A Note on the Uses of Official Statistics
| Gabriel |
One of the points I like to stress to my grad students is that data is not an objective (or even unbiased) representation of reality but the result of a social process. The WSJ had a story recently on how we get the “jobs created or saved” figures around the stimulus bill and it makes me want to burn my Stata dvd, take a two-hour shower, and then switch to qualitative methods where at least I know that I would be responsible for any validity problems in my work.
The idea of “jobs created or saved” by a government policy is a meaningful concept in principle but in practice it’s essentially impossible to reckon with any certainty. It’s the kind of problem you might be able to approach empirically if it happened many times and there was some relatively exogenous instrument, but in a single instance you’re probably better off using an answer derived from theory than actually trying to measure it. Nonetheless the political process demands that it be answered empirically and the results are absurd.
The way the government has tried to measure “jobs created or saved” by the stimulus is by simply asking contractors or subcontractors how many jobs were created or saved in their firm by the contract. This involves both false positives of contractors exaggerating the number of jobs they created or saved and false negatives of firms that were not direct beneficiaries of contracts but increased or retained production in expectations of benefitting from the multiplier. In the case covered by the WSJ, a shoe store that sold nine pairs of boots for $100 each to the Army Corps of Engineers didn’t know what else to put and so said they saved nine jobs. When asked about this by the WSJ the shoe store owner’s daughter/bookkeeper replied
“The question, I would like to know is: How do you answer that? Did we create zero? Is it creating a job because they have boots and go out and work for the Corps? I would be really curious to hear how somebody does create a job. The formula is out there for anyone to create, and it’s just so difficult,” she said.
Who’d a thunk it, but apparently FA Hayek was reincarnated as a shoe store worker in Kentucky.