Far at Sea with a Fake Weather Report

Attack on Greek statistician exposes government’s greatest flaw

Choosing denial over disaster is an ingrained human habit and disavowing bad news remains a proud tradition among many political leaders, but it should remain shocking nevertheless to a 21st century psyche when governments make reality a crime.

Last week, Greece’s supreme court gave the government an opening to pursue its criminal case against a former chief statistician. The charge is that Andreas Georgiou, a longtime IMF official who returned to Greece as the crisis erupted to rebuild a discredited statistical agency, artificially inflated the size of the Greek 2009 budget deficit to justify somehow the harsh bailout terms that were being imposed by lenders.

Anyone with passing familiarity with Greece over the last several years understands that the 15.4 percent of GDP shortfall that year was hardly the reason the Greek people have suffered the recent brutal economic calamity. Political intrigue, weak administration, sclerotic courts and low productivity all rank far higher on the list, and this jaw-dropping budget shortfall was, in fact, a brave effort to bring decades of mismanagement to light.

Arguably, this is a small matter among a larger pattern by Greece’s leaders to change the subject from the current economic chaos and draw attention to past mismanagement. In many ways, it’s just a pattern among political leaders everywhere to accentuate the positive.

Still, in a world of economics and finance, when coming to an honest measurement of the economy is so difficult and uncertain to begin with, there should be special outrage for a government that willfully tries to know less than it is possible to know.

Thus, to this latest Greek tragedy, one could easily add:

• Quarterly GDP assessments from China, which are widely viewed as inflated for political purposes. Perhaps there is a more realistic secret set of books, but how can the inputs be much better when bad news is so actively discouraged?
• Argentina’s pricing data under former President Christina Fernandez de Kirchner, who was desperate to keep official inflation low even if everyone’s grocery bill told a different story. The new government of Mauricio Macri has taken extensive measure to end what he called a “statistical emergency,” but the damage to credibility is lasting.
• Proposals for a European sovereign debt ratings agency to provide a “real” assessment of European government finances that was allegedly covered up by American ratings firms. This was the failed brainchild of Michel Barnier, who ran the European Commission’s financial regulatory reform through the crisis and has now been tapped to negotiate the U.K.’s exit from the European Union.

All of these are simply blatant efforts by political leaders to avoid looking themselves in the mirror and hoping that others will not stare too long themselves.

These examples may sound trivial — even amusing — among all the other distortions or exaggerations that we are accustomed to hearing from political leaders, but attacks on statistical analysis carry particularly caustic consequences.

In government, getting an accurate sense of what is going on is by far the more difficult task than actually deciding what to do.

Economics is a social science that aspires, however imperfectly, to shape policies that improve people’s lives. It is hard enough in the best of circumstances; it can lead to outright harmful decisions when the data are falsified.

Ask Janet Yellen and her fellow members of the Federal Open-Markets Committee just how difficult it is to make judgments about the economy with even most reliable numbers available. The Fed’s data are still often contradictory, misleading and late. Headline number on the U.S. GDP are what drive stock markets and, on occasion, election outcomes, but they are never “correct” when they first appear and remain best-effort estimates even after several revisions.

In the best of times, it is like sailing a ship through storm with badly-calibrated navigation equipment. Attacking the statisticians is the equivalent of pulling shades on the bridge and piping Calypso music below in hopes that the passengers don’t notice the vessel listing badly.

There is an old joke in the Soviet Union that the future was easy to predict, because the government was unlikely to change, but that the past was much harder to know since it changed with the latest interpretation of each new leader. Stalin good, Lenin bad. Stalin bad, Lenin good.

European leaders are pushing back against this latest Greek effort to reinterpret the past, even as they work to address the shortcomings of European statistics that allowed governments to underreport budgets or exaggerate growth projections since the establishment of the single currency.

There is also a promise that new technologies and Big Data analytics may not only make prices and economic activity easier to monitor accurately, but also more difficult to falsify for political purposes.

Meanwhile, it will be the task of journalists, scholars and citizens to make sure that no matter who is at the helm and no matter what the course, that the best possible weather reports are reaching the bridge.