Money and statistical delusions, by Alasdair Macleod

Much of this article will be tough sledding for noneconomists. For the short version and the upshot of the article, skip to the last section, GDP Fallacies. From Alasdair Macleod at goldmoney.com:

I can prove anything with statistics, except the truth

— Lord Canning, c. 1819

Does Canning’s aphorism still hold true, given that data collection and statistical analysis have progressed beyond all recognition in the last two hundred years? This article tests that proposition.

It is still true, because of the interests for which statistics are deployed. We know, or should know, that CPI indexation of prices fails to reflect the true rate of decline in the purchasing power of fiat currencies. That is at least a simple case of governments saving money on indexation. But being economical with the statistical truth is a far wider practice encompassing input suppression, misleading deployment, and their use to support beliefs and preferred outcomes instead of backing up properly reasoned economic and monetary a priori theory.

This article finds that the application of all these methods corrupt monetary statistics, including the three principal components of the equation of exchange. This analysis is sparked by recent changes to the definition of M1 money supply in the US.

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