The danger of building strong narratives on weak data

Article by John Burn-Murdoch: “Measuring gross domestic product is extremely complicated. Around the world, national statistics offices are struggling to get the sums right the first time around.

Some struggle more than others. When Ireland first reported its estimate for GDP growth in Q1 2015, it came in at 1.4 per cent. One year later, and with some fairly unique distortions due to its location as headquarters for many US big tech and pharma companies, this was revised upwards to an eye-watering 21.4 per cent.

On average, five years after an estimate of quarterly Irish GDP growth is first published, the latest revision of that figure is two full percentage points off the original value. The equivalent for the UK is almost 10 times smaller at 0.25 percentage points, making the ONS’s initial estimates among the most accurate in the developed world, narrowly ahead of the US at 0.26 and well ahead of the likes of Japan (0.46) and Norway (0.56).

But it’s not just the size of revisions that matters, it’s the direction. Out of 24 developed countries that consistently report quarterly GDP revisions to the OECD, the UK’s initial estimates are the most pessimistic. Britain’s quarterly growth figures typically end up 0.15 percentage points higher than first thought. The Germans go up by 0.07 on average, the French by 0.04, while the Americans, ever optimistic, typically end up revising their estimates down by 0.11 percentage points.

In other words, next time you hear a set of quarterly growth figures, it wouldn’t be unreasonable to mentally add 0.15 to the UK one and subtract 0.11 from the US.

This may all sound like nerdy detail, but it matters because people graft strong narratives on to this remarkably flimsy data. Britain was the only G7 economy yet to rebound past pre-Covid levels until it wasn’tIreland is booming, apparently, except its actual individual consumption per capita — a much better measure of living standards than GDP — has fallen steadily from just above the western European average in 2007 to 10 per cent below last year.

And the phenomenon is not exclusive to economic data. Two years ago, progressives critical of the government’s handling of the pandemic took to calling the UK “Plague Island”, citing Britain’s reported Covid death rates, which were among the highest in the developed world. But with the benefit of hindsight, we know that Britain was simply better at counting its deaths than most countries…(More)”