor’s 500 mutual fund would have earned nearly a 10.5 percent annual rate of return (since 1963) or nearly a zero percent rate of return (since 1998). It all depended on the base year chosen.

Trends outside economics can be tricky to interpret as well. It has been claimed that automobile fatality rates have declined since the federal government began imposing various safety regulations. This is true—but it is also true that automobile fatality rates were declining for decades before the federal government imposed any safety regulations. Is the continuation of a trend that existed long before a given policy was begun proof of the effectiveness of that policy?

National output data, like many other statistics, fluctuate over time. That makes it possible to say that the trends are going up or down, depending on which point in these fluctuations you choose as the base year from which to begin counting. Even in the absence of deliberate manipulation of trend data, honest confusion can lead to false conclusions. One of the first things taught in introductory statistics is that correlation is not causation. Unfortunately, it may also be one of the first things forgotten.

In some countries, especially in the Third World, so much economic activity takes place “off the books”

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