Putting Economic Data Into Context - The New York Times - 1 views
economix.blogs.nytimes.com/...ing-economic-data-into-context
economic data context historical analysis history
shared by Javier E on 17 Oct 15
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economic historians have been wrestling with this problem for years and have produced an excellent calculator for converting historical data into contemporary figures. The site is called Measuring Worth,
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Today we use price indexes to convert monetary values from the past into “real” values today. The best-known such index is the Consumer Price Index published monthly by the Bureau of Labor Statistics. For those interested only in a simple inflation adjustment, the bureau maintains a useful calculator.
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The area where this is the biggest problem is probably large budget numbers. The raw data is almost universally useless. Saying that the budget deficit was $680.3 billion in fiscal year 2013 tells the average person absolutely nothing of value. It’s just a large number that sounds scary. It would help to at least know that it is down from $1.087 trillion in 2012 and a peak of $1.413 trillion in 2009, but that’s not entirely adequate.
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it makes no sense to compare the federal budget to a family budget, which is what the Consumer Price Index is based on. One needs to use a broader index, like the gross domestic product deflator, which measures price changes throughout the entire economy.
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For large numbers, the percentage of the gross domestic product is both the easiest to find and best to use.
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Since the “burden” of the debt basically falls on the entire economy, the debt-to-G.D.P. ratio is generally considered the best measure of that burden. It also facilitates international comparisons without having to worry about exchange-rate adjustments.
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international price comparisons can be especially tricky because current market exchange rates may not accurately reflect relative values or standards of living. Economists generally prefer to use something called “purchasing power parity,” but such data is not always easy to come by
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There is much more to say on this topic. I recommend an essay on the Measuring Worth website that discusses different measures of value over time and how they materially affect our perceptions. There are also new statistical measures coming online that may provide even better data, like the Billion Prices Project from M.I.T., which gathers price data in real time directly from store price scanners.
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This is an area where trial and error is the best strategy. The important thing is to make an effort to provide proper context where it appears necessary and not to simply ignore the problem.