Why don’t statistics reflect the economy and American life?
By Next Big Idea Club | Published: 2025-11-03 11:30:00 | Source: Fast Company – leadership
Below, Gene Ludwig shares five key ideas from his new book, Mismeasuring America: How outdated government statistics hide the economic struggles of ordinary Americans.
Jane is the former Comptroller of the Currency and founder of the Ludwig Institute for Shared Economic Prosperity (LISEP), a non-profit organization dedicated to revealing facts often obscured by official statistics. His writings have appeared in New York Times, The Wall Street Journal, Atlantic, POLITICO, Financial Timesand time.
What’s the big idea?
Americans keep hearing that the economy is strong. Unemployment is low. Wages are rising. Growth is steady. But to millions of families, these headlines seem like a cruel joke. The cost of rent, groceries, and health care continue to rise while stable, well-paying work remains elusive. The disconnect is not just a matter of perception, it is an integral part of the way we measure economic success.
1. We are at an economic turning point
Throughout history, when governments fail to fully appreciate the realities facing their people, it leads to crises. The United States may be on the verge of such economic and social turmoil. Clear examples of this are the turmoil that led to the French Revolution and the economic imbalance that preceded the Great Depression.
In the late 18th century, the royal family did not acknowledge the oppressive economic situation facing the French people for decades. The French ruling class viewed the reality of the country’s financial crisis as outrageous – a threat to its power. When Marie Antoinette learned that the peasants had no bread, she replied: “Let them eat cake!” Whether or not this observation is literal or a myth, it embodies the indifference of the ruling class. Soon after, revolution broke out, bringing unrest and suffering to French citizens of every rank and position.
The same narrative was applied a century and a half later when the Great Depression loomed. In both cases, the economic data that could have rung alarm bells was available – more precise numbers would have revealed the emerging risks – and this perspective might have prompted actions that could have softened the blow, if not avoided the crises altogether. But the data was either confusing, mixed with other inconsistent data, or was definitely hidden. The effects were disastrous.
2. A quarter of Americans are functionally unemployed
The unemployment statistics published monthly by our government are misleading. If someone is looking for full-time work but can only find one hour of work per week, they are considered an “employee” in the eyes of the government. For purposes of official government statistics, this one-hour employee falls into the same category as someone secure in a full-time job.
This logic extends to wages. A person who works full or part-time for a salary below the poverty line (about $25,000 per year for a family of three) is classified in the same way as someone who earns $1 million each month.
“The United States may be on the verge of such economic and social turmoil.”
The LISEP research team and I consider anyone in the above two conditions to be functionally qualified United Nationsemployee. The government’s latest unemployment rate is 4.3 percent, however our Research finds that 24.7 percent of American workers are functionally unemployed.
3. Wage statistics ignore part-time job seekers and the unemployed
The government reports “average wages” quarterly. The idea behind their scale is simple and straightforward: If you rank all full-time employees by their weekly income, the person right in the middle earns the average wage.
But this statistic only takes into account the wages of people who are currently§ employee§ Full timeIt overlooks millions of part-time workers and unemployed job seekers. Therefore, the moment a low-wage factory worker receives a pink slip, her salary is dropped from the sample entirely. The moment a farm worker’s seasonal employment ends, his salary is likewise eliminated.
What this means is that the official earnings measure shows wages that are inflated and do not reflect reality for many low- and middle-income Americans. This may appear to improve during economic downturns because low-wage workers are disproportionately affected by layoffs. When the economy approached freefall during the first months of the COVID-19 pandemic, average government-reported income rose by seven percent. During the same period, the percentage of unemployed Americans increased from 25.7% to 32.8%.
4. Yes, your groceries are more expensive
When people talk about inflation, they are usually referring to changes in the consumer price index, or CPI. The CPI tracks the prices of about 80,000 goods and services, from apples to apartments, baby formula to boats, and much more. The idea is that it gives us a single number to measure the variable cost of a basket of all consumer products.
“The CPI obscures the true cost of living for working-class Americans.”
This basket is so broad that it does not reflect how “average” consumers experience changes in the cost of living, since most Americans do not buy 80,000 things. If the costs of a second home tripled while everything else in the basket remained constant, the average American family wouldn’t feel anything — the price rise would be averaged out, but it wouldn’t affect their lives.
But the opposite is true. Over the past two decades, jewelry prices have risen by about 39 percent, while the prices of basic goods such as bread have risen by 112 percent and ground beef by 155 percent. When these elements are measured side by side in the CPI, the relative stability of luxury goods masks the inflation faced by Americans of more modest means. From 2001 to 2023, the Consumer Price Index indicates a 72% rise in the cost of living, yet our analysis of basic expenses – housing, food, transportation, health care, and other essentials – shows that these costs rose by 97%. The CPI obscures the true cost of living for working-class Americans.
5. We need better statistics
The key statistics we currently use to understand the US economy are largely misleading and, unfortunately, driven by policy. The Consumer Price Index (CPI) is pivotal in determining Social Security benefits, as well as who qualifies for the Supplemental Nutrition Assistance Program, Head Start, and Pell Grants. At least a dozen states plus Washington, D.C., have used the Consumer Price Index to set their minimum wages.
Our failure to produce statistics that accurately reflect the country’s economic reality makes it more difficult to formulate highly effective policy responses – and makes it more difficult to determine the tipping point for economic and social turmoil. Simply put, when you aim at the wrong target, you miss.
“Human nature favors quick and rosy analysis rather than the precision required to obtain accuracy.”
Flaws in widely accepted economic statistics hamper important decision-making. In many cases, those who accept economic distortions do so for good reasons: it is too difficult to collect data with sufficient regularity or precision, or the samples are not comprehensive enough. Human nature prefers quick and rosy analysis rather than the precision required to obtain accuracy, especially when the exact numbers are grim.
At LISEP, we have developed alternatives to these imperfect statistics. Our measure of the real unemployment rate includes the unemployed, and our measure of real weekly earnings includes the entire labor force. Our True Cost of Living Index narrows the basket of indexed consumer goods to those that are truly necessary for the average American, while our Minimum Quality of Life Index measures the cost of not only having a chance to climb the economic ladder, but also having the opportunity to climb the economic ladder. Finally, our measure of shared economic prosperity tracks how a country’s economic growth translates into opportunities for all.
For decades, policymakers and leaders have judged success or failure based on distorted criteria, and ordinary Americans have paid the price. Unless we change key statistics to reflect the reality that Americans actually feel, we will continue down the wrong paths.
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This article originally appeared in Next Big Idea Club Magazine and reprinted with permission.
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