How to distort economic data 101

From the fantastic folks at venezuelaanalysis.com:

“All statistics, including economic statistics, can be manipulated, or only partially revealed, so that they demonstrate a foregone ideological conclusion rather than reality.

[…]

“By 2006 and 2007, it was impossible to hide the evidence that the Venezuelan economy had been growing at a tremendous rate for four years running, and that income was being redistributed to the poorer classes in an unprecedented fashion. Some of the relevant economic numbers appeared in a 2007 report generated by two private consulting firms, AC Nielson and Datos, for VenAmCham (The Venezuelan American Chamber of Commerce and Industry). They showed that the poorest economic class, Level E, had more than doubled its income in three years, but their interpretation was still tinged with an anti-government bias.

“For example, the title over the table of figures provided in the AC Nielsen/Datos report sounded discouraging, “In the last three years, only the income of Level E has grown in real terms.” Since there are 6 household income levels customarily used in Venezuela — A,B,C+, C-, D, and E — this doesn’t sound like much of an achievement. That is, until the reader learns that level E consisted of a solid majority, or 58% of the population in 2003. Level E’s income grew by a whopping 130%, after being corrected for inflation. [emphasis added]” (source)

Of course, distorting economic data is by no means a phenomenon of only the developing world.

The manner in which even agreed upon economic data is presented in the West is highly ideological and, one could charge, intentionally misleading.

First off, the standard practice economists use to measure per capita economic wealth is to use average GDP per capita. It is important to dwell for a second on the fact that this isn’t just something that a lot of economists do by coincidence, this is considered the standard measure with, by extension, all other measures being heterodox or in some other way subaltern.

When you don’t want to give all three measures of mean (average), median and mode in mathematics and statistics, it is widely acknowledged that if you’re going to use only the measure of ‘average’, it is by far the most informative on linear trends such as this:

economic-ideology-1.png

This is hugely important due to the fact that all economic wealth distributions under global capitalism, by definition, do not look like the graph above. Rather, all existing patters of economic wealth distribution under global capitalism are more or less exponential (in fact, this is the very predictable result of capitalism).

Whenever you have exponential data and you intentionally and conscientiously only give the average indicator, you are likely skewing your analysis dramatically.

Here’s an example of a fictional global distribution of wealth which nevertheless more accurately approximates reality. As you can see, if readers were to be given only the average income for this graph, the reader would likely develop a highly skewed view of the economic realities.

economic-ideology-2.png

Note that the orthodox approach of giving only the average measure gives a more than 10 times more favourable view than if one were to give only the median measure.

Now this isn’t to say that economists themselves don’t recognize these limitations. Indeed highly technical economic documents often contain data using medians instead of means. Moreover, in defense of economists, it is often more difficult to calculate the median income than it is to calculate the mean income due to the fact that less data is required to calculate the mean (average) income.

But even if the ‘median’ indicator finds its way into some technical documents, it is almost impossible to find it anywhere in any news report, or think tank research paper — the two sources that are most predominantly fed to the public.

For an especially bad example of utter and sheer ideological and propagandistic distortion of this median/mean practice, see this ABC news report on “Tax Freedom Day”.

Given this, is it really still tenable to continue to ignore the possibility that the very language we use to express economics to the populace is itself so hopelessly entrenched in a capitalist ideology?

5 Responses to “How to distort economic data 101”


  1. 1 martinp 4 November, 2007 at 12:29 pm

    That’s not necessarily ‘capitalist ideology’, it is simply lazy statistics. I’ve had this discussion with some people in my home province of New Brunswick. The population is declining, and yet according to poverty activists the wealthiest ten percent of New Brunswickers are the wealthiest in Canada-and this is in a ‘have not province’.

    The result is that taking ‘average’ incomes is ludicrous since there are a lot of poor, and a LOT of rich (Irvings, McCains, Olands, Ganongs, etc.). Keep in mind that New Brunswick is almost ‘pre capitalist’, it is almost literally a feudal economy. There are almost no publicly traded companies, they are all ‘family businesses’ closed to outside scrutiny.

    Sorry for the aside, but what I really wanted to mention is that for a long time I’ve looked for breakdowns of how many people are in each respective income bracket (particularly within provinces) and have been unable to find it, even at statscan. That goes WAY beyond the justifiable argument about misleading statistics, this goes into hiding the very nature of the society from scrutiny. If anybody can find those stats I’d be interested in seeing them.

  2. 2 paulitics 4 November, 2007 at 2:15 pm

    Martinp – good points, as always. I too was doing some readings on very much a similar topic as yours except on a global scale as opposed to Canada and was shocked to discover that even the absolute best experts don’t know what a detailed breakdown of wealth is in a supermajority of the countries on the planet because, while all sorts of other data is recorded, that isn’t among them.

    I also think you’re right to point out that this isn’t necessarily a “capitalist ideology”, but I was at a loss for what I should use, so I improvised. That said, I do firmly believe that laziness (and also a vacuum of information) is itself probably the single greatest pro-systemic ideology available. I would argue that very little serves better to entrench existing systems of domination better than a lack of information and laziness.

  3. 3 SUZANNE 4 November, 2007 at 6:34 pm

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  4. 4 Michael 6 November, 2007 at 11:35 am

    The whole “Tax freedom day” is one of the news items that always gets me hot under the collar. The Fraser Institute’s (I think it is them) Canadian version gets reported widely in the media every year, and nobody seems to stand up and point out the fallacies on which it is based.

    I have risen in my profession to the point I make a very good salary (though none of it is in the very top , 29 % tax bracket yet when I do my tax return) and our family income is well above average for Canada, and even, indeed for our federal riding of Calgary West which is one of the wealthier ones in the country. I sat down and calculated my personal “tax free day” based on what I did pay in federal, provincial, and municipal income taxes, and even included a high estimate of GST on
    our total annual spending on non-food items. My tax free day came fairly early in March.

    One of the myths we really have to struggle against in Canada is this notion that we are overtaxed. If you look at the link to the tax-free day story Paul gave, you will notice how high a proportion of the US
    taxpayers mythical work year is used to pay for health care (“52 days for health and medical funding”), and consider that that is included in our taxes in Canada, your realize the extent of the distortion by the (allegedly left wing biased – don’t make me laugh !) media.


  1. 1 Canada should implement many of the reforms just approved by Venezuelans « Paulitics: Paul’s Socialist Investigations Trackback on 2 December, 2007 at 9:44 pm

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