Misleading Statistics: African Development and Beyond
During a Bloomberg Radio interview, economist Charles Wheelan suggested that the precision of risk models lured investors into thinking certain mortgage-related securities were safe investments. Investors were given quantitative proof that predicted the upside and downside of an investment decision. The problem? The data they received was based on questionable input.
But because the data sounded precise, many people believed it.
According to economist Morten Jerven, we have the same problem with GDP data from many African nations. In 2007, Dr. Jerven visited the Zambian Central Statistical Office in Lusaka. It was staffed with 3 people. The one person in the office pulled together cement purchases to estimate national construction. The value of agricultural production was based on crop forecasts for 8 crops. Growth for retail, wholesale and transport were taken from prior growth rates. The result, though, was one precise number, a GDP number.
If you compare the 3 most respected sources of national income data, the discrepancies are even more evident. World Development Indicators, Penn World Tables and Angus Maddison data each ranked most sub-Saharan African nations differently for reported GDP in the year 2000. All do agree that the Democratic Republic of Congo is the poorest country. Guinea, though, is among the poorest for Maddison’s group and just one down from the 10 most affluent in Penn World’s list. Astoundingly, for Guinea, in the Maddison list, per capita GDP is listed at $572 USD, the World Development Institute ranks it with $605 USD and Penn World Tables, $2546 USD!
Driving home from NYC this evening, I listened to the World Bank Group President Jim Yong Kim talk about eradicating extreme poverty. During the interview he said, “We have a job to do. What we need to do, is to figure out what they were doing when these economies were growing at their best. And then try to .. re-create some of that magic.”
Is there a disconnect between the people who create economic growth numbers and those who use them to make policy decisions about sub-Saharan Africa? Jerven even asks if ignorance is bliss for donors and recipients. Correspondingly, Wheelan said that “Statistics have a point of view.”
Sources and resources: Unsettling and thought-provoking Morten Jergen’s book Poor Numbers: How We Are Misled By African Development Statistics and his hour-long interview at econtalk make us take a second look at statistics we might take for granted. Moving far beyond Africa and GDP, Charles Wheelan’s Naked Statistics also nudges us toward a more discerning response to everyday numbers that might be misleading statistics. Also though, we should consider the perspective, here, from World Bank Group President Jim Yong Kim.