tv After Words CSPAN April 5, 2014 10:00pm-11:01pm EDT
really very recently on how central they were so the question was winded countries, when did people start to figure out what was going on economically with numbers and they do start the book with william the conqueror because the first major effort in the modern world as severe classist as it was the proper commissions to survey the output of his realm. now you probably could have gone back to the romans because any empire basically wants to know how much land is under their control, how many troops they can command at how much farming output because the only real source of tax at revenues agriculture.
it's really an effort to count who is farming what with the glaring exception of not including the church because the church wasn't paid under the authority of the king. >> host: this previews a big theme in your book that even the dumbest a book had its flaws. >> guest: you would think it would be central -- simple to go-round the realm and write down how much corn or whatever crop is being ground but even then what it even shows is there's a big difference between counting in statistics and there have been a lot of good books about statistics. statistics is the art of sampling a lot of stuff you count without having to count it all individually. they didn't know that in 1066. they just try to go-round account and everything. >> host: the birth of statistics because it is very different from counting. you point out there's another big leap forward in terms of attempting to count stuff as we get into empires and. trade and people are more
interested in who's making what goods and where they are headed to. there does reach this point and tell us when that is when people realize the difference between counting in statistics. what statistic do for you. >> guest: sometime in the age of enlightenment people realize that one most aspects of human reality are too difficult to count and the other thing is if you go-round and count the first thing people realize you try to count average lifespan in particular in a time when a lot of people didn't make it past five, six or seven years old so if you were to count infant bertell of the year light average lifespan would be extraordinary low. that was the first efforts to love to get a snapshot in numbers of what's going on. you have jackley make choices about what to leave out. then there's the whole series of mathematical formulas which developed in the 17th century in the same suit that creates the calculus in the same german and french world of creating
statistics. i don't know i mean there are the piers and the whole number of people that if you're a statistician you remember the great minds and the way that we look at noon in terms of calculus and gravity. there isn't really one person. it's just a rolling series of mathematical evolutions. and it really takes until the 19th century before you start getting kind of the economic statistics that we think of now. >> host: this book is obviously hugely focused on united states and you made the case that again this question of counting was ever-present even in the beginning of the united states and very much in the minds of the rounders and makes its way into the constitution. >> guest: most people don't remember because it's not the most dramatic area the constitution. we talk about slavery and minority rights in the federalist papers. we don't usually talk about the
consensus embedded in the constitution at every 10 years there would be account of the population. this is because you will have representational democracy and you have to know how many people you are representing and you have to decide how many representatives in the house of representatives which is the one part of the government that is key to the population is going to represent. it quickly moves from how many people are there and where do do you know the human curiosity to map into measure. what are these people doing? what is their employment? how many hours do they spend working? what is the nature of their home life in terms of the output? so you kind of begin this creeping growth of information about people's lives economically even though it starts with just funding who's living where. >> host: that gets us to the end of the 19th century and early 20th century where he began to see the arrival of these modern indicators that now i've come to define us so much.
i think people -- most people would be astounded by most things in the book because the history is so interesting but i think people would be surprised to find out that the birth of a lot of these economic indicators was driven in a huge part by the kind of worries and political controversy because of social justice that came along with the industrial revolution labor unions, people worrying about how much people worked and how hard they worked and how much were they keeping. you have the great story of akel burt stewart. tell us a little bit about him. >> guest: if you talk to someone in 18th century about unemployment you would have been meaningless conversation. everybody needed to work to live literally the idea that you could be unemployed or without work was inconceivable particularly until the population explodes in the late 19th century. there are more things that need
doing than their bodies capable of doing it. if you are not working you are drunk or have ill character for impaired somehow. you had to work to be fed so it took the industrial revolution and the transfer of work horses from the farms into factories to create this thing called the job we are painting with broad stripes and i'm sure someone could find exceptions to these rules. one of the things that drives the question of what is the nature of work to people of the job and are they getting paid for that job adequately relative to their needs is the series of progressive reforms that solve this industrial revolution as chaotic and dislocating in the united states. one of the people who is drawn to basically the cause of social justice all of the late 19th century was ethelbert who ends up being appointed to the illinois commission of labor and
then makes his way to washington when he joins what was then the very sleepy not well-funded and only recently created bureau of labor statistics. i think of him a little bit as if a statistician matt mark twain, ordinary and was a kind of i'm going to call a spade a spade and find the numbers to measure kind of guy. he was one of these driving forces of we need a snapshot of employment and the nature of employmenemploymen t patterns to prevent big business from taking it out of the unions. >> host: he is also a man in the right time as well because you have this confluence of other factors in particular 1920, 1921. we have this recession. it is sort of knocks people for a loop. you have politicians saying how can we measure how bad it is some we don't know where we started from and then of course you have the great depression. this seems to push very much this desire to count and
understand just what we are losing or how bad it is. >> guest: people like ethelbert stewart were around in 18th century and irving fischer was a yale professor who was in the season thinking about prices and what we now call inflation so there have been some work done before the great depression on what's going on and this thing we now call the economy. nobody used the word the economy until the early 20th century. if you use something called google which is everything printed digitized in the google database and you can play around with it and find the frequency. if you type in the words the economy until the 1930s at flat lines. there is no mention of it and at 1930 it does this hockey stick where it keeps accelerating since then. until we create numbers like the unemployment rate in gdp and like inflation and there is no the economy. there is the political economy
and the outlook on the states but there's nothing called the economy because there is no means to measure and capture it. it took the great depression in this massive dislocation. we didn't know it was the great depression although people knew and all that huber new was that bad things were happening and things that seem worse than earlier bad things that happen. hoover had been an apostle of scientific management. that was his calling card to become president. he was a more than competent administrator a minor executive and he believed in scientific management and science demands facts. facts in the case of the economy demands numbers. in 1929 there were none so he agrees with some of the movements in place to fund the bureau of labor statistics to create an unemployment number. that's the first time in american history or any other country's history for that matter where this notion of an unplanned that number becomes central to our body politic.
>> host: now let's go into the vast complexity of this. so coming up with an unemployment number involves lots and lots of judgment. these first characters you have in their book had to sit down and say we are going to count this and this is our definition. how can we look at the array of complexities designing that first unemployment? >> guest: what does it mean to be unemployed and what does it mean to have a job? does that mean you are working x numbers of week? does it mean you are working? in a late 19th and early 20th century people would work 70 hours. if you work 40 to have a job and how many hours do you have to work to have a job? do you trust people's self-identification on two you have a job? are you going to tell the truth to a survey or? are the surveyors your brain to send around ask enough people in that kind of sampling because you are not going to survey the entire population of the country
and ask every single person do you have a job? you have to ask a subset of those people so how do you do that? dude do a geographically? if you do it in urban areas are you going to overstate how much unemployment there is in rural areas? is that by population, by demographics? all these questions have to be worked out. they are still not worked out today and the definition of what it means to be unemployed has changed. it's not not having a job to use a double negative. the unemployment statistically doesn't mean you're not working. it means you wish to have a full-time job. you have at least told the people asking you that you are looking actively for full-time job for a period of time before you got asked the question. and that you are therefore unemployed because you are looking at work. it's not that you just don't have work. we use the term much more
loosely today because we use it as a thumbs up thumbs down. you get to the point of defining it was immensely complicated. >> host: how did they do that and who made the final decision? >> guest: this is decision-making by lots of different voices and people arguing. it's not like there was one person who says this is the rate in england was doing its own work at the time. very few countries where the reason why he should focus on the united states as a lot of the creation of these numbers comes from the united states and then goes global. it's not like multiple societies are doing is simultaneously. this desire to did demand and no one understand what's going on economically stems at least in our history from an american initiative and some british initiatives and then goes global. >> host: alongside the unemployment rate we also have the creation of the product were the precursors of that product. this is happening at the same time. you run through this and again you point out that part of this
was about needing to assess the of the recession going on an understanding with the output of the country was now versus what they had been and how things will look going forward but you also point out is what is happening at this time is that you are also getting the concept of that government isn't economic actor. >> guest: this again have been somewhat million other than in times of war. they force everything to focus on war production and supplying armies. one thing you had in the 1930s was as we know this huge effort of government spending in the form of the new deal and united states. the labor government in great britain was doing its own form of that in one of the things that happens in the u.s. is the understandable desire of the roosevelt administration to say its critics we have done all this and spent all this money isn't doing any good? is it making things better?
unless you can measure this thing called an economy and its output and then show its output we spent a money and y is bigger than x it's an illogical argument which is have what happened in tolkien. there are people trying to measure the output of the country economic way. those have been happenstance and epidemics. we don't want them to have seeds before -- >> guest: that's in the 17 century as well and there is a lull. there is an effort into usually rich men who think this will be kind of fun doing experiments in their garages. it would be fun to measure the output of the country and then it lays low until really the early 20th century and in the u.s. there is an ever gray -- émigre economists who wins the nobel prize and we also know about john maynard keynes in britain and richard stone who is
another eminence of this and they start saying how do we measure in output and what is it mean to measure the output of the country and defining that. a big definition in the 1930s was two you include domestic work is one of the things women did largely was cooked and cleaned and make sure the homeless taking care of. >> host: if domestic worker included gdp would go up. >> guest: go up immensely. this is a really essential aspect of economic activity that is productive the absence of which is distracted. they argue was made unless it has a market price we are not going to include it so gdp or simply what is the market output things that are bought and sold that have a price and accosts? it was decided to leave out domestic work as it was hard to figure out what the cost of that was. >> host: this is more than just a new point out this is about the roosevelroosevel t wanted to be able to say we put this much money and and this is
the benefit that came from it. it was the also the idea that keynesianism had a predictive value. if you are a keynesian you believe you will stimulate demand in order to know how much you need to stimulate demand you have to know where things stand. >> guest: then you get this burst of things that are familiar in our discussion of how much output do you need to stimulate? what is the gap between what we are doing and what we think the optimal or the right level list in terms of employment. if there is a 6.5% unemployment rate right now if i just told you that and i plopped down here from mars there would be no reason to know whether that was a good number or a bad number. it's only perceived as a bad number and this is not about whether or not people are finding jobs because we have a sense of what we think this system not to be doing numerically based on what it did do numerically. none of that pertain to the
1930s. this was all being made up as it goes along. it allows the roosevelt to talk about national income in the late 1930s and say look our national income is going up. the next catalyst as world war ii which is the real challenge in the united states and world war ii is if we are going to be the army of the world how much domestic industry cars and tractors or whatever we were making in factories will be shifted to producing guns and planes and ammunition without so in c. bling domestic economic life that you win your economy. in order to do that we have to know what we are producing and how much can we produce and how much more can we produce without generating scarcity and therefore inflation? you create gdp which is the tool to do this. it would take much longer to explain exactly how. that was a really potent tool. at least people believe it to be
one of the most essential components in allowing the united states to calibrate the war effort with the domestic economist. in 1945 having won the war without having to then revive your economic life. that is what allowed the united states to be so powerful and i did 45. it takes years to very rebuild internally. internally. >> host: you were talking about the creation of the economy and how this statistics allow the creation of the economy and what you are describing here and you do it very well in the book is this fundamental shift that the government have the ability that much in the way married the industrial revolution and you could actually look at these numbers and say okay now we are going to move this much here and this much air and everything will still be okay in the end. >> guest: the only thing the government had done before that was figuring out how much
revenue had been made. it was this old challenge of dynasties and kingdoms. the idea that you have this thing called economic policy where you calibrate calibrate and try to end economic cycles the ups and downs part and parcel to history for one reason or another that's all part of the scientific revolution and the emergence of centralized government. it is in fact one reason why today there is and i'm sure will continue to be at deep-seated suspicion in every society that all these numbers gdp, inflation and unemployment aren't numbers that reflect the experience of people. there are ways for government to exert control. i don't go into that a lot in the book and that's a whole other question in subject but it is definitely one that underlies all of this discussion. people listen to these numbers may go oh come on. think about inflation. inflation doesn't tell how much it cost to live. it's a way for government to prevent my cost of living allowances from going up.
>> host: i do want to talk about the conspiracy theories around these numbers because it's a fascinating aspect of it but you touch on something basically post-world war ii. you describe how we enter into this sort of explosion of fascination with economic indicators. you have the growth of new ones and private players start to get involved and start making their own. we can talk about a few of those but one of the innovations that is a whole new area of the economic indicator and you have this guy named george patone who starts to measure and this gets to your point about the people. if he measures consumer sentiment. >> guest: you have this effervescence of numbers. people and companies to buy stuff trying to figure out what was going on nationally and then you get these associations. the government is creating statistics so we are going to create statistics and then you have academics who think okay what are we going to add to
this? there was this quirky guy named george patone another émigre to the united states became in the 1930s both as an economist and as a gestalt psychologist psychologists. if anybody remembers the 1970s gestalt psychology was a big deal and without going into that discussion his belief was that how people think and feel individually shapes their behavior economically and therefore if you can get a gauge on how people feel you will get a gauge of how they about to add that was interesting for the government during world war ii because there has always been an aspect of inflation in prices based on only what people perceive. if you think things are going to get cheaper you will hoard and you won't spend any think think there's going to be inflation he will spend a lot now now. there is behavior that goes with expectations so they wanted to gauge it and make sure that the inflation aspect was kept tame.
they developed five questions do you feel bad about the economy do you feel good about your own finances and you think it's going to be better? you take the statistics and create a number called consumer sentiment which we now live with every month from multiple sources. there are three organizations now that disseminate consumer sentiment. abc news for a while did a consumer survey and it all begins from this kind of gestalt psychologist economist. the one thing that has been clear since then even though it's interesting about how people feel is it has predicted absolutely zero. his pushback was you can't test whether or not this works by asking a family six months later whether or not they did what they said in the report so it's not about individual behavior. that was the whole gestalt thing. it's about patterns and if enough people say they are not feeling good that may be a
leading indicator. there is no real evidence. >> host: this none the less remains as an important aspect. >> guest: we have come to be a culture where we like numbers to disorder describe reality. >> guest: the point in this chapter you talk about the 40s and the 50s and the 60s too you don't just have this huge spiraling of numbers but you have the media really focusing on these and business communities really focusing on this and maybe interwoven and america's ideas of how we are. how are we performing vis-à-vis everybody else? correct? >> guest: yeah and part of this is there is the henry luce "time" magazine fortune "businessweek", month for you have these outlets that talk about economic life. i think more to the point you have to think about the nature of the cold war and the degree to which the cold war because it was cold war and we were not fighting and it was perceived
legitimately as a contest of economic systems. ideological ones but economical ones. a lot of the cold war and folds with whose economic system is doing better and who is making more stuff? who stuff is better? whose output is better? they had their own soviet -- we had our gross national product and there's a famous debate between nixon and khrushchev called the kitchen debate. i think it was 58. they are arguing about appliances and part of it is who stuff is better? who is making more of that? you have the nuclear weapons on the one hand and then you have industrial output at the other and you have all these nations in the world to colonizing and becoming new countries that have been ruled by france or britain or portugal. one of the things you have to do when you join the u.n. is you have to start measuring this thing called your economy because if you are new nation you want economic aid from the world bank or the international
monetary fund. the criteria is you have to show that money have a good effect just like the gnp was created for the new deal for roosevelt to show the spending was working in the 1950s and 60's. if you are an african or asian country and you won't economic aid you have to fail is to show that it's for your economic life so city after measured gdp and gnp and you do so by framework set by the essays. by the late 1960s you go from a world where no one talked about any of this. no one measured prices, no one measured employment to a world where everyone -- every country in the world did that. >> host: the u.n. part here is very important the world bank and imf and as you said there is this requirement that you do this but what is fascinating is why. you describe how you are coming out of world war ii and there is this fundamental belief that one of the reasons things went so
wrong is the country of germany that was having a great deal of economic distress and this was part of the motivating thing that pushed into war. we don't want a situation like that. we want to know where to economy standard the world because this is somehow also going to allow us to manage peace and stability. >> guest: as you point out people forget the degree to which the u.n. has formed. it's actually economic security council and the u.n.. most of us who look at it are ignorant. we all know but the security council because it was front and center in the cold war about problems but half of the work of the u.n. was about economic development and exactly the belief that when there is economic insecurity and you have things like the great depression that will then lead to things like world war ii. that may be completely wrong thesis. we don't get to replay the tape but it was clearly the animating thesis and that led to this, just like there was a
proliferation of nuclear weapons. in the cold war there is a proliferation of economic numbers were by the entire world becomes indicators. we all now measure our lives with this dashboard of numbers in a way that before the 1950s absolutely no one did. >> host: one last thing you talked about in terms of what inspired this huge growth is there is money in producing these things. a lot of these are produced by private organizations. he mentioned george katona and his work at the university of michigan which i believe has made a fair amount of dollars off of producing this. >> guest: this is a start paying for it and wall street starts paying for it and that's a big factor. in the 1970s and 1980s when people start wanting a trading edge in trading on the numbers and the police that the numbers will represent something fundamental or an economic is tiffany which would have an influence over corporate activities. the numbers business becomes a
huge one. the national association of homebuilders puts out its set of numbers and the institute of supply management puts out its numbers about manufacturing activity and that the federal reserve starts getting into that and starts doing regional manufacturing surveys. you have this proliferation. in a way that was inconceivable. one thing i tried to be clear about in the book is just like we individually are born at a certain time and shaped by the culture we grew up in all the numbers are warned within a few decades of each other fundamentally. they are a product of the time. they are products of the 1930s and 1940s and 1950s mostly. in that respect they were designed at that moment to measure that world. they do a pretty good job measuring that world. they do a good job measuring the world of industrial nations states but we don't live in that world anymore. i know that we are now segueing but the reason to look at that history is to try to understand
who invented these numbers to answer what questions at what moment in time and is the world we are now living in the same is that world? >> host: actually the segue is great as let's talk about all the problems with the fact that we now have arrived in this period of time in a world where we define ourselves. one of the things that you just mentioned and you make a very strong case in the book is these numbers are by and large wholly inadequate for the purposes for which they are used. one of the descriptions i just loved is talk about the iphone and the way we measure for instance the trade deficit. it might have worked in one point in how it doesn't work in any way to adequately tell us what our deficit is. >> guest: to be very clear i do think a lot of these inadequate and i can honor the degree to which they were not just adequate that were important when they were invented. they are inadequate the way of 1950s car which is great and
your parents or grandparents still remember the 1950s chevy or whatever car they had as being this wondrous car and it was but if they gave it to you today and said this is your car with no air-conditioning and bad fuel mileage and terrible pick up on the row two would probably go and not such a good thing. trade members which we talked about as being old in the sense of revenue from farming or tariffs. trade members act as if everything we buy and purchase is made in one place in one country. i think in the 1950s when a lot of the initial rules were codified even in the 1980s the idea that an iphone that a phone or watching machine is made in a factory and want country and was sold or bought in that country or sent abroad to another place as an export made some sense. there might have been parts that were different but they were usually parts sourced locally. think of detroit. a lot of the parts came from toledo in the steel came from
pittsburgh but is still an american car made in america. the iphone which is the quintessential american product by the silicon valley in cupertino california on and off the largest company in the world. every time an iphone gets sold in the united states it registers as an import from china. >> host: williamson. deficit. >> guest: if you have a ipad probably $10 million a year and those devices along. apple devices add to the trade deficit because they are made in factories many of which are in ginsing many of which are in china so they are made in the factory and they show up in a port on long beach and they get a wholesale price which is the price that apple puts on it. it's a 250-dollar import from china but is it really? is anything that we now use really made in any one country
where there's a t-shirt or coffee comes from one country in the pattern comes from another and the swatches, and then they are simple. it's clear that the iphone is assembled in a factory in ginsing. it is not clear that $220 or $250 goes from united states to china every time one is bought. if you break on the iphone which the asian development bank is done and the organization for economic cooperation and development have done you find there are parts in germany and parts in korea and parts in taiwan and plastics from somewhere else and parts from america and above all intellectual property. it in a world of trade members that assume an object has a final substantive transformation transformation -- trance permission with country we have no way of breaking that down. >> host: also it doesn't sell in this country for the smart down the trade deficit. i think the retail value was $499 and no one pays that much
because of agreements with cell phone buyers and carriers. >> guest: you can do this for every manufacture and many other goods that aren't manufactured is heavily like furniture and clothing. you would find the way in which value is dispersed in the global supply chain we don't know how to capture with a set of numbers that assume anything is made in one place whereas today most things are made everywhere. the boeing 707 dreamliner was possible because of technology designed on an autocad computer system and source around dozens of countries around the world. every time boeing sells one from its factory to japan airlines it shows up as a u.s. export but it's not in the way that we assume value add flows. we are doing i think just a really bad job capturing it. the even worse news is i don't know how we change that. no one is going to spend billions of dollars to break down hundreds of thousands of
goods into various components. right now we are stuck with the figures we have but is creating an optical of what's going on globally that is profoundly wrong. >> host: in addition to the complexity of living in the lovell world of using these numbers and counting things the right way you have the fact too that these indicators many of them have been continued to be mired in controversy in terms of of -- you talked a bit about the complexity that went into the decisions about what you count and what you are not going to count but if you think about it the one we didn't talk about which you devote a chapter in the book to inflation. there is probably on a daily basis no more controversial issue than the cost of living in this country because people believe that the government keeps it at a certain level so they can keep down social security benefits that they have to pay out or so businesses don't have to pay their employees as much.
it's just this constant source of tension which is all the more remarkable given the kind of crazy decisions that go into deciding how it comes up with it and how it is and actually a good indicator of anything. >> guest: part of it is a misunderstanding of what inflation is supposed to do. it's supposed to measure systemic price stability. it's not supposed to tell humans whether a cost of living is commensurate with their income whether or not we are able to meet our needs or desires of both relative to what we expect. inflation becomes this real nub of people's experience in their economic lives versus their expectations versus their ability and human memory about prices is actually terrible. it's clear from inflation numbers as measured by the government's consumer price index that the amount of money you and i spend as a percentage of income on food and fuel has
gone down dramatically since the 50s. that's not our daily experience of meeting our needs and to be fair i think inflation numbers that are kept by the government are amongst the more reliable and some of the attempts to do different methodologies. google started creating its own inflation index because it has this information flowing through its servers. instead of sending out expensive surveys that cost hundreds of millions of dollars just have a computer program that takes on on line pricing in real-time. they don't divert a whole lot from our official inflation numbers but the problem is what questioned his indices answer versus what are the expectations we place on a publicly? they are not meant to tell us or cost of living but that is how we discuss them. the brother problem with inflation is the facets of goods change. we are no bunker buying landlines and we have cell phones.
so many of our government statistics are dependent on government statisticians calling you on your phone at home. if you don't have a phone at home and you have a cell phone and you are 25 years old and you don't have a landline the odds of you been being reached by the surveys is to menace because they don't want to mess up the sample set. you don't know where someone is if they have a cell phone as you can take it with you anywhere. 25-year-olds don't tend to answer survey questions at nearly the same rate so there's an issue of where we getting our information from? >> host: you have fun stories in the book about the quality of some of the samples. you have the first unemployment calls that went out and you were talking about how a lot of people that were hired to do this were hired by the roosevelt government as part of the government works program. they weren't statisticians and didn't necessarily know what they were doing and apparently the product back then was --
>> guest: is a boring job to knock on doors and say where you employed and started filling out these surveys themselves. we had this in the 2012 election about whether or not these are numbers that are cooked or somehow manipulated. i think the likelihood of that is really low there are such complicated entities was vast databases going into them that you have to ask what are we measuring? the. >> host: you do have a lot of controversies like this and it goes way back. george meany who ran the federation for a while was a fierce critic for some of these numbers as they were put out to ding the union to make it harder for working people and then you go all the way up to the point you just made jack welch in 2012 there was an argument about whether the unemployment report had been juked that the question
i have for you is it fair for people to wonder that to some degree only because your book in fact is all about the kind of history behind some of this. people work social crusaders who wanted to use these numbers to some degree to create a new social order of justice in the country. that was at least part of the motivating idea behind these indicators. >> host: >> guest: most of the people in charge of compiling these are technocratic bureaucratic statisticians trying to answer the question and if anything because of that tsarnaev able to able to deal with the larger questions of to what degree even if they are perfectly done what are they measuring versus what is the world we currently inhabit? the conspiracy question is almost a secondary one relative to the promise of these numbers versus what they actually deliver is the real disjuncture and the hubris of policymakers
utilizing these numbers and economists in particular as if they are absolute patterns that emerge that you can then know. one of the things i am passionate about is we will talk about it for a minute. when president obama gets up in 2090 makes his speech announcing the stimulus bill and says with the 787 billion-dollar bill we will create or save five .3 million jobs. i want to make this clear. this is not a partisan critique. what fascinated me is what it allows the leader of a country to get up and make with such specificity a dollar amount of spending with the job creation number that is specific? that would have would have been inconceivable. roosevelt or lincoln you would have said we are going to spend a lot of money because there is a -- it is going to do good. a formulaic number we will spend x. amount of money. the belief that we have enough data and enough of these numbers
that we know when government spends a certain amount this amount of jobs gets created but if these numbers were only invented in the middle of the 20th century we don't know a lot. we don't know nearly as much as we think we know to make those kinds of statements on a routine basis and the democrats and republicans do this about all spending. the project what we think and i could rational budget office which i'm highly critical of. not because they're doing a bad job but how we can know the degree with any certainty the outcomes. >> host: you make this point as well but in fact the economy has become more complex and difficult to govern so you have a government that on one hand that has become more self-assuself-assu red about this ability to manage this thing called the economy even though the economy has become ever more unmanageable. >> guest: not only unmanageable but global. the economy assumes that the nation is the same thing so
every economy is national but we have been talking for 20 years now but we believe that it global economic system and it's true in everything we buy back to the iphone in the boeing plane. we live in a global supply chain we live in a world where money floats globally so the idea that a set of 1950s national numbers can adequately serve as our map in a 21st century world of lovell international interchange in advance the technology. how do you measure googling gdp? there's no information technologies at the kind we have now most of which we use for free southern of the marketplace and the only way some economists are trying to figure out what is the economic output of free applications is to think of while we all value our time are working so if you are getting paid $30 an hour or $20 an hour and you take 15 minutes and go to google you are valuing your google time at a quarter of an hour if you will and that
multiply that by the amount of hours of people spend on google. that's a way to get at it is that really the way to get out of it? >> host: in addition to the hubris which you mention and the controversy there has always been and the inadequacy in the global world of how well they can actually predict anything. you have a something about the leading and lagging indicator and a lagging indicator is weird to begin with. maybe actually it's justice. the politicians that helped inspire the creation of these leading indicators are very interwoven with politics today. going all the way back we talked about hoover and he drove so hard to try to get a measure of unemployment. people found out unemployment was quite bad. >> guest: he gets a number
that is used against him. every country in the world now and the chinese government they have made their entire sense of legitimacy hinged on maintaining a level of gdp growth and employment creation that is statistically manifest. these numbers have become our latter-day version of land and empire. we measure our national strength based on what these numbers tell us so we literally invest them with his huge amount of weight. it's impossible for them to not entry of political debate and dialogue even though i feel like we are capturing only one aspect of the world we are living in because it's not like there is this major global move where anyone will spend a lot of money to reinvestigate our statistical framework for the 21st century. >> host: you also mention not just china but argentina. it became a global pariah because people felt it was indicators.
>> guest: they did try to get indicators. it inspired what would have been our bureau of labor statistics apartment as they were routinely reporting higher inflation than they wanted to be reported. it was undermining their claim to economic stewardship. i mean it gets absurd here and i'm sure there's an equivalent in venezuela. they have a set of numbers they write down. the group that got fired trying to set up a nonprofit group to then be the due diligence group and then the argentine government to prevent them from being the watchdog. we just don't have those issues at least. that is one saving grace. >> host: let me ask you this and then i want to talk a little bit about what we do about all this but before he do if you went back and looked at the world prior to these leading indicators are we even better off now?
>> guest: i think we were better off. >> host: have we created more problems than we fix? >> guest: the problem today if it that does hinge on the belief and this is true no matter where you are in the political spectrum that you can capture what's going on and manipulate it effectively. business cycles have become less intense. the worst of our up and downs even with two in 2009 are probably not as severe as they were throughout the 19th century or before that. we have removed food famine on the one hand for most of the world and it's usually a political problem not a food problem and we have removed the worst of economic cycles in the sense that we don't get 30% of the workforce out of work in people literally off the streets by the millions. >> host: you think this is in part because? >> guest: i think in part because we have learned about economic systems but that's very different than how you deal with change realities. people are good at managing the
economic systems of the past. my concern is we are again flying blind with economic systems but we are using the only map we have got. >> host: you talk some in the book about movements by some to create different indicators as it were and to have this fabulous story like the king of hutong. you actually open in the beginning of the book with a speech. is a long-running thing that robert kennedy gave back in the 50s saying railing against gdp and saying we ought to be measuring our competence in the way we educate our children and all these other things that make up the great and good america. you still see that dissatisfaction with attempts by others to come up with something better. >> there was a big gdp backlash in the 70s partly because gdp was seen as encapsulating capitalism and the softer values that are important in a society. happiness and that is where the
small kingdom of bhutan said we have to be measuring aggregate happiness. it's not individual happiness and all the westerners have since said this would be great if we measured happiness forgetting that their happiness was collected. a lot of us are unhappy with their happiness. the issue is not is that a better way to issue something that gdp fails to measure? is the idea that you can come up with one number that adequately tells you anything meaningful about the world you are living and whether it's economic or otherwise. one number for 320 million americans one number 4 million new yorkers are 1 million in bhutan. what number is a synthetic average is something and maybe can tell you something about the system in an aggregate sense. gdp too tells you very little about most questions about quality of life and about the sustainability of economic growth about whether or not economic activity today in the
present is likely to be sustained and augmented in the future. all output is neutral. if there are two hurricanes tomorrow that's good for gdp because you spend a lot of money cleaning up after hurricane but it's not like you would say to fix america's economic woes we should just have five hurricanes. gdp would save us a perfectly fine way of doing it. the question is what are our questions? i'm trying to help people and help myself saying we should start with the questions and then find numbers and statistics that help us answer them. all those numbers were created initially to answer question a really important question. it's when they get past what with the question and enshrined as this is an important number that we have real problems. the people that created these numbers understood that is what human beings do and defined them as absolute and forget what they were meant to answer the first
place. >> host: this is your idea for the solution rather than coming up with an alternate different indicators but rather as you said they spoke of indicators. so turn this entire paradigm on its head and say what is the question that we are trying to answer and then look at the fast range of data out there and get that. >> guest: i like this idea because it means made-to-measure. if you're going to talk about measuring things what he trying to measure and why? gdp has become -- gdp is supposed to grow because when it grows people's income goes up in people's quality of life goes up. what we are seeing today in a lot of parts of the world is gdp can grow quite a bit without income going up. if a robot in the factories going to produce what 500 people in the people in factories to produce the factors output can go up without creating any jobs. the question that gdp is supposed to answer is our collective affluence going up the gdp goes up. it may not actually be true.
the question is where is it doing well and wears a doing badly? we have more information than ever before about all this. >> host: gender and geography. >> guest: the one real defense of these numbers being collected is underneath every number are vast amounts of information. hundreds of tables and every unemployment report, every inflation report comes with eight different alternative agencies by geography and consumption. that information is very useful. we don't use that information usefully and when you get down to the business and official level you have to start going these numbers do what? if i told you gdp is going up 50% are down 2% of the national association of mortgage said there was x number of mortgages would you decide to then buy a house or not buy a house on that basis? i would hope not and again i fear that many people are. >> host: i mean wouldn't some
of this evolved to going back to even the most basic themes? if you aren't business you want to get a good sense of where things are headed in your particular industry why wouldn't you just look at prices? >> guest: exact way and it just that area that pertains to your interests. the one thing that's interesting. if you wanted to buy a home today that thing you need to know is that home prices in a 10-mile radius of employment patterns. what is the local economic system that is going to support this price about home including your own employment reality and is the bank going to give you a loan. you can do that now by going to different apps that give you all the homes bought in the last 30 days. if you wanted to do that 10 years ago i'm not so sure how you would get that information. you could've gone to city hall but there might be a six-day lag it was hard to come up with the information. it's actually easy now so the information that we have that we need is really easy to a pain in
the information we think is really easy to obtain i.e. national numbers are completely relative -- and relative to the questions we have. i don't think we ought to get rid of them because they are the justification for a lot of interesting information i think of policymakers use the more wisely and this is a great thing. i get to write a book and make a statement with the full awareness that the likelihood of that is minimal. but if we all woke up tomorrow and wisdom and maturity and there is an algorithm like a really good disease you could use things like the employment numbers to really get at where are their employment issues in the united states and why are they happening which is different than the national rate that acts like it's the same in bethesda that it is in detroit that it is in las vegas. >> host: its comparative value.
>> guest: statisticians say you can compare now how things are worse is how they were then. imes ethical as the methodology is eyes changing. half the time we are changing the data with the methodology but these sets are not as useful i don't think you can easily go back to 1970 and bill oh wow rebuilds a factory and generated because we are misunderstanding the nature of employment today. >> host: one of the other things you mentioned is maybe what we need is a spectrum of possibilities and probabilities rather than one definitive number. and we were talking earlier the press itself seems to have begun slowly to cotton on to the fact that some of these leading indicators don't tell us as much as they should. five years ago prior to the crash they would report the monthly unemployment number now when you turn on the tv they often report the monthly
unemployment number and they talk about the number of people that dropped out of the workforce and all these unmitigated questions involved. we do seem to be moving to some realization that these indicators don't work. >> guest: there is definitely of movement in an evolution that is inevitable and important as our thinking was a better way to capture the world we are living in rather than a recourse to this limited framework? even then though we talk about the unemployment rate and we act like every job that is created is a good job. it really isn't. if you are working 37 hours a week at $12 an hour we should be talking about the quality of the jobs and whether or not it's allowing people to meet their means. i'm just saying that neutrally meaning the job is not necessarily a plus in the absence of one is not a minus. if you are 27 years old and not in the workforce and you are trying to create a business that's probably a good thing. none of the we would be able to discuss constructively within our current framework.
so do you get rid of these numbers? they offer a pattern as to what's going on in the world but a much looser one and a much less easy one but we have massive information a big data world that her fingertips so we can use constructively if we allow ourselves to. >> host: numbers number seems to be the bottom line. thank you so much for being with us today. >> guest: thank you so much. thanks. ..