Macroeconomic Data Is Really A Tool for Government Intervention

By Frank Shostak, Mises Institute

It is common for commentators and economists to refer to something called the “economy,” which sometimes performs well and, at other times, poorly. The “economy” is presented as an entity apart from individuals. Within this framework, the “economy” is assigned paramount importance, while the role of individuals is barely mentioned. It must be realized that, at no stage, does the so-called “economy” have a life of its own, independent from individuals.

According to this way of thinking, the “economy” produces goods and services. Once the output is produced by the “economy,” what is required is its distribution among individuals in the fairest way.

In reality, goods and services are not produced in totality. Every individual is preoccupied with his own production and consumption of goods and services. Consequently, there is no such thing as the total real national output. Furthermore, it is not possible to establish the total real output given that, arithmetically, we cannot coherently add potatoes to tomatoes (i.e., heterogeneous goods). All that we could establish is the numerical amount of money spent on goods and services (i.e., the monetary turnover). The employment of the average price metric to convert the monetary turnover into the real output does not solve this issue since the average price cannot be meaningfully established.

For example, suppose two transactions are conducted. In the first transaction, one loaf of bread is exchanged for $2. In the second transaction, one gallon of milk is exchanged for $1. The price, or the rate of exchange, in the first transaction is $2 for one loaf of bread. The price in the second transaction is $1 one gallon of milk. In order to calculate an average price, we must add these two ratios and divide them by two; however, it is conceptually meaningless to add $2 exchanged for one loaf of bread to $1 exchanged for one gallon of milk. This in turn means that various macroeconomic indicators compiled by government statisticians are detached from the real world.

Consequently, various policies to influence an undefined entity—the “economy”—via undefined indicators inflict damage to the well-being of individuals. Even government statisticians admit that the whole thing is not real. According to J. Steven Landefeld and Robert P. Parker from the Bureau of Economic Analysis,

In particular, it is important to recognize that real GDP is an analytic concept. Despite the name, real GDP is not “real” in the sense that it can, even in principle, be observed or collected directly, in the same sense that current-dollar GDP cannot in principle be observed or collected as the sum of actual spending on final goods and services in the economy. Quantities of apples and oranges can in principle be collected, but they cannot be added to obtain the total quantity of “fruit” output in the economy.

By lumping the values of final goods and services together, government statisticians concretize the fiction of an “economy” by means of GDP statistics and other economic indicators. Once the “economy” is concretized, policymakers could navigate the “economy” along the growth path that is considered by the experts as desirable.

Thus, whenever the growth rate slips below the outlined path, government and central bank policymakers are expected to give...(READ THIS FULL ARTICLE 100% FREE HERE).