Tuesday, August 01, 2006

Misleading conclusion

I read the following article (page 9) in Parade magazine published on July 30, 2006.  On July 5th and 6th of 2006, I wrote posts about statistics and how they can be misused and misapplied.  This article is a perfect example of the misrepresentation of facts through statistics.

The information was given under Parade’s “Intelligence Report”.  The complete article was typically short but terribly misleading.

“[Hot List]
How Does Our Economy Rate?

China---------------------up 9.5%
India---------------------up 7.3%
United States-------------up 3.4%
Japan---------------------up 2.8%
Great Britain-------------up 2.5%
Germany-------------------up 1.3%

Our Gross Domestic Product, a leading measure of economic health, is rising faster than that of Japan and most of Europe.  But we’re lagging behind budding powerhouses China and India.”

According to the article, we are lagging behind China and India.  Indeed, if one just considers the percentage increase in Gross Domestic Product we are.  But, what does that really tell us?

The following information is from the Peoria Journal Star published July 3, 2005 page A9.  That article listed the Gross Domestic Product for the top twenty nations of the world for 2004.  Here are those figures for the top 15 nations:

United States------$11,670,000,000,000
Spain---------------- $991,440,000,000
South Korea-----------$679,670,000,000

In case you can’t read the number for the United States, it is 11.67 trillion dollars in Gross Domestic Product (GDP) for 2004.  Only seven countries have economies with Gross Domestic Product over a trillion dollars.  The seventh is China.

Comparing the dollar growth in the economies of the United States, China, and India; the United States is the clear winner.
If my math is correct, here are the figures:  

The United States:

The GDP in 2004----$11,670,000,000,000
GDP times a 3.4% growth for the year =
The actual $ increase $396,780,000,000

A new GDP of-------$12,066,780,000,000


The GDP in 2004-----$1,650,000,000,000
GDP times a 9.5% growth for the year =
The actual $ increase $156,750,000,000

A new GDP of -------$1,806,750,000,000


The GDP in 2004-------$691,880,000,000
GDP times a 7.3% growth for the year =
The actual $ increase  $50,507,240,000

A new GPD of----------$742,387,240,000

Would you rather have an increase of $396+ billion as in the United States, or a $156+ billion increase as in China, or a $50+ billion increase as in India?  Personally, I’d select the dollar increase of the United States.  The total growth of the economy in the United States was greater than that of both China and India.  The difference is in the original base.  We are a much wealthier economy than any other nation in the world.

Consider these figures using baseball statistics as an example:

Batter A has one hit in ten times at bat.  He goes two for five in the next game.  His original batting average is 100.  He is now 3 for 15 for a batting average of 200.  He increased his batting average by 100 points.

Batter B has five hits in ten times at bat.  He also goes two for five in the next game.  Both batter A and batter B hit 400 in that specific game.  However, batter B was batting 500 before that game.  Even though he had the same number of hits for the same number of at bats as batter A in that game, his batting average actually decreased from 500 to 467.  The original base makes all the difference!

Another example.  My best investment year was an increase of 46%.
If my base had been $10,000, I would have had an increase of $4,600.  Not bad.  If my base had been $1,000,000, I would have had an increase of $460,000.  Much better!  The percentage increase is the same in both cases.  Which of the two situations would you prefer?  The original base makes all the difference!!!

Another consideration.  China, India, and the United States are the three most populated countries in the world in the order just listed.  China has a 2006 population of about 1.31 billion people.  India’s population in 2006 is about 1.09 billion people.  The United States’ population in 2006 is about 298 million people.  Consequently, the growth in Gross Domestic Product per person was significantly higher for the United States than for either China or India.  Without question, our economy is more dynamic and growing more than either China’s or India’s!      

My last Economics class was in 1999 at the University of Arizona.  My Professor believed that a steady economic growth of between 2.5% to 3% increase per year was better for the economy than fluctuating growths going, for example, from 6% to .1% or a negative growth rate.  

The United States is a mature economy.  A 9% growth rate is unrealistic.  China is still far behind the United States as measured by total GDP.  As it matures economically, one can expect the growth rate to decrease as well.  As the base increases in size, the percentage of growth tends to decrease.  

Right now, the total increase in wealth in the United States is greater than in China.  That is true because the United States has a far greater base of wealth to begin with so that they don’t need a 9% growth rate to achieve a greater increase in wealth.  

Parade magazine is misleading the public by emphasizing the percentage increase without any reference to the base.  Nothing new for the libertine media—always trying to make good news look bad if the good news is from the efforts of those they oppose.    

Misusing statistics misleads the public!  Misusing statistics is a deceptive practice of the mass media!  We need to think about the information given.  It can be true but terribly misleading!!!

P.S.  To answer the original question asked by Parade magazine—“How does our economy rate?”  Answer: NUMBER 1 in the world!!!!!

{Please note: the Parade article does not give the year for the percentage increases in GDP.  It may have been for 2005.  I don’t have the figures for GDP for 2005 so I used 2004 figures.  The analysis is correct even if the percentage increase in GDP is for a year different than the year used as the base year.}  


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