According to numbers compiled by The Economist, the global economy exported $331 billion more than it imported in 2010.
There are only two possible conclusions from this statistic: Either extra-terrestrials are snapping up earth-made goods at a rate of about $900 million per day, or our economic data is unreliable.
In theory, the world economy’s trade balance should be zero. After all, one country’s export is another’s import, so all exports and imports in the world should cancel each other out.
But when The Economist compiled data taken from the IMF’s World Economic Outlook, it found the world had reported $331 billion more in exports than it recorded in imports.
“Either the current-account deficits of countries such as America are being understated or the surpluses of countries like China are being overstated, and by a rising amount,” The Economist concludes.
TOUGHER TIMES MEAN LESS RELIABLE STATS
Unreliable data poses a significant challenge to the world’s political and business leadership. After all, if you don’t know how the economy is actually doing, how can you implement business strategies or economic policies that are appropriate?
Cruelly, unreliability of data increases when the economy worsens. That’s because governments tend to use data from previous economic periods to project what is currently happening. When the economy significantly alters direction -- such as at the start of a recession -- those models based on earlier become less reliable.
“When we most want timely information is when they’re least able to give it to us,” Tara M. Sinclair, assistant professor of economics at George Washington University, told the New York Times. “That’s exactly when those historical patterns are breaking down.”
FAKING STATS FOR POLITICAL GAIN
Besides the unreliability of recessionary data, there is also the hard-to-quantify problem of political interference.
The debt crisis unfolding in Europe has highlighted this problem. Greece, the country at the heart of the crisis (at least for the moment), was found to have used false economic data to gain entry into Europe’s monetary union.
Among the requirements the EU had laid out for euro membership was that the country in question run a deficit of no more than three per cent of GDP. Greece entered the euro based on numbers suggesting its budget deficit was below two per cent; it ended up revising those figures to above three per cent, prompting French President Nicolas Sarkozy recently to declare it was a “mistake” for Greece to have entered the eurozone in the first place.
China is another country whose economic figures are often doubted. In 2009, a comparison fo the country’s GDP figures as reported by the central government showed a nine per cent discrepancy versus the numbers reported by provincial governments.
A study reported by China Daily showed 91 per cent of Chinese to be skeptical of official government figures. And documents released by WikiLeaks showed even some high-ranking government officials put little faith in China’s numbers.
IF NOT ALIENS, WHAT?
The Economist lays out several theories for the discrepancy in trade balance numbers. One theory points the finger at the rise of multinational companies, and the fact that a larger share of import-export activities now takes place within single companies. These companies will often set the prices of those trades in such a way as to shift money to lower-tax jurisdictions, which in turn distorts overall import-export numbers.
Another problem stems from tax evasion. It’s been well documented that companies in the developing world often under-report the value of imports in order to avoid high tariffs and taxes. This could make import numbers look smaller than they are versus exports.
The Economist also suggests that “overinvoicing of imports and underinvoicing of exports by American multinationals trying to reduce their tax bills would mean that America’s true current-account deficit is smaller than officially reported.”
And that leads to a bright spot in the erroneous global trade surplus figure: If the world’s businesses and governments are overreporting trade supluses, that would suggest that the trade imbalance between the consumption-driven West and the production-driven developing world may not be as large as we’ve been led to believe.
Either that, or the Martians have come to Earth for a shopping spree.