Rethinking Macro Measurement

Economists have long recognized that widely reported and followed economic indicators such as GDP, productivity, and real wage growth often fail to do a good job of capturing the concepts they purport to measure. And as the chief economist of Credit Suisse begins by noting in this article, this mismeasurement problem has been viewed as significant in the cases of inflation and inflation‐adjusted (or real) measures, and even more troubling in the case of productivity. Even before the onset of the COVID‐19 pandemic, the U.S. economy, as viewed through the lens of conventional macro statistics, was almost universally agreed to be struggling with pronounced demographic and productivity slowdowns. But if the slowdowns in nominal GDP and wage growth are indisputable, the author suggests that systematic overstatement of U.S. inflation may well have not only exaggerated the extent of such slowdowns, but obscured the possibility of actual increases in productivity and real wages during the past three or four decades. Along with the possible mismeasurement of some macroeconomic data, the author also discusses the ways in which macro measures tend to be misused. Though the limitations of macro data have long been understood by experts, the widespread use and uncritical acceptance of such numbers as representing concepts such as living standards, the cost of living, worker efficiency, technology growth, and welfare have very significant implications for today's policy debates and public assessment of the health of the economy. After discussing some of these measurement challenges and calling for greater acknowledgment of the limitations of conventional macro statistics by economists when citing them, the author suggests that “the prestige of national accounts data has likely peaked,” and better approaches appear to be emerging. Notable among such approaches are alternative measures, some spawned by the pandemic, that are improving how economists track the economy in real time and, in so doing, making possible “a deeper, more accurate, and more realistic view of economic activity.”