An entertaining explanation of key numbers used by economists and governments
The unemployment figures do not actually tell us about the state of unemployment in a country, GDP figures do not actually give us an accurate measurement of the health of a country’s economy, and the trade deficit between the United States and China may actually be a trade surplus, according to Zachary Karabell in his book The Leading Indicators: A Short History of the Numbers That Rule Our World.
The book describes the history of a number of economic measurements which we now take for granted. Measurement of unemployment and national income evolved in the wake of the Great Depression, and gross domestic product took over from gross national product as the favoured measure of a country’s economy by the end of the 20th century. What we do not often realise is that these measures were subject to significant limitations at the times when they were invented, and the limitations have become more substantial over the years as the state of technology and the nature of the economy have changed.
Although the book provides a good description of the history of various leading indicators, the extent of the inaccuracies described is not entirely clear. For example, the author explains that every iPhone sold in the US adds $229 to the US-China trade deficit, and every iPad adds $275, although components are sourced from countries other than China and the actual cost of assembly in China is only around $10. However, presumably the components imported into China get counted in China’s trade accounts, so the imports and exports should cancel each other out, but the author does not discuss whether this actually happens.
The book is entertaining and informative, providing a very useful explanation of the key figures used by economists and governments.