If one person tried to paint an optimistic picture of curren

If one person tried to paint an optimistic picture of current economic conditions and another tried to paint a pessimistic picture of the same conditions, could they often both succeed? Why does knowing something about the limitations of economic data help protect us from being misled by such people?

Solution

They both, can succeed in a limited extent, because there is always a scope of improvement in the method used to calculate the value of macroeconomic indicator. It can be understood by the examples. One person boasts the economic development with an unemployment rate of only 4.2% that is very close to natural rate of unemployment. But, there is an equally true and confident counter argument that the unemployment rate calculation considers part time workers as employed people and does not consider the discouraged workers in the calculation. So, it can convince people that present unemployment rate of 4.2% does not reflect the economy. It is the same with inflation that is just over 2%, but it does not speak about the quality of goods that are more costlier in the economy. So, it is very individualistic in nature. Hence, it is the method of calculation of indicator, factors considered at discount and premium as well as time period of the calculation, creates scope for both type of person to succeed in convince some people.

A good understanding of the limitations of the data helps the individuals to know the sources of data, possible anomalies, errors and loopholes in the methods to use the data. It makes them to remain grounded, rational and takes decisions on the basis of their own conditions. It helps them to make a correct judgement that is most suitable for them. It also saves them from being misled by so called economists who manipulate the data and present a different picture.