7/21/13

Economics: eternal war on data

There is an eternal fight between economics and science. One of the most active fronts that economics holds against scientific knowledge and even common sense is data. Behind this front, in the realm of economics, the soldiers and commanders of economic knowledge commit suicide. Every time, when they use own data.
For a physicist, high data quality is a must. Economists revise their estimates at a high rate and deliberately make them incompatible over time. This is a suicide. Today, I ran across a dramatic update to the  Total Economy Database (TED) maintained by the Conference Board. I use this database extensively and always considered it as a reliable source of macroeconomic estimates. Before today.
So, what is the problem? When modeling labor productivity in developed countries I used the Geary-Khamis estimates expressed in 1990 US dollars. The data gave excellent results reported in this blog and a few papers (1, 2, 3).  For Turkey, I presented the following figure in 2010:

Figure 1. Comparison of the measured and predicted labor force productivity in Turkey based on the 2010 Total Economy Database.
 
Today, I tried to update the previous model using the 2013 version of TED and found the following pattern:

Figure 2. Comparison of measured and predicted labor force productivity in Turkey based on the 2013 Total Economy Database.
 What the …? – was my first thought. Has the model failed? The second thought was more creative – Does the economics profession continue its war on data? And this was a correct assumption.  Figure 3 shows that the 2013 TED contains a $2500 step (~15%!) in 2003 without any change in real GDP per capita in the very same year. I found that weird and checked some other countries. Figure 4 shows that in some cases the revision to the labor force productivity estimates was really dramatic.
 How dare economists claim that their theories should not be corroborated by data? They slaughter data every day with a big rusty knife of insane revisions.  
Figure 3. The difference between the 2013 and 2010 versions of the TED for labor force productivity (LP) and GDP per capita in Turkey.
Figure 4. The difference between the 2013 and 2010 versions of the TED for labor force productivity in selected developed countries.
 

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