Even though I try to eat a fairly balanced diet, I have been known to enjoy a good Krispy Kreme doughnut now and then. In fact, I was recently at the grocery store picking up some salad fixings when the doughnut delivery guy showed up. As he stacked the freshly filled boxes near the self-checkout line, I impulsively grabbed a six pack. When I got home Launa took a quick look and, after shaking her head at my clearly irresponsible behavior, asked if I was going to share.
While sampling the doughnuts I was reading a news article in which a national politician was bragging that government spending was down 2% over the past 12 months, as if they had accomplished some miraculous feat worthy of great praise. I about choked on a maple bar as I thought about the improper use of statistics in such a claim. I was reminded of the old phrase, “statistics don’t lie but all liars use statistics.” To demonstrate this issue let me continue on with my discussion of the several partially eaten doughnuts that lay before me.
Imagine for a moment that someone had a habit of finishing off dinner each day with a 6-pack of sugar coated, cream filled doughnuts. None would argue that such behavior over a long period of time would result in a health disaster. Imagine then that such a person, after experiencing the negative health impacts of their sugar-filled lifestyle, decided to improve their health but cutting back their habit to just eating five doughnuts a day. Even though statistically they could brag about a whopping 15% cut in their daily treat consumption, such would still not constitute anything close to a healthy diet.
After two years of trillions of dollars in excess deficit spending due to the Covid crisis, cutting back by a mere 2% might be likened to our doughnut addict leaving a few uneaten crumbs on their plate. Our unhealthy subject may foolishly feel a little bit better about himself, but his body will not see any noticeable improvement in its rate of decline.
The point of reference for comparison purposes in statistics is called the baseline. Using improper or irrelevant baselines can render statistics useless, or deceptive. If our doughnut addict wants to plan out a healthy lifestyle, using a baseline of 6 doughnuts a day may only help him feel good about continued failure. Likewise, to establish a reasonable measure of current government spending one cannot use the unreasonable baseline of pandemic era spending. Such constitutes a deceptive statistic designed to make one feel better about continued disastrous spending.
Investors look to government statistics for clues about our nations’ economic health. Understanding the baselines used in those reports will help determine what they are really telling us. Accurate statistics do not lie. But even if they are accurate, they can, and often are regularly used to tell deceptive stories. In short, despite the minimal reductions, government continues consuming far too many doughnuts.
Dan Wyson, CFP® is author of “The Gold Egg," and “21 Financial Myths” and owner of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 - 435-986-9525 – Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor