#AI ChatGPT Grok: How much credibility should one give to official economic data?

One example on where I come from on this subject

Here another

I asked:

"With respect to economic data, e.g., inflation rate, GDP growth and unemployment rate, given by official entities e.g., a Bureau of Labor Statistics, political considerations set aside, how much credibility should one give to that those figures accurately reflect the reality?"

ChatGPT answered:

Economic data such as the inflation rate, GDP growth, and unemployment rate, when published by official entities like the Bureau of Labor Statistics (BLS) or the Bureau of Economic Analysis (BEA), generally deserve a high level of credibility—but not blind trust. Here's why:

Why they are broadly credible:

1. Transparent methodology: Agencies like the BLS and BEA publicly disclose how data is collected and processed. Methodologies are subject to academic scrutiny.

2. Professional staff: These agencies are staffed by career statisticians and economists with technical expertise, not political appointees.

3. Consistency over time: The data is collected using well-established procedures that allow for comparisons across time and countries.

4. Third-party validation: Independent researchers, journalists, and global institutions (e.g., IMF, World Bank) constantly review and critique the data.

But here are the caveats:

1. Statistical limitations: Reality is messier than averages. Unemployment figures, for example, exclude discouraged workers, and inflation may not reflect personal cost-of-living experiences.

2. Revisions: Initial GDP and job figures are often revised—sometimes substantially—based on better or fuller data.

3. Assumptions and models: Seasonal adjustments, imputations, and hedonic adjustments (in inflation) are necessary, but they can also obscure intuitive reality.

4. Political pressure: While rare in advanced economies, pressure to "frame" narratives exists. However, data tampering in the U.S. remains unlikely due to strong institutional norms and watchdogs.

Bottom line:

Treat official statistics as broadly reliable indicators of trends and magnitudes, but supplement them with independent analysis and understand the definitions and limitations behind each number. Statistics are a map, not the territory.

I said: Thanks!

It replied: You're very welcome! If you'd ever like to dig into the specific quirks of how, say, inflation or unemployment is calculated—or how alternative measures (like U-6 unemployment or shadow stats) compare—I’d be glad to help.

Grok 4 answered:

Official economic data from entities like the Bureau of Labor Statistics (BLS), Federal Reserve, or Bureau of Economic Analysis (BEA) are generally credible but not infallible. Here’s a breakdown of their reliability, focusing purely on methodological and statistical considerations:

Inflation Rate (e.g., Consumer Price Index - CPI):

Strengths: The CPI, produced by the BLS, uses a fixed basket of goods and services, updated periodically, to measure price changes. Data collection is rigorous, involving thousands of price quotes from diverse geographic areas and sectors. Methodologies are transparent, with detailed documentation available.

Limitations: The CPI may not fully capture individual experiences due to regional cost-of-living differences or personal consumption patterns. Substitution bias (consumers shifting to cheaper goods) and quality adjustments (e.g., tech improvements) can skew perceptions of "real" inflation. Hedonic adjustments for quality changes can be subjective but are based on statistical models.

GDP Growth:

Strengths: GDP, reported by the BEA, is calculated using standardized methods (e.g., expenditure or income approaches) aligned with international guidelines (SNA 2008). Data comes from surveys, tax records, and industry reports, with revisions to improve accuracy as more data arrives.

Limitations: Revisions can be significant, especially for initial estimates, as seen in past discrepancies (e.g., Q1 2023 GDP revised from 1.1% to 2.0%). Non-market activities (e.g., household work) and environmental costs are excluded, which may understate or overstate economic "reality." Seasonal adjustments can also introduce noise.

Unemployment Rate:

Strengths: The BLS’s unemployment rate (U-3) comes from the Current Population Survey, a large, randomized sample of households. Definitions follow international standards (ILO). The process is systematic, with clear criteria for who counts as unemployed.

Limitations: The U-3 measure excludes discouraged workers, underemployed individuals, and those marginally attached to the labor force, which the broader U-6 measure captures. For example, in 2023, U-3 was ~3.6%, while U-6 was ~6.7%, showing a gap in "felt" unemployment. Survey response rates have also declined, potentially affecting representativeness.

General Considerations:

Data Integrity: These agencies operate with professional independence, adhering to statistical standards. Manipulation is unlikely due to oversight, peer review, and public scrutiny. However, methodological choices (e.g., weighting, seasonal adjustments) involve judgment calls that can influence outcomes.

Lag and Revisions: Initial releases are often based on incomplete data, leading to revisions. For instance, GDP estimates are revised multiple times over months or years. This can make real-time accuracy lower than final figures.

Scope and Interpretation: No single metric captures the full economy. CPI, GDP, and unemployment reflect specific aspects, not the lived experience of every individual. Structural changes (e.g., gig economy, automation) may not be fully reflected in traditional metrics.

Credibility Assessment: These figures are among the most reliable economic indicators available, grounded in robust, transparent methodologies. However, they are estimates, not perfect mirrors of reality. Assign them high credibility (80-90%) for broad trends, but cross-reference with alternative data (e.g., private indices like the Chapwood Index for inflation or ADP payroll data) and consider their limitations for specific contexts. Always check the latest methodologies on agency websites (e.g., bls.gov, bea.gov) for updates.

I said: Thanks!

It replied: You're welcome! Happy to help with any other questions.

Note: The answers are copied exactly from those given to me by ChatGPT and Grok

Here my many questions to ChatGPT and Grok on bank regulations

#AI OpenAI ChatGPT: Dialoging about the validity and transparency of reported inflation numbers #CPI

I asked ChatGPT:

The Consumer Price Index, CPI, is calculated based on actual consumptions. Should it not consider the goods and services consumers no longer afford to buy as their prices have gone up too much for diminished budgets?

ChatGPT answered:

"The Consumer Price Index (CPI) is a measure that examines the average change in prices paid by consumers for goods and services over time. While it reflects the cost of a basket of goods and services typically consumed by households, it does have limitations, and your concern about affordability is valid.

The CPI is designed to capture the average price changes for a fixed basket of goods and services, which is meant to represent the consumption pattern of a typical urban consumer. The items in this basket are assigned weights based on their relative importance in the average consumer's spending. The index is calculated based on the prices of these items, and it is used to gauge inflation or deflation.

However, the CPI has its critics, and one common criticism is that it may not fully account for changes in consumer behavior when faced with rising prices. If certain goods or services become too expensive for consumers and they shift their purchasing habits, the CPI may not immediately reflect this.

Inflation can impact consumers' purchasing power, and if prices rise significantly for essential goods and services, people may adjust their spending habits by either cutting back on those items, finding substitutes, or simply forgoing them. This behavioral change isn't always fully captured by the traditional CPI.

Some economists argue that an alternative measure, such as a "cost-of-living index," could provide a more accurate reflection of changes in consumers' well-being, accounting for adjustments in spending patterns in response to price changes. This index might consider not just the prices of items in the fixed basket but also changes in the basket itself as consumers adapt to economic conditions.

In practice, policymakers often use a variety of inflation measures and economic indicators to make informed decisions about monetary and fiscal policies. The CPI, while imperfect, remains a widely used and important tool for assessing inflation trends and making economic policy decisions."

I asked ChatGPT:

If you had access to real time data provided by a great number of outlets and other sources, would you be able to provide reasonable inflation figures estimates without us having to incur in current time lags?

ChatGPT answered:

"While I don't have the ability to access real-time data, hypothetically, if someone had access to a vast amount of real-time data from various sources, it could potentially allow for more accurate and timely estimates of inflation. Traditional measures of inflation, such as the Consumer Price Index (CPI), often have time lags because they rely on data collection and processing.

Having real-time data from a wide range of outlets and sources could help capture changes in prices and consumption patterns more quickly. However, there are challenges associated with using real-time data for inflation estimates:

1. Data Quality: The accuracy and reliability of real-time data may vary across different sources. Ensuring the quality of the data and addressing potential biases would be crucial.

2. Consistency: Different sources may use different methodologies and definitions in their data collection, making it challenging to create a consistent and standardized measure of inflation.

3. Data Processing and Integration: Handling and integrating a vast amount of real-time data from diverse sources would require sophisticated data processing and analytics tools to derive meaningful insights.

4. Representativeness: Ensuring that the data reflects a representative sample of the population and covers a broad spectrum of goods and services would be essential for an accurate inflation estimate.

5. Privacy and Security: Accessing and aggregating real-time data from various sources raises privacy and security concerns. Protecting individuals' sensitive information while extracting relevant economic insights is crucial.

It's worth noting that central banks and statistical agencies continuously explore ways to improve the timeliness and accuracy of inflation measures. Some efforts involve incorporating new data sources and advanced analytics techniques. However, transitioning away from established measures like the CPI would require careful consideration and validation to maintain the reliability and comparability of the inflation data over time." 

I asked ChatGPT:

You mention the importance of maintaining the comparability of the inflation data over time. Over e.g., the last fifty years, how comparable is the inflation data reported?

ChatGPT answered:

"Over the last fifty years, the comparability of inflation data has generally been maintained, but there have been changes and adjustments to the methodologies used in calculating inflation measures. Understanding these changes is crucial for accurately interpreting long-term trends in inflation.

Here are some factors that can affect the comparability of inflation data over time:

1. Methodology Changes: Statistical agencies periodically review and update their methodologies for calculating inflation. These changes can include adjustments to the basket of goods and services, changes in weighting, and improvements in data collection methods. Such adjustments aim to better reflect changes in consumer behavior and market conditions.

2. Substitution and Quality Adjustments: Over time, the composition of the goods and services consumed by households can change. If certain products become obsolete or are replaced by newer alternatives, statistical agencies may adjust the basket to reflect these substitutions. Additionally, adjustments for changes in the quality of goods and services are made to ensure that inflation measures account for improvements or deteriorations in product quality.

3. Basket Updates: The goods and services included in the inflation basket are periodically updated to reflect current consumption patterns. This ensures that the basket remains representative of what households are purchasing. The frequency of these updates varies across countries.

4. Coverage Changes: Changes in the scope of the inflation measure, such as including or excluding certain items, can impact the comparability of data over time. For example, some measures may exclude volatile items like energy and food, while others include them.

5. Base Year Revisions: Inflation indices often have a base year against which all other years are compared. Periodically, statistical agencies update the base year to better reflect current consumption patterns and price levels. This can impact the reported inflation rates for past years.

Despite these challenges, statistical agencies strive to maintain the comparability of inflation data over time. Adjustments and improvements are typically made with the goal of enhancing the accuracy and relevance of the inflation measure to better capture economic realities and changes in consumer behavior. Users of inflation data should be aware of these methodological changes when analyzing long-term trends and make appropriate adjustments for meaningful comparisons."

I asked ChatGPT:

Since many, rightfully or not, suspect political and other sort of influences managing somewhat the inflation figures reported, could the inflation calculated by you gain more credibility?

ChatGPT answered:

"The credibility of inflation figures is a critical aspect in economic analysis and policy-making. While using automated systems or artificial intelligence models, such as mine, could offer certain advantages, it's important to note that credibility depends on various factors beyond the calculation method. Here are some considerations:

1. Transparency: The credibility of inflation figures relies heavily on the transparency of the data sources, methodologies, and calculations. If the process of data collection and computation is not transparent, it can lead to suspicions of manipulation or bias, regardless of the technology used.

2. Independence of Data Sources: Credibility is often associated with the independence of the institutions collecting and reporting the data. If there is perceived political or external influence on the data collection process, it could undermine confidence in the reported figures.

3. Validation and Benchmarking: An important aspect of credibility is the ability to validate and benchmark the results. Using historical data, comparing results with other reputable indices, and subjecting the methodology to scrutiny can help establish the accuracy and reliability of the inflation figures.

4. Accounting for Changes in Consumer Behavior: The credibility of inflation figures also depends on the model's ability to adapt to changes in consumer behavior. If the model can quickly and accurately incorporate shifts in consumption patterns, it may provide more relevant inflation estimates.

5. Data Quality: The credibility of inflation figures is only as good as the quality of the data used in the calculations. If the data sources are unreliable or subject to manipulation, it could affect the credibility of the results.

6. Ethical Considerations: The ethical use of data and adherence to privacy standards are important for maintaining credibility. If there are concerns about data privacy or misuse, it could erode confidence in the inflation figures.

While using advanced technologies like artificial intelligence may offer certain advantages, it doesn't inherently solve the issues related to credibility. Establishing trust in economic indicators involves a combination of rigorous methodologies, transparent processes, and the independence and integrity of the institutions responsible for collecting and reporting the data.

It's important for any inflation calculation, whether traditional or technologically advanced, to undergo scrutiny, validation, and be subject to independent reviews to ensure credibility and maintain the trust of users and stakeholders." 

Thanks!

You're welcome! If you have any more questions or if there's anything else I can help you with, feel free to ask. Happy to assist!

Note: The answers are copied exactly from those given to me by OpenAI - ChatGPT.

ChatGPT - OpenAI: Getting to know you!

My comment: I have been asking/opining on this issue for a long time.