For decades economists have relied on reports released by government entities to provide insights into the state of the economy on things like unemployment, GDP growth, and consumer price inflation.
Agencies such as the the Bureau of Economic Analysis and the Bureau of Labor Statistics (BLS) produce weekly, monthly, and quarterly reports to satisfy investors and the public that the US economy is not only chugging along, but constantly expanding.
In this post we discuss the questionable accuracy of the data used to produce these reports, and a potential solution to the problem.
Note that all "developed" countries have agencies that report on their economies, but in this post we will focus on the United States for simplicity.
Investors worldwide have been lending money to the American government for decades in exchange for US treasuries, and they expect a return on their money in the form of interest, which can only be paid honestly if the economy continually grows.
Therefore, we have to acknowledge the fact that the government agencies who produce economic reports are under pressure to publish positive data.
For example, if the data shows that the economy is contracting or people are losing their jobs, the government would rather soften those numbers.
By painting a rosy picture of the economy, the government can secure the confidence and future capital of investors.
It would be rather naive for us to think that these economic indicators aren't manipulated to disguise the actual state of the economy. Even so, a lot of people still take them at face value.
Over time, economists have caught on to the fact that the methodology behind the numbers used to produce these reports is constantly being updated.
Peter Schiff has been pointing out for over a decade that the GDP and employment numbers have been fudged to obscure true economic conditions.
If GDP comes in too low the government can add additional items to inflate the final number. For example, creative works of art and home sale administrative costs were added to the "business investment" component of GDP.
Likewise, if too many people have been losing their full-time jobs, the BLS can start adding part-time jobs, or more government jobs to the report in order to compensate.
The BLS also comes up with new and creative ways to count jobs.
For example, in May they guesstimated a whopping 272k new jobs were created based on the "birth-death model", which assumed business formation was increasing, when it was actually on the decline.
At the end of the day we simply have to trust these government reports, because there is no way for us to verify if the data is accurate.
As an investor, wouldn't you prefer to verify economic activity yourself, rather than rely on some dubious third-party?
Despite the chicanery behind these economic indicators, many economic pundits still treat them like gospel. The stock market will get a boost if the jobs report or the GDP number exceeds expectations, even if the data is manipulated.
Although in recent years a radical shift has occurred. As markets become ever more dependent on the central bank, bad economic news actually pushes the market higher as traders expect lower rates and money printing. A clown world indeed.
Some treasury holders are probably aware that the economic data has been sugar-coated by the agencies, but they also understand how the market blindly reacts to the reports, and therefore will just keep playing along until the music stops.
If we had a glimpse at what the real numbers were for GDP, unemployment, and manufacturing, the stock and bond market would probably implode, and we'd finally have a currency crisis on our hands. For now, the confidence game continues...
In the long-run, how could we get a more accurate reading of economic activity, without having to trust these government agencies?
Everywhere you look, the economic indicators of the new crypto/web3 economy are increasing. Hash rate, active user accounts, total value locked (TVL), and transaction count are all on the rise.
Bitcoin was the birth of the crypto-powered economy. By running your own node, you could personally verify things like number of accounts created, transaction count, and total fees collected.
For example, despite the crash of Bitcoin's price in 2014, you could confirm on the blockchain that the number of transactions was actually rising, an indication that the economy was growing.
Ethereum allowed us to verify even more metrics such as DEX trading volume, loans issued, and TVL, giving us even more transparent insights into the digital economy.
These days we have more advanced blockchains that underpin DePIN projects, which aim to build out decentralized physical infrastructure based on token incentives.
We can track the growth of these DePIN networks by monitoring metrics such as new devices added and traffic flow.
Because these blockchains are immutable and transparent, there is no central party that can manipulate the data behind the scenes and falsify progress.
Above are just a few examples of how we will be measuring the new crypto-based economy. We still don't know what other aspects of our society will be linked to blockchains in the future.
As trust in the government's economic indicators continues to dwindle, more people will turn towards the transparent crypto/web3-powered economy, where truth is precise and indisputable.
If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the HIVE blockchain. You can also follow me on InLeo for more frequent updates.
Until next time...
