Sunday, July 12, 2009

If you don't know what you are measuring, metrics are much, much worse than useless

"Metrics!" says the CEO.
"Metrics!" says the CFO.
"Metrics!" says the CMO.
"Metrics!" says the Sales Manager.

But as it is in education, so it is in marketing, so it is thinking about the economy. Numbers are powerful. Good numbers help make good decisions. Bad numbers help cover awful decisions.

If you can't say precisely what a number is pointing to, it's a bad number.
Dangerous Fallacy in GDP Measures --
Seeking Alpha
: "One of the themes of this blog has been trying to view the current state of the world economy as it might be observed in the circumstances of today, rather than through any particular perspective derived from academic economists. As part of that process, one of the problems with economic theories that I have identified is the obsession with GDP figures as a measure of the health of an economy. I might even go as far as to say that the subject has become something like an obsession of my own. As such, I hope that I will be forgiven a post devoted to the subject, and which pulls together some earlier points that I have made."

. . .Whichever approach is taken, the key point is that the measure is made of activity, and therein lies the problem. A whole host of factors might determine activity, but they offer no indication of the health of an economy.

. . . It seems to be a perfectly rational and clever idea, that an economy's output might be measured through the activity in the economy. However, if an economy is being financed in part by debt, the meaningfulness of the measure completely disappears.

. . . The problem that then arises is how to determine the actual health of an economy. The answer is actually surprisingly simple. The actual health of an economy overall is determined by whether the economy can be sustained without any borrowing. If borrowing is necessary in aggregate, whether the source of the borrowing is private or public, the economy is unhealthy. In other words, an economy's sustainability is determined by the ability for the economy to have aggregate output which matches the aggregate consumption.
read the full post by clicking the title.

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