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93 Foreign Aff. 90 (2014)
(Mis)leading Indicators; Why Our Economic Numbers Distort Reality

handle is hein.journals/fora93 and id is 362 raw text is: (Mis)leading Indicators Why Our Economic Numbers Distort Reality Zachary Karabell E conomic numbers have come to define our world. Individuals, organizations, and governments assess how they are doing based on what these numbers tell them. Economists and analysts loosely refer to statistics measuring GDP, unemployment, inflation, and trade deficits as leading indicators and subscribe to the belief that these figures accurately reflect reality and provide unique insights into the health of an economy. Taken together, leading indicators create a data map that people use to navigate their lives. That map, however, is showing signs of age. Understanding where the map came from should help explain why it has become less reliable than ever before. None of today's leading indicators existed a century ago. They were invented to measure the economies of the industrial nation-states of the mid-twentieth century. In their time, they did so brilliantly. The twenty-first century, however, is proving more challenging to measure. Industrial nation-states have given way to developed economies rich in services and to emerging industrial economies exporting goods made by multinational companies. The statistics of the twentieth century were not designed for such a reality, and despite the assiduous efforts of statisticians, they cannot keep up. These shifts have created a temptation to find new formulas, better indicators, and new statistics. And that search, like the quest for new technologies, is certainly worthwhile. But the belief that a few simple numbers or basic averages can capture today's multifaceted national and global economic systems is a myth that should be abandoned. Rather than seeking new simple numbers to replace old simple numbers, ZACHARY KARABELL is Head of Global Strategy at Envestnet and President of River Twice Research. His most recent book is The Leading Indicators: A Short History of the Numbers That Rule Our World (Simon & Schuster, 2014), from which this essay is adapted. Copyright @ 2014 Zachary Karabell. 90 FOREIGN AFFAIRS

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