The Magazine

No Statistics, No Mischief

A modest proposal for the new Fed chairman.

Jan 27, 2014, Vol. 19, No. 19 • By ANDREW FERGUSON
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Cowperthwaite wasn’t anti-intellectual; he did not scorn statistics. The figures gathered by the International Monetary Fund are the most eloquent testimony to Hong Kong’s achievement in the Cowperthwaite era. As far as he knew, in his day statistics were being compiled all over the colony. He just didn’t want to know what they were. More precisely, he didn’t want other economic policymakers to know he knew what they were. He refused to allow government money to be spent cooking them up. Otherwise, he reasoned, “I might be forced to do something about them.” 

The connection between statistics and mischief is indissoluble. He explained himself to a gathering of legislators who were pressing him for figures on the colony’s gross domestic product—a term of art that everyone uses but no one can usefully define.

Such figures are very inexact even in the most sophisticated countries. I think they do not have a great deal of meaning, even as a basis of comparison between economies. That other countries make use of them is not, I think, necessarily a good reason to suppose that we need them. But, although I am not entirely clear what practical purpose they would serve in Hong Kong, I am sure they would be of interest. I suspect myself, however, that the need arises in other countries because high taxation and more or less detailed Government intervention in the economy have made it essential to be able to judge (or to hope to be able to judge) the effect of policies, and of changes in policies, on the economy.

At other times Cowperthwaite suggested the causality works the other way around: Statistics themselves are what create, or at least justify, high taxation and other interventions in the economy. In a way it’s a supply-side problem, if you’ll forgive the expression. Say’s law tells us that supply creates its own demand. A supply of statistics will spontaneously generate a flock of people who will want to study them, and who, having studied them, will reach conclusions about them, and then, still worse, will want to shape their conclusions into government policy that will tug the citizenry this way or that, distracting workers and businessmen alike from the important task of minding their own business. 

Cowperthwaite went on:

One of the honourable Members who spoke on this subject said outright, as a confirmed planner, that he thought that [economic statistics] were desirable for the planning of our future economic policy. But we are in the happy position, happier at least for the Financial Secretary, where the leverage exercised by Government on the economy is so small that it is not necessary, nor even of any particular value, to have these figures available for the formulation of policy. We might indeed be right to be apprehensive lest the availability of such figures might lead, by a reversal of cause and effect, to policies designed to have a direct effect on the economy. I would myself deplore this.

Cowperthwaite was a humanist in a field that had fallen victim to social science. I have no great confidence that Chairman Yellen will follow his lead—even if I advise her to do so—and banish statisticians from her cold marble temple on Constitution Avenue. As a highly decorated economist, she has reached the top of a trade that considers statistics indispensable to its own functioning. 

But Cowperthwaite didn’t believe it. Stripped of his numbers an economist would have to resort to the old home truths about how the world works: If you tax something you get less of it; as a general rule an individual manages his own affairs better than his neighbor can; it’s rude to be bossy; the number of problems that resolve themselves if only you wait long enough is far larger than the number of problems solved by mucking around in them. And the cure is often worse than the disease:

In the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.

Somehow the most successful practical economist of the twentieth century knew this was true, and he didn’t have to work out a single equation. 

Andrew Ferguson is a senior editor at The Weekly Standard.

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