Fund the number crunchers

A conservative budget cutter trying to defend government spending programs may sound like a case of "man bites dog." Yet, even though I have consistently urged reductions in government spending, I feel obliged to support the proposed budgets for the federal statistical agencies for the fiscal year 2000 (which started Sept. 1, 1999). It is hardly a question of ideology, but simply a matter of producing accurate signals of the nation's economic activity to help guide decisionmakers in both the public and private sectors.

The real costs resulting from providing inadequate funding for one of the most useful parts of the bureaucracy - the data gatherers - are truly awesome. An inaccurately high report of inflation can trigger an avoidable policy of monetary restraint followed by needless declines in capital formation, production, and employment. Bad information on productivity can generate investor decisions out of sync with real trends in the marketplace.

Underreporting exports can produce news of "record" trade deficits, followed by adoption of tougher protectionist policies, which could undermine the growth prospects for the US as well as those nations it trades with. Underestimates of rapidly expanding electronic commerce can distort business planning and development.

Congress is now considering the bits and pieces of funding for statistics-gathering included in a variety of major appropriation bills. This haphazard way of budgeting is due to the fact that the $6 billion being requested is parceled out to a broad assortment of bureaus in the various Cabinet departments. That $6 billion - out of a total budget in the neighborhood of $1.8 trillion - is divided roughly in two. Half is scheduled to be devoted to the decennial census required by the Constitution. The rest will finance such mainstays of our economic information system as the national income and product accounts maintained by the Department of Commerce, the price indexes and employment data of the Department of Labor, the farm sector details provided by the Department of Agriculture, plus a few limited improvements.

Those modest improvements are hardly frills. The largest ones include $5 million to collect data on the most rapidly changing part of the economy - electronic commerce - and to update reporting of financial services and computer software and $3 million to continue modernizing the consumer price index (which many experts believe overstates inflation). Also, the widely used employment cost index would get its first overhaul since it was established a quarter of a century ago.

Also, the numbers on changes in productivity, which are relatively good in measuring traditional manufacturing activity, would get a facelift in the vital and much larger area of services. Only in government does it seem necessary to wait until 2000 to respond to the decades-long shift in the center of gravity of the economy from manufacturing of goods to the services.

In a sense, the limited budget increases for federal data gathering mainly represent a holding action. Really fundamental improvements need to be made in the years ahead. For example, the new commission to Review the Trade Deficit - which I happen to chair - is charged by Congress with examining the state of our statistical knowledge of foreign trade and to come up with recommendations for the necessary basic changes. That is a tall order, and the commission's report is not due until mid-2000.

Sensible decisionmaking on spending scarce budget dollars on improving the basic economic numbers must be weighed against the great damage that results from relying on an out-of-date factual base. All this is hardly justification for giving a blank check to the federal number crunchers. Yet, the present austerity hardly seems to be the sensible approach in financing this key part of our knowledge-generating system.

*Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University.

(c) Copyright 1999. The Christian Science Publishing Society

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