The incalculable costs of corrupt statistics

With GDP and employment figures dominating political debates, it is easy to forget that they are hardly timeless truths.

- Diane Coyle

In fact, how we measure progress has shifted dramatically over time. The Physiocrats — eighteenth-century French economists who saw agriculture as the source of all wealth — regarded farms’ output as the most important economic indicator. The Soviet Union, for its part, focused exclusively on goods production and ignored services altogether.

The modern concept of GDP was developed in the 1930s and became firmly established during World War II, as it served a national purpose. While Germany was working on its own methods for gauging economic capacity, the United States and the United Kingdom gained a decisive strategic edge by being the first to define total output and compile reliable statistics. This enabled the Allies to maximise production and manage the sacrifices required of their citizens more effectively.

Greece's 2012 debt crisis underscores the dangers of unreliable economic data. For years, the country relied on inflated GDP figures and understated debt levels to borrow cheaply on international markets. Eurostat, the European Union’s statistical arm, and others cautioned that Greece's statistics were misleading, but their warnings were largely unheeded.