To the editors:
Having just finished reading Henri Lepage’s latest essay, my first reaction is that it is wonderful to have the original French version published alongside the English translation. French readers will no doubt appreciate a version in their native language, and having both versions available will allow the ideas to be framed more precisely.
By way of an explanation, I am an economist in a micro sense of the term. I was the leader of a modest oil company that experienced huge turnover in relation to its equity capital. Careful attention to monetary issues was therefore essential. As I explained in a previous letter, it was through this experience that I became aware of the idiosyncrasies of macroeconomics.1 This was also the case when I taught economics at Sciences Po in the role of a lecturer who was supposed to follow along with the Keynesian directives of the institute’s management—directives that I found myself carefully nuancing. I do not have Lepage’s skills, nor do I possess a deep understanding of the inner workings of the Bank for International Settlements. Nonetheless, I was drawn to Lepage’s article, particularly in relation to the following points.
As the head of a commercial enterprise, I have contributed to the calculation of GDP, and therefore national growth, through my tax returns. I have thus been well-placed to observe disparities between macroeconomic and fiscal outlooks. From 1968 onward, my organization embarked upon a huge project to digitize all our bookkeeping processes and track a customer base that numbered more than 100,000 clients. When oil prices surged in 1974, we redoubled our efforts. This computerization process was almost exclusively accounted for as a current expense. In reality, it was actually an investment because both the formal and informal training required was costing much more than the equipment. The latter was often rented rather than being purchased outright. Moreover, the fact that the cost of the French public service was, according to convention, equal to the value of what it produced made me even more skeptical about national economic statistics. By way of a contemporary example, albeit different in nature, global economic statistics are heavily influenced by data from China, despite questions about their veracity from observers who monitor changes in productivity and domestic debt. A more trivial example involves les gilets jaunes. The protestors see themselves as impoverished, yet they use many services unavailable to previous generations. These include technological developments, such as smartphones, and improved health services, which correspond to an increase in life expectancy. How are changes and increases in the standard of living reflected in national statistics?
Finally, on the topic of stagnation, as Lepage emphasizes, our current situation should not really be characterized in this manner. Do we even know what we are measuring? In addition to problems arising from disparate figures for growth and monetary data, there are also problems in relation to definitions. A case in point is the money supply, which has become increasingly complicated and fragmented as more and more attention has been paid to it. Another example is the analysis of inequalities using the Gini coefficient, which is itself calculated on the basis of income or monetary assets that are not particularly meaningful. Consider global inequality. It is easy to be wealthier than hundreds of millions of people when the wealth of the latter is essentially nil, or even negative. How can the harvest of an Indian farmer, part of which is consumed by the farmer and his family, be compared with the salary of a company director in New York? Purchasing power parity is a useful concept, but it is not really quantifiable. Lepage makes mention of “essentially circular theoretical notions.” I am not competent enough to analyze these ideas, but I still sense their presence and impact.
I am in agreement with Lepage’s suggestion that deflation “is not a curse on growth.” In the case of equipment, a significant drop in price leads to a reduction in the costs associated with the services they enable. Revenue remains roughly constant, and stagnation or deflation is actually growth.
In this letter, I have not quoted figures because I consider them extremely imprecise or even irrelevant. An objection I have often heard is that “we cannot demonstrate anything without statistics.” I tend to think the opposite!
Despite my mathematical and economic training, all of which took place a long time ago, I have never really been persuaded that equations have anything much to offer economics. Equations are, at best, a shortened statement and should not be confused with logical tools.
Yves Montenay
Henri Lepage replies:
I have little to add to comments by Jean-Pierre Chamoux and Yves Montenay. I thank both for adding their own experience to the debate on data methodology and measurement, which I did not develop very far. The issue of data reliability is an essential matter, but there are more fundamental problems pertaining to the inner theoretical structure that informs the modern macroeconomic paradigm. These are the issues I wished to focus on. They directed my attention upon the works of the BIS economic team.
Translated and adapted from the French by the editors.
