Our leaders regularly agonize over unemployment figures, the consumer price index, gross national product and the balance of trade. These and other leading indicators are important but also overrated, writes journalist and Reuters “Edgy Optimist” columnist Karabell (Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It, 2009) in this lucid measurement of how the United States is faring.
Censuses date from ancient times, but it was not until the mid-19th century that the industrial revolution forced a search for data to make sense of an increasingly complex “economy,” a word that did not appear until that time. Governments paid little attention until the disaster of the Depression galvanized them to measure how bad things were and then place great faith in the results. Gross domestic product, the value of a nation’s goods and services, became a proxy for its success. Benefits, wages, rents and raises are often pegged to the consumer price index. Everyone knows that a positive balance of trade is good and a negative balance is bad. Inevitably, these numbers became a referendum on whether people were happy and led to an index of consumer confidence and then to the human development index, which combines income, health and education to gauge a nation’s genuine well-being. Karabell emphasizes that indices measure what they were designed to measure. All exclude great swatches of life (GDP omits household work, cash transactions and free Internet services such as Google). It’s a mistake to use them as mirrors of reality instead of modestly helpful tools. “Our questions need to be specific,” he writes, “and answers must be bounded by a sense of how to parse information, but the result should be a welcome liberation from ‘the economy’ defined by our leading indicators.”
Readers of this intelligent introduction to iconic economic indices will agree that Karabell makes an excellent case.