The Leading Indicators: A Short History of the Numbers That Rule Our World - Hardcover

Karabell, Zachary

Hardcover

ISBN 10: 1451651201 ISBN 13: 9781451651201

Verlag: Simon & Schuster, 2014

Inhaltsangabe

How did we come by the “leading indicators” we place such stock in? We allocate trillions of dollars and make public policy and personal decisions based upon them, but what do they really tell us?

We are bombarded every day with numbers that tell us how we are doing, whether the economy is growing or shrinking, whether the future looks bright or dim. Gross national product, balance of trade, unemployment, inflation, and consumer confidence guide our actions, yet few of us know where these numbers come from, what they mean, or why they rule our world.

In The Leading Indicators, Zachary Karabell tells the fascinating history of these indicators. They were invented in the mid-twentieth century to address the urgent challenges of the Great Depression, World War II, and the Cold War. They were rough measures— designed to give clarity in a data-parched world that was made up of centralized, industrial nations—yet we still rely on them today.

We live in a world shaped by information technology and the borderless flow of capital and goods. When we follow a 1950s road map for a twenty-first-century world, we shouldn’t be surprised if we get lost.

What is urgently needed, Karabell makes clear, is not that we invent a new set of numbers but that we tap into the thriving data revolution, which offers unparalleled access to the information we need. Companies should not base their business plans on GDP projections; individuals should not decide whether to buy a home or get a degree based on the national unemployment rate. If you want to buy a home, look for a job, start a company, or run a business, you should find your own indicators. National housing figures don’t matter; local ones do. You can find them at the click of a button. Personal, made-to-order indicators will meet our needs today, and the revolution is well underway. We need only to join it.

Über diesen Titel

Über die Autorin bzw. den Autor

Zachary Karabell is an author, money manager, commentator, and president of River Twice Research, where he analyzes economic and political trends. Educated at Columbia, Oxford, and Harvard, where he received his PhD, Karabell has written eleven previous books. He is a regular commentator on CNBC, MSNBC, and CNN. He writes the weekly “Edgy Optimist” column for Reuters and The Atlantic, and is a contributor to such publications as The Daily Beast, Time, The Wall Street Journal, The New Republic, The New York Times, and Foreign Affairs.

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The Leading Indicators

INTRODUCTION

What if I told you that many of the assumptions we make about our economic life are wrong? What if those assumptions shaped our domestic economic policies? What if they determined core aspects of our international strategy? What if they bolstered the deep and intractable funk that seized the developed world after the financial crisis of 2008–09? What if indeed.

We live in a world defined by economic numbers. We assess how we are doing personally and collectively based on what these numbers say. How fast our country is growing economically or how slow, how much prices are increasing, how much income we have, whether we are employed—these numbers rule our world. We treat our economic statistics as absolute markers of our success or failure. None of these numbers, however, existed a century ago. Most of them didn’t exist in 1950. Yet we enshrine them almost as laws of nature.

Take two recent examples: in 2012, the unemployment rate was a central factor in the US presidential election. It was widely reported that no president had ever been reelected with an unemployment rate more than 7.2%. The monthly release of the unemployment report became one of the most watched events that summer and fall, and each new number ushered in assertions that the economy was recovering and accusations that it was not. Through election day, the rate never dropped to that supposedly portentous 7.2% level, and was hovering close to 8% when Barack Obama was reelected. Obama’s victory had seemingly broken with a strong historical pattern. But did it? The answer is no, for reasons that will become clear in these pages. Our sense of probability and likely outcomes was wrong. How we came to place such stock in these numbers—and what to do now—is the subject of this book.

The other example is a widely accepted “fact” that has dramatic social and political consequences: the trade deficit between the United States and China. Few issues have weighed more heavily than this gap, and it has created substantial tension between the United States and China at least since 2001. Regardless of political party, Americans have decried unfair Chinese trade practices, the undercutting of American wages and manufacturing jobs, and the negative effects of the relationship on the global financial system. But what if the actual size of the trade deficit is significantly less, or perhaps even nonexistent? That may seem an outlandish question, but it is not. We rely on trade numbers compiled every month by the government, and those numbers tell us that there is a deficit. As we shall see, however, the world these statistics say we are living in and the one we are actually living in often diverge; the world we are living in is not the one that these statistics depict.

Every day we are showered with economic statistics such as GDP, unemployment, inflation, trade, consumer sentiment and spending, the stock market, and housing. This suite of statistics intimately shapes our perceptions of reality. We now refer to them as our “leading indicators,” and they are thought to provide key insights into the health of the economy. But they measure only what they were designed to measure at the time they were invented. The world, however, has not stayed the same.

Just how much it has changed was brought home in the middle of 2013. You may not have noticed, but one day in 2013, the US economy grew by $400 billion overnight.

That wasn’t because of normal economic growth. After all, given that the gross domestic product (GDP) of the United States is in excess of $16 trillion, even at a modest clip it will get hundreds of billions of dollars larger each year.

No, the reason for that boost was not a sudden surge of activity. One day, those billions just appeared. And not only just appeared, but apparently had been there all along. On July 31, 2013, the US Bureau of Economic Analysis (BEA), which is the government agency responsible for calculating the size of the US economy, announced that it had shifted the way it measured national output. The result was a $400 billion adjustment.

Given the language used by the agency in describing the revision, you could be forgiven for missing the import. Months before the official new number, the BEA had announced the change. But few of us sit up and take notice when greeted with this headline: “Preview of the 2013 Comprehensive Revision of the National Income and Product Accounts: Changes in Definitions and Presentations.” The subsequent official announcement in July was hardly catchier. In its bulletin describing the new methodology, the BEA stated that it would now include “creative work undertaken on a systematic basis to increase the stock of knowledge, and use of this stock of knowledge for the purpose of discovering or developing new products, including improved versions or qualities of existing products, or discovering or developing new or more efficient processes of production.”1

This inelegant prose masked a profound shift in the way that we understand the economy. Until the Great Depression, no country measured its national output. The global economic crisis of the 1930s led to efforts in both the United States and Great Britain to develop statistics that would provide some clarity about what was going on. National income and GDP were two of the most important statistics to emerge from that era. By the middle of the twentieth century, countries everywhere were using these numbers.

The world those numbers measured, however, was very much a world of nation-states making stuff. Economies were based on the output of goods, on manufacturing, farming, and production. In the decades since, however, the nature of the United States and many other economies has changed dramatically, away from manufacturing and toward services; away from making stuff in factories to inventing ideas.

For many years, the keepers of these statistics recognized that ideas and intellectual property are central to today’s economies. When the numbers were created, however, the decision was not to include activities such as research and development (R&D) as part of national output. That meant that until the BEA announced its shift in 2013, the billions spent by a pharmaceutical company to develop new drugs to save and improve lives were treated simply as an expense rather than as an investment that could yield massive future returns. When a company bought a robot for a factory, it counted as part of GDP. When Apple spent a fortune to develop the iPhone, it didn’t.

Also uncounted had been many of the creative endeavors that go into television shows, movies, and music. By adding up all of these investments—the money Lady Gaga spends writing songs, the amount Apple spends on the next iPad, the amount Pfizer invests in a new medicine—the BEA found that it had been underestimating the size of the US economy by $400 billion, an amount larger than the GDP of more than one hundred countries.

Our indicators have become so intimately woven into our lives and our sense of what is going on around us that we forget that for most of human history, there were no economic indicators, and without those numbers, there was no “economy.” Now, the “economy” is a central factor in our lives. The financial crisis of 2008–09 cemented that fact. The primary way that we relate to the economy is through numbers, through statistics that are released regularly by the government, by industry groups, and by companies. The leading indicators are a data map that we use to navigate our lives.

So when the agency responsible for maintaining key elements of that...

Details zur Ausgabe

• Verlag: Simon & Schuster
• Erscheinungsdatum: 2014
• Sprache: Englisch
• ISBN 10: 1451651201
• ISBN 13: 9781451651201
• Einband: Gebundene Ausgabe
• Anzahl der Seiten: 304
• Kontakt zum Hersteller: webstar; casetta@mondadori.it; ; Via Mondadori 1,; Segrate Milano; 20090; Italien