Friday, June 21, 2013

The power of statistics (Ferguson and the WSJ)

Dean Baker complains about the high number of inconsistencies and mistakes that Niall Ferguson manages to put together in a Wall Street Journal piece written three days ago. There seems to be a pattern here given the article that Niall Ferguson had written just a few days earlier (June 7) also in the Wall Street Journal.

The way I found that second article is interesting and it shows the negative influence of these articles -- even if the mistakes are obvious. I found that second article by Ferguson because as I was teaching some of my students here at INSEAD about the connections between institutions and growth, one of them mentioned an article in the Wall Street Journal that was showing data that contradicted some of my statements. The article, by Niall Ferguson claimed that according to the using data from the Doing Business report from the World Bank, ranked the US as the sixth-worst country in the world when it comes to how easy it is to do business -- I was, of course, showing data that the US remains one of the countries on top of that list.

[Update: Here is the quote from Ferguson's article:"In only around 20 countries has the total duration of dealing with "red tape" gone up. The sixth-worst case is none other than the U.S., where the total number of days has increased by 18% to 433."]

I had to read the article several times to understand how the statistics from the World Bank report were manipulated (I cannot find another word) to produce such a misleading picture of (excessive) regulation in the US. Here is the trick: what Niall Ferguson does is to look for countries that have gotten worse when it comes to the number of days it takes to get certain procedures done. It then ranks them by this criteria (the increase in the number of days) measured in percentage terms. Because the US has indeed increased the number of days and because the initial number was very low, measured as a % makes the US look like the 6th worst country in the world (when you go from 1 day to 2 days it is a 100% worsening; much better than when you go from 300 days to 500). Of course, if you look at the actual number of days the US remains one of the best places to do business in the world (according to this report). The US is ranked #4 in the overall ranking - same position as last year- and #13 when it comes to "Starting a Business" indicators (one position lower than last year).

I am sure that there are some areas in which the US is not as good as it was as a place to do business. But misusing statistics to make the US look like the 6th worst country in the world is just wrong. And the fact that the argument was convincing enough for that student in my class to bring it up as an argument shows the power that media can have in the political debate.

Antonio Fatás
on June 21, 2013 |   Edit