The Fact Checker Fact Checks The Post
"The impact of NAFTA seems to have been both larger and more positive in Mexico than in the United States. Mexico's gross domestic product, now more than $875 billion, has more than quadrupled since 1987."
--Washington Post editorial, December 3, 2007.
"If anyone still thought that the Washington Post editorial board could discuss trade in a rational manner, today's editorial on NAFTA proved them wrong. How on earth does the Post get that Mexico's GDP quadrupled when it actually only grew by 67.6 percent?"
--Blog by economist Dean Baker, The American Prospect, December 3, 2007.
A reader, Alan Abramowitz, asked me to fact check this one, and I am happy to oblige. Headlined "Democratic Candidates Resort to Far Fetched Denunciations of the North American Free Trade Agreement," the Post editorial was part of the "Ideas Primary" series looking at the issues raised in the presidential campaign, so it is fair game for this column.
The Baker post was picked up by Paul Krugman, a Princeton economist who writes a column for the New York Times. In his blog, Krugman blasted the Post editorial as "embarrassing," but made no effort to establish the facts behind the stats. The Post editorial board has also failed to explain, at least in print, the source of its statistics. So what is the truth? Did the Mexican economy quadruple in size over the last two decades, or did it grow by only 67 percent?
First a disclaimer. Washington Post editorials are the responsibility of the editorial board of the newspaper, which has nothing to do with the news side. I have spoken with the principal author of the editorial, but I am not going to identify that person, as Post editorials are the expression of editorial board policy. This is what I found out:
The editorial writer got the information about the growth in the Mexican economy from a Mexican embassy slide show distributed by the Peterson Institute for International Economics, a Washington D.C. thinktank. The presentation is authored by Antonio Ortiz-Mena, a well-known Mexican economist. Slide Six shows an increase in Mexican Gross Domestic Product from $200 billion dollars in 1987 to $875 billion (estimated) in 2007.
The slide does not provide any further information about the source of the data, and does not say whether the dollars are current or constant, i.e. inflation adjusted, which is the more relevant method for measuring economic growth. I turned to the data tables of the International Monetary Fund, a widely accepted source of information about comparative economic growth rates. They show that the Mexican economy grew from $148 billion in 1987 to $886 billion in 2007, an increase of 337 percent. These are current dollars. If you adjusted these figures for inflation, you might get a result similar to the figures used by The Post.
UPDATE: Actually, as a couple of readers have pointed out, this seems a stretch. According to the Consumer Price Index, the cost of living has increased 79 percent between 1987 and 2007. $148 billion in 1987 is the equivalent of $265 billion in 2007. I will ask the Mexican embassy how they arrived at their 1987 $200 billion GDP figure, and report back.
There is, however, a 64 billion peso question: why use dollars to measure the growth rate of the Mexican economy? If exchange rates are volatile, growth rates can be all over the map. Imagine what would happen if you used dollars instead of Euros to measure the growth of the European economy. Measured in dollar terms, the European economy has been booming recently, simply because the dollar has fallen sharply vis a vis the Euro.
It turns out there are several other ways of looking at the same statistics.
Dean Baker, an economist with the Center for Economic and Policy Research, used the IMF peso figures, adjusted for inflation, to calculate the growth in the Mexican economy. I have been over the figures with him and he now concedes that he made a couple of mistakes. First, he used the American dollar sign when he meant pesos. Oops! Second, he had a mistaken figure for 1987. The real figures, as reported by the IMF, are 1,029 billion pesos in 1987 and 1,894 billion pesos in 2007, which works out at a growth rate of around 83 per cent. That is higher than the 67 per cent originally reported by Baker, but still much lower than the quadrupling claimed by the Post editorial.
To help me adjudicate this dispute, I turned to Paul Blustein, a former international economics reporter for the Post, now with the Brookings Institution, where he is writing a book about international trade. He said he was "sorry to go against my old alma mater," but he came down on the side of the critics. His explanation:
Constant dollars can be a good way of looking at a country's economy, but when there have been huge moves in that country's currency against the dollar, it is better to rely on the local currency. This would have raised a red flag with me. I don't think any economy in the world has quadrupled in twenty years. That would be an amazingly fast rate of growth. I doubt that even the Chinese economy has done that."
Overall, the Mexican economy has grown at more or less a similar rate to the U.S. economy, according to an IMF chart available here. It has done a little better some years, but it has also had sharp setbacks, as in 1995, after the peso crashed.
I also turned to the IMF, which suggested a third way of looking at the statistics. According to spokeswoman Angela Gaviria-Baptiste, IMF economists favor a measure called PPP, or purchasing power parity, which allows for international comparison by using a common basket of goods. The IMF adjusts for population growth by using per-capita PPP rates. According to the IMF data, the purchasing power of the average Mexican has risen by around 125 per cent between 1987 and 2007.
So take your pick. Depending on the statistics you use, Mexican economic growth over the last two decades has been either 337 percent, 125 percent, or 83 percent. By consulting the IMF website, you can find even more figures. International economists, please weigh in!
The Pinocchio Test
This is a case study of how statistics can be used to support virtually any argument. Without specifying the source, they can mislead more than they can clarify. At the very least, the Post editorial board should have been much clearer about the source of the statistics, and explain why dollars are the appropriate measure for the growth of a peso-based economy. The claim of a quadrupling in the size of the Mexican economy over two decades is misleading, and should have raised some eyebrows. Two Pinocchios for the Post.
The critics were also sloppy in their use of statistics, but at least they pointed out the source. One Pinocchio for them.
| December 7, 2007; 9:50 AM ET
Categories: 1 Pinocchio, 2 Pinocchios, Economy, MSM Watch, Other Foreign Policy
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