Macroeconomic Data Is Really a Tool for Government Intervention

Government statisticians measure an "economy" that has no life of its own, and policymakers use those measurements to steer an entity that exists only in spreadsheets, according to an essay that draws on the work of Murray Rothbard and Ludwig von Mises. The essay argues that real GDP is an analytic construct, not something that can be observed or collected, and that the entire apparatus of macroeconomic data exists to give bureaucrats a handle for intervention.

Why Real GDP Is Not Real

The measurement problem starts with the impossibility of adding heterogeneous goods. One loaf of bread exchanged for $2 and one gallon of milk exchanged for $1 cannot be combined into a meaningful average price, the essay says. Adding ratios of exchange is conceptually meaningless, so the indicators produced by government statisticians are detached from actual market transactions. All that can be established is the monetary turnover, the total amount of money spent on goods and services. Converting that into "real output" requires an average price, and no such price can be meaningfully computed.

Landefeld and Parker, economists at the Bureau of Economic Analysis, made the same point in a paper on GDP measurement:

In particular, it is important to recognize that real GDP is an analytic concept. Despite the name, real GDP is not "real" in the sense that it can, even in principle, be observed or collected directly, in the same sense that current-dollar GDP cannot in principle be observed or collected as the sum of actual spending on final goods and services in the economy. Quantities of apples and oranges can in principle be collected, but they cannot be added to obtain the total quantity of "fruit" output in the economy.

Once the fiction of an "economy" is concretized through GDP and similar indicators, policymakers can claim to guide it along a desired growth path. When growth slips below that path, fiscal and monetary intervention follows. Rothbard described statistics as the eyes and ears of the bureaucrat:

Bureaucrats as well as statist reformers. . . in order to get "into" the situation that they are trying to plan and reform, they must obtain knowledge that is not personal, day-to-day experience; the only form that such knowledge can take is statistics. Statistics are the eyes and ears of the bureaucrat, the politician, the socialistic reformer. Only by statistics can they know, or at least have any idea about, what is going on in the economy.