From the British weekly The Economist comes a report that the IMF has threatened to "censure" Argentina for putting out false economic statistics to disguise the extent of the inflation plaguing the country:
THE IMF has taken years to pluck up the courage to censure Argentina’s blatantly inaccurate inflation statistics, but it did so at last on February 1st. The official reprimand gives the government of President Cristina Fernández until September 29th to take “remedial measures” to comply with the fund’s rules on the reporting of statistics. If it fails to do so, Argentina risks escalating punishments, from losing its ability to borrow from the IMF to—eventually—expulsion.
The particular problem in Argentina is inflation. The government has reported inflation of about 10% per year over the past several years, while independent economists have been reporting rates of more like 25% -- not an insignificant discrepancy.
I applaud the IMF on trying to get Argentina to put out honest inflation statistics. But in the big picture of things, the Argentina inflation rate is a very small problem in the field of false economic statistics compared to the Big Lie, which is the ongoing fallacy in calculating the GDP of every country that a dollar of government spending, no matter how wasteful, is equal to a dollar of spending in the private economy. And who is as big a perpetrator as anyone of the Big Lie of counting government spending at full value in GDP? Why, the IMF, of course!
First, one example from among many of how counting government spending at full value in GDP statistics leads to results that are completely preposterous. Where else to look but Argentina's blood brother in bad governance, Venezuela? There the local strongman, Hugo Chavez, was up for re-election last fall. How to make that a sure thing? Well, obviously, just increase government spending by 67% (about 20% of GDP) and hand the money out to your core supporters. Which is exactly what Chavez did last fall, according to this article from Bloomberg News last September 12 (much of the increased spending in the form of a crash program to build public housing). Now, anybody who thinks about it for a moment knows that such a massive increase in government spending would be hugely destructive of real economic activity. How did it turn out in the official economic statistics? From Salon, December 27, 2012:
Venezuela’s gross domestic product grew 5.5 percent in 2012 compared to the previous year, consolidating an economic recovery that began in 2010. The growth was fueled in part by government spending, especially on a program to construct low-income housing. Construction grew 16.8 percent. Central Bank President Nelson Merentes announced the figures Thursday.
So then, how are things going in the real productive economy? Again from the current issue of The Economist:
Cooking oil, sugar, wheat flour, coffee and the all-important pre-cooked maize flour that goes into many Venezuelan dishes are among the staple items that have largely disappeared from the shelves. Both the Central Bank, which tracks the level of supply, and private economists reckon that shortages are at their greatest since 2008. . . . Under a plan announced in 2005, Venezuela should have produced 5.8m barrels [of oil] a day by 2012. Even by the government’s reckoning, it pumped little more than 3m; private sources suggest the number was around 2.8m.
Lots more in the article, including this picture of a store shelf:
And now back to the IMF. In October 2012 the IMF put out a World Economic Outlook report that caused a huge stir by criticizing regimes of "austerity" as causing decreases in employment and output. Here is a link to the IMF report. Needless to say, the left wing press/blogosphere was ecstatic with the news, from Mother Jones, to the Washington Post, to the Huffington Post. (Washington Post headline: IMF: Austerity is much worse for the economy than we thought.)
This IMF report represents nothing more than complete acceptance of the fallacy that a dollar of government spending counts the same as a dollar of private spending in GDP accounting. This IMF report was several orders of magnitude more destructive to the world economy than some cooked Argentine inflation figures. But who is going to censure the IMF?
UPDATE: Daughter Jane sends along this excellent cartoon illustrating the basic principles of Keynesian economics: