How Bad Can Numbers Be? Remember the 'Energy Crisis'
SOCIAL statistics have become a national obsession. Optimistic that problems can be solved, Americans want to know the answer to ''How Are We Doing?'' in virtually every area of social and political life.Skip to next paragraph
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Responding to this demand, researchers have devised quantitative measures of just about everything. In the economic sphere we track every twist and turn of the gross domestic product (GDP), family income, poverty, inflation, productivity, and much more. On matters environmental, we seek to gauge risks involved in using an enormous array of chemicals, from agricultural pest control to household aerosols.
The potential of assorted ''megatrends and tendencies'' -- America's competitive position in the world economy, global warming, world population growth, energy supply and consumption -- are insistently measured. If effort, amounts spent, and volume of results are proper indicators in this quest for social measurement, the end product is impressive.
Unfortunately, they are fundamentally irrelevant to the main issue. What we need to know, of course, is how good our measures are. How accurately do they describe the social conditions they claim to describe?
In the June/July issue of Public Perspective Magazine, my colleagues and I review a series of just-published books and articles that document how great the error is in many widely used indicators. Measurement is often extremely complex. In addition, as Richard C. Lewontin, a distinguished population geneticist at Harvard University, observed in a recent essay, efforts at measuring social behavior and performance confront the inevitable fact that ''human societies are made by self-conscious organisms.'' We care about our social performance and try to influence it.
Sometimes in the process we let our wishes shape our understanding of what is -- even to the point of collecting data in a way that otherwise would be seen as evidently flawed.
An especially interesting and instructive, if unfortunate, chapter on economic mismeasurement is provided by work on ''the energy problem.''
Back in the 1970s, in the days of Arab oil embargoes and hour-and-a-half waits in gas lines at service stations, the specter of long-term economic disaster was raised by many supposed experts. The world was running out of oil. The vast imbalance between demand and future supplies would inevitably ''empower'' the oil-rich nations of the world, especially those of the Middle East.
Sweeping and expensive policy responses were needed, given the magnitude of the impending crisis. As President Carter put it in an address to the nation on April 18, 1977, ''The oil and natural gas we rely on for 75 percent of our energy are simply running out... . We now believe that early in the 1980s [!] the world will be demanding more oil than it can produce.''
Had sound data shown anything like this to be likely, actions that in less strenuous circumstances would have seemed outrageously wrong-headed might have been justified.
One such policy, acted on in this climate of near-panic, involved ''alternative energy.'' With the price of oil held likely to rise to $100 a barrel, the Public Utility Regulatory Policies Act of 1978 (PURPA) was passed, to encourage the use of alternative sources of electricity. It provided for payments at way over current market prices to independent producers of electrical power, and it required the established utilities to buy the power.
Those of us unfortunate enough to own property in Maine have experienced some of the consequences. Central Maine Power Company now has astronomically high rates, in no small part because it is saddled with contracts requiring it to pay per-unit costs for electricity from various independent (often wood-burning) producers at rates many times those prevailing in open markets.
Writing about the problems resulting from incredibly bad 1970s estimates of production and consumption of oil, Jeff Bailey of the Wall Street Journal concludes: ''In all, the hundreds of power plants qualified under PURPA now represent, in effect, a $37 billion roadblock to lower utility prices. That is how much the plants will receive through the year 2000 over and above estimated market prices, as calculated by Resource Data International, Inc., a consulting firm in Boulder, Col. The US, meanwhile, has a glut of generating capacity. This glut, plus major advances in turbine technology, would, in an unregulated market, be driving electricity prices sharply downward in many regions now.''
In ''Statistics for the 21st Century,'' Joseph W. Duncan and Andrew C. Gross further describe the magnitude of the 1970s energy miscalculations. The forecasts made in 1973 anticipated a growth in demand so great that by 1985 world production of crude oil would be straining to reach a total output of roughly 200 quadrillion BTUs of oil-derived energy, with all that such a figure would mean for oil prices. In fact, in 1985 the production of crude oil worldwide was just over half as great as the 1973 estimate had foreseen -- and still there was a glut of oil.
Bad numbers can have grievous consequences. Among other things, nations may elect economic policies that have the practical consequence of robbing millions of consumers.