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## Misleading with Numbers: It's Worse When the Government Does It

01/30/2018

Major international comparisons have long concluded that Americans’ ability to effectively utilize mathematics is inadequate. Such conclusions divide students, parents, teachers and administrators into camps that share little more than blaming others for the problems. However, it is unclear whether all the finger-pointing indicates a real desire to overcome our innumeracy. In fact, we systematically misuse numbers to distort reality because we want to fool ourselves, making our ineptitude no surprise.

One of today’s most obvious misleading number games is grade inflation. Teachers have accommodated student desires for higher grades to the point that the median GPA of graduating college seniors has risen around a full grade point since it was about 2.2 in 1965. At some schools, almost everyone now gets As and Bs, and who is valedictorian has become a question of how many “perfect” students will share that title. Students have also pushed to allow A+ grades that count more.

High schools have gone even further. Many make advanced placement or community college courses worth an extra grade point. This has created a competition among students to take as many such GPA-padding courses as possible, especially ones they discover are actually easier than the corresponding high school courses. These and other policies (e.g., statewide comparisons crafted to show that, as in Lake Woebegone, all children are above average) have, however, thrown away much of the useful information such evaluations once contained.

Price inflation is another form of ego-building by manipulating comparison numbers. For most of us, if we want to brag that, say, we make more than our parents did, enough years of inflation can make it so. On the other hand, older Americans use it to “prove” how much better things used to be (e.g., “I remember when bread was a nickel” or “I only paid \$22,000 for my house”).

Statistics and percentages are subject to the same abuse. Statistics are routinely manipulated, as with attempts to make insignificant changes appear significant. Instead of saying some drug increases the probability of some form of cancer from 0.00001 to 0.00003, reports scream that it triples your risk (from almost zero to almost zero). And “giving it 100%” was once going all out, but that has now frequently been eclipsed by claims of giving it 110%, 150%, 200%, or even 1000%. I’m 1000000% sure such inflated hyperbole is misleading.

We manipulate clothing sizes. Adults want to feel thinner, so what was a given size dress years ago is now a smaller size. Parents, however, want their children to be “ahead of the curve,” so some children’s sizes have changed to accommodate their “Lake Woebegone” desire for everyone to have children that are above average.

We manipulate numbers to fool themselves in other areas as well. So, if we were honest about our numerical dishonesty, perhaps we should conclude that, while we would like to handle numbers more deftly, most of us are unwilling to invest the time and effort necessary. And in many cases, we simply don’t want to “do it right,” because that would force us to abandon self-delusions we want for the reality we wish to avoid or deny.

As concerning as Americans’ numerical self-deceptions are, government deceptions are worse. They are worse because government’s fingers invade an almost uncountable number of areas, often with trillions of dollars involved, but especially because our “public servants” mislead us rather than us misleading ourselves when we choose. And misrepresentinh issues to create political support, following the old adage that “figures don’t lie, but liars figure,” is a far surer path to reducing citizens’ general welfare than advancing it.

#### Abuse of Numbers in Politics

Examples of political abuse of numbers are abundant. So consider just a few examples.

One of the most common misrepresentations of the costs of government spending is ignoring what economists call the excess burden of taxation. In addition to the resources taken from citizens to fund spending, tax wedges between what buyers pay and what sellers receive destroy productive trades and the gains they create. A 20% tax would destroy those trades generating less than \$1.20 in value per dollar spent; raising it to 30% would also destroy trades generating between \$1.20 and \$1.30 in value per dollar spent. In 2006, Martin Feldstein estimated the excess burden at 76 cents per dollar of added tax revenue. This estimate (not the highest proposed) means one more dollar of government spending would cost society \$1.76. That is, every dollar of additional government spending would have to generate more than \$1.76 in benefits to even conceivably improve Americans’ general welfare. But I have never seen an official government project evaluation that included those costs.

Another huge deception involves government trust funds. For instance, the over \$2 trillion in the Social Security trust fund buttresses claims that serious solvency problems are small enough and far enough in the future to pretend away for now. But the excess “contributions” have already been borrowed by the Treasury, and the money spent, leaving a trust fund of IOUs from one government pocket to another, unbacked by any real assets.

Imagine saving for a purchase by putting \$100 in a cookie jar each week. But each week, you take the money back out and spend it, replacing it with an IOU from you to yourself. The only way your fund can finance the intended purchase is if you make your own IOUs good from other sources of income. How can Treasury redeem its cookie jar of empty promises? Massive future tax increases.

The absence of a “real” trust fund means that the day of reckoning will not be when the trust funds are exhausted, but whenever the Treasury must transfer resources to the program. And that has been going on for years, with results seriously deteriorating in the future.

The 14- or 15-digit unfunded liabilities in the Social Security and Medicare programs (and plenty more at federal, state and local levels), which dwarf the official federal debt, are also almost universally ignored. One exception is in the fine print of Social Security statements. My latest one said that “The law governing benefit amounts may change because, by 2034, the payroll taxes collected will be enough to pay only about 79 percent of scheduled benefits.” In other words, the real cost must include the fact that mega-trillions of dollars of promises will simply be reneged on in the future.

Another area of government number abuse is how benefit cost analysis is used. It has morphed from a technique to organize and clarify our judgements on projects to a systematic way of misrepresenting reality in the desired political direction. Excess burdens are ignored, as discussed above. But that is compounded by counting multiplier effects where government spends money but assuming that raising the money has no similar effect in the opposite direction. Double counting of benefits is endemic (e.g., counting jobs created and income generated as if they are separate benefits, when those are really two different ways of counting the same thing twice. In fact, jobs actually represent the burdens borne in order to receive the income--costs, not added benefits. Costs and completion dates are massively underestimated as a matter of routine,, overstating benefits (that don’t start until later than promised) and understating costs (California’s bullet train offers an excellent current example).

When misrepresentation is piled upon misrepresentation, “analysts” who are clearly aware that “you will never work in this town again unless you get what I consider the right answers,” can reverse-engineer assumptions necessary to produce those answers as forecasts. But those forecasts are so vastly separated from reality that they provide virtually no useful guidance.

The dishonest marketing of Obamacare also provided some examples of “inside baseball” ways numbers get twisted into huge misrepresentations.

Obamacare’s designers used their knowledge of the Congressional Budget Office’s methods to manipulate public perceptions. This is the genesis of the program’s mandates. Jonathan Gruber said “The bill was written in a tortured way to make sure the CBO did not score the mandate as taxes. If the CBO scored the mandate as taxes, the bill dies. OK, so it’s written to do that,” to take advantage of “the stupidity of the American voter.”

The manipulation also extended to the timing of Obamacare’s implementation, as CBO rules specify that one must only go out ten years in estimating costs. That made the end date 2019. But Obamacare cost almost nothing until 2013, which allowed six years of costs to be presented as if it was actually comparable to ten year’s worth of benefits. That is how a ten-year CBO cost estimate of \$848 billion became \$2 trillion, once time erased the four-year cheat.

Many varieties of nudgers, paternalists and would-be dictators have claimed that their superior understanding should be substituted for individuals’ own choices, “for their own good.” Examples of individual innumeracy make up part of their “listen to me instead” promotional toolkit. And real world people do sometimes deviate from the always profit- or utility- maximizing “homo economicus” caricature. That may be because people cannot accurately recognize all the incentives involved in a given scenario, their calculating abilities may not be up to the task, or even that we sometimes prefer better self-regard to added income or self-deception to some aspects of reality.

However, we must recognize that behavior which may include violations of the “homo economicus” artificial standard is not necessarily inferior to the relevant alternatives in the real world, rather than that imaginary one. In practical applications, those always involve some coercive displacement of individuals’ voluntary choices by self-assessed experts, with allegedly superior understanding. And those who want us to follow their lead do not know us or our relevant circumstances better than we do, nor care for us more than we do for ourselves, however loudly they trumpet supposed altruism. They are unwilling to trust that simply better “educating” us is sufficient if it leaves the choices of how to respond in our hands. Further, such well-wishing does not explain much of the actual behavior of those toward whom they profess to care so much, nor does the history of such efforts have an untarnished track record.

However, even more ominous is the overwhelming extent to which government, supposedly the means to be used to improve our well-being, routinely relies on multiple misrepresentations in almost every area within its Brobdingnagian reach. Such intentional lying advances others’ interests—theirs--not ours, because, as Thomas Sowell has put it, “When you want to help people, you tell them the truth.” Combined with the frequency with which government policies are enacted and supported through the alteration and/or wholesale abandonment of the truth, this justifies massive suspicion rather than a presumption of efficacy for such polices and trustworthiness of their promotion, which makes the magnitudes of our mathematical limitations and self-created foibles insignificant in comparison.

Author:

Gary Galles

Gary M. Galles is a Professor of Economics at Pepperdine University and an adjunct scholar at the Ludwig von Mises Institute. He is also a research fellow at the Independent Institute, a member of the Foundation for Economic Education faculty network, and a member of the Heartland Institute Board of Policy Advisors.

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