Why are our economic statistics important?

by Maurine Haver
Chair, NABE Statistics Committee
Past President, NABE

Statistics produced by our federal statistical system are vital to the functioning of our market economy. Businesses make decisions about where to locate a plant, how much to produce and how much to pay their workers based on data provided by the Bureau of Labor Statistics (BLS), the Bureau of Economic Analysis (BEA) and the Bureau of the Census. Participants in financial markets make investment decisions which in turn affect interest rates, the stock market and the value of the dollar. These data also serve as critical inputs into the formulation of monetary, fiscal and trade policy. In short, the quality of our economic statistics impacts the lives of every American.

Is the present system producing what we need?

While U.S. economic statistics remain among the best in the world, lack of investment in our statistical infrastructure has left us with a system that does a better job of measuring the industrial economy of the past than the information economy of the present. Services and high tech industries are not well covered. The most important industry in some statistical tables is now the one labeled "all other". Budget increases for statistical agencies barely cover mandated wage escalations. Funds for research and development are sorely needed to expand the scope and improve the quality of our statistics so they remain relevant in a rapidly changing economy.

The European Union is devoting considerable resources to the development of statistics for the twenty-first century. Their industry statistics have been reorganized to reflect new industries. U.S. agencies are only beginning a comparable effort. Adoption of the new system -- the North American Industrial Classification System (NAICS) -- is long overdue. Funding for the NAICS is provided for in the President's budget, but unfortunately these resources may not be adequate to develop comparable history for business analysis.

NABE members have been concerned for many years about the quality and availability of economic data for business decisionmaking. But only one economic statistics program -- the consumer price index -- has received attention among members of Congress. In December 1996 the Advisory Commission to Study the Consumer Price Index, headed by Stanford University professor Michael J. Boskin, issued its report to the Senate Finance Committee on a possible upward bias in the consumer price index. One of the report's key recommendations was that the BLS revise the CPI market basket more frequently. BLS recognized this need in the early 1990s. Had budget dollars been available then to begin the CPI revision, the CPI would already reflect more recent buying patterns thereby reducing one source of upward bias in the index.

While measurement error in the CPI clearly impacts the federal government budget, mismeasurement of other important indicators can affect the actions of the Federal Reserve and businesses causing the economy to perform below potential. This underperformance also negatively impacts the federal budget and the welfare of all Americans.

Some statistical programs have been terminated altogether. Many of these programs measured economic activity in local areas and were especially important to small and medium-size businesses without a national presence. Other programs were important for policymaking. For example, information on business spending for pollution abatement is no longer collected. If Congress considers any changes to clean air or water regulations in coming years, current data will not be available on business expenditures required to meet existing regulations.

NABE recommendations

The time has come to organize our economic statistical system so it can operate as efficiently as possible and so that decisions affecting statistics are made within the context of the complete economic monitoring system. NABE recommends that our major economic statistical agencies -- BLS, BEA and Census -- be consolidated into a high-level statistical office similar to those in other industrialized countries like Canada and the United Kingdom. This new agency should report to a Statistician General of the United States who would report to the President. The Statistician General would serve for seven years and be removable only for cause. He or she would have clout in the fight for resources and could resolve questions of statistical policy free of pressure from political and special interests. The Statistician General would be responsible for setting system standards and the consolidated agency could provide technical assistance to special interest statistical groups within other government agencies.

Data sharing among these agencies is critical and would solve some of the problems that arise from our fragmented system. NABE strongly supports pending legislation which would provide for data sharing among statistical agencies and with the Treasury which is now often prohibited by law. However, we do not believe this legislation goes far enough. Consolidation is needed.

Actions the President and Congress can take

NABE believes the President should appoint a commission composed of well-informed and qualified individuals to review the organization, management and funding of our economic statistics infrastructure. This group should not merely conduct a study. Many studies have been done in the past. (See Janet Norwood's book Organizing to Count.) Furthermore, this group should not drain already scarce agency resources. Instead members should be chosen based on their existing knowledge of the system so that useful work can begin immediately. NABE can provide a list of eminently qualified individuals who might serve on the commission.

This commission should be given six months to complete the following activities:

1. Develop the broad organizational framework of the new statistical agency.
2. Draft the necessary enabling legislation to create the new statistical agency
3. Establish a process to set priorities for economic measurement including discarding programs which are no longer relevant.

In our view, consolidation may not result in substantial budget savings. It will, however, provide the base for improved quality statistics and a better allocation of resources. This will, after several years, result in a more cost-effective, responsive and high-quality economic intelligence system.

NABE recognizes the importance of balancing the federal budget. Our members have consistently supported a balanced budget since we began policy surveys more than twenty years ago. However, we also recognize the costs of incomplete and inaccurate information which are well in excess of the combined budgets of our major statistical agencies (BLS, BEA, Census).

We ask the President and the Congress to move forward decisively. Our economic information is essential to business, financial markets and government policymaking. We must begin the process of strengthening our system now so it can provide us with the information we need to make decisions in the twenty-first century.

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