Although I try to eat a fairly balanced diet, I have been known to enjoy delicious Krispy Kreme donuts from time to time. In fact, I recently bought salad sides at the grocery store when the donut delivery guy showed up. I impulsively grabbed a six-pack as he piled freshly filled boxes near the self-service checkout line. When I got home, Laura took a quick look and, after shaking her head at my seemingly irresponsible behavior, asked me if I wanted to share.
While enjoying donuts, I read a news article in which a national politician boasted that government spending had fallen 2% in the last 12 months, as if they had accomplished some highly commendable miraculous feat. I almost choke when I think of the inappropriate use of statistics in such a statement. It reminds me of the old adage: “Statistics don’t lie, but all liars use statistics.” To prove the point, let me skip to the partially eaten donut that’s in front of me.
Imagine someone who has a habit of eating 6 packs of sugar coated buttercream donuts after dinner every day. No one would claim that this behavior will lead to a health catastrophe over a long period of time. Imagine someone who, after experiencing the negative health effects of a high-sugar lifestyle, decides to improve their health, but breaks the habit of eating only five donuts a day. While statistically they can boast a 15% reduction in their daily snack intake, that still doesn’t come close to healthy eating.
After two years of excess deficit spending exceeding trillions due to the Covid crisis, a mere 2% cut may be like our donut addicts leaving uneaten crumbs on their plates. Our unhealthy subject might be crazy enough to feel a little better about himself, but his body won’t see any noticeable improvement in the rate of decline.
The reference point used in statistics for comparison purposes is called the baseline. Using an incorrect or irrelevant baseline may render the statistics useless or misleading. If our donut addict wants to plan a healthy lifestyle, a baseline of 6 donuts a day may just help him feel comfortable with continued failure. Similarly, to establish a reasonable measure of current government spending, an unreasonable baseline of pandemic spending cannot be used. This is a misleading statistic designed to make people feel better about the ongoing catastrophic spending.
Investors look to government statistics for clues about the health of our country’s economy. Understanding the baselines used in these reports will help determine what they are really telling us. The exact statistics don’t lie. But even if they are accurate, they can and often are used to tell misleading stories. In short, the government continues to consume too many donuts, but with a small reduction.
Dan Wyson, CFP® is the author of “The Gold Egg” and “21 Financial Myths” and owner of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 – Securities and Advisory services provided by Federal Financial Network, Member FINRA/SIPC, Registered Investment Advisors.