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Damned statistics

Aug 29,2018
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Bae Myung-bok
The author is a senior columnist of the JoongAng Ilbo.

An argument is much more convincing when it is backed by statistics. For instance, it’s not hard to argue that South Korea is turning into a living hell by citing the country’s relatively high ratios of poverty, unemployment and suicide vis-à-vis other members of the Organization for Economic Cooperation and Development (OECD). Data can make a country seem like a paradise or an embarrassment. This is the power of numbers and the charm of statistics.

There are three types of lies — lies, damned lies, and statistics — said Benjamin Disraeli, the prime minister of Great Britain in the Victorian age of the 19th century. This may have been a statesman’s confession about the power of statistics. All governments dream of statistics portraying rosy prospects. Data can win public support and, of course, votes. This is why governments are tempted to cherry-pick facts or window-dress data to deliver a positive picture of their economic performance. Some even fabricate numbers to win the confidence of the masses.

It was a norm in the investment world that only fools believe statistics from China. The gross domestic products of municipal and provincial governments across China always exceeded China’s combined GDP. Chinese provincial governments are notorious for stretching economic data so that the head of the government can get a good score and win favor with the Communist Party. Dinny McMahon, a former Wall Street Journal reporter and author of “China’s Great Wall of Debt,” calls Chinese numbers “the black box of data,” where government and businesses collude to manipulate financial information that would not serve them well.

Data fabrication can rob a nation of credibility and even cause catastrophes such as national bankruptcies. Greece set a modern standard for cooking the books. It became highly creative with its numbers to join the euro zone in 2000. It chopped its fiscal deficit ratio of 13.6 percent against GDP to 6 percent, which was the threshold for membership. When it could no longer hide the hard realities, Prime Minister Georgios Papandreou in 2009 admitted that data released by the past government had been false. The mea culpa sparked a sharp downgrade in Greece’s sovereign credit rating and a selling spree of government bonds, placing the country on the path of national default.

The Moon Jae-in administration on Sunday sacked the commissioner of Statistics Korea, the government office in charge of compiling national statistics. The director of that office on average served two years. Hwang Soo-kyeong had been in her job for just 13 months. Her dismissal came on the heels of the worst-ever jobs and income data. In the latest data, the average income of the first income quintile group, or the bottom 20 percent, fell by 7.6 percent on year in the second quarter after an 8 percent loss in the first quarter. The gap between the bottom and top 20 percent income brackets widened to a record high of 5.3 times. The move stoked criticism of the presidential office acting emotionally to the release of so much negative data, which fueled opposition to the government’s economic policies. So, it replaced Hwang with Kang Shin-wook, a senior researcher at the Korea Institute for Health and Social Affairs, who has no experience in public office and gained confidence from the Blue House because of a report he wrote that claimed the minimum wage hike of this year was 90-percent positive in its effects.

How will the sudden replacement of their boss impact the statistical office? Will they dig up data that the Moon government would prefer or hide figures that might displease the president? If the data suddenly improves, would anyone believe it? The statistical office must uphold its own neutrality. Replacing the head of the office because of displeasing numbers is like breaking a calculator when you don’t like the state of your bank balance.

The dilemma of the Blue House is clear. It can’t chuck its signature policy of income-led growth in less than a year. It is obviously unhappy about the howling from the media and conservatives. The president’s approval rating has fallen below 60 percent. Instead of admitting it was wrong, the Blue House declared it would double down on its income-led growth policy.

Most of the candidates that ran in the presidential election in May last year all promised to raise the minimum wage to 10,000 won ($8.90) within the five-year presidential term. The hike, however, proved too much for our economy. A rise of 29 percent over two years is too much. Over-pedaling could lead to an accident. The International Monetary Fund also expressed concerns about the increase in the minimum wage. Shopkeepers in Myeong-dong shopping district in downtown Seoul and South Jeolla cannot afford to pay their clerks the same amount, said Randall Jones, head of Japan/Korea desk at the OECD. As the saying goes, statistics don’t lie, but liars use statistics.

JoongAng Ilbo, Aug. 28, Page 31