February 20, 2004

Proof by electricity

This cover story in the new issue of Foreign Affairs is odd. Shleifer and Treisman try to show that Russia’s current situation isn’t all that bleak. What they actually show is that Russia’s situation isn’t all that bleak when you compare it to other pretty bleak countries.

Actually, there’s more to it than that, and the article is well worth reading, but what charmed me most was this curious little passage:

Estimating the scale of unofficial activity is difficult, but (since even underground firms require power) one technique to measure the whole economy’s output is to use electricity consumption. […] Although official GDP fell 29 percent during this period, electricity consumption fell only about 19 percent, suggesting that Russia’s decline in output was not as sharp as indicated by the official statistics. Since firms are likely to use electricity more sparingly under market conditions, the decline in electricity consumption probably still overstates the real drop in output.
There’s an obvious monkey wrench to this argument, namely the fact that household electricity consumption went up considerably during the same period (as the essay notes on the very next page). But ignore that. I just think ‘proof by electricity’ is a pretty clever argument. That’s all.
-- Brad Plumer 5:47 PM || ||