Why The Claim That Spain Is Cooking Its Books Is Probably Wrong

An anonymous blogger is apparently accusing Spain of massively distorting its GDP figures, turning a 17% decline since the recession began into a more modest 3%. 

If true, this would explain a few things, like how Spain’s relatively modest decline in GDP has managed to coincide with an unemployment rate of 20%, which is near what the US experienced in the deepest depths of the Great Depression.  (Although since Spain had a very high baseline unemployment rate of around 8% in 2007, that’s not quite as bad as it sounds.)  It would also, of course, seriously weaken the argumentum ad Hispania for stimulus.

More seriously, however, it would indicate a fairly massive fraud on the part of the government, and would very likely trigger another round of frightened bondholders demanding huge premiums to hold Spanish debt.  That would be very bad news for both Spain, and the euro.

But precisely because it would represent such a massive fraud, I’m sceptical.  Statistical skullduggery would answer some questions, but raise others, like how come tax revenues are now rising?  Why isn’t the budget deficit bigger–is it all lies?  If so, where are they getting the money to spend?  And how on earth did the government manage to coordinate such a massive fraud?

So I will be very surprised if this allegation turns out to be true.  I expect that wiser heads than mine will soon intervene to explain precisely why it isn’t. It looks to me as if the anonymous blogger is resting too much on divergence between previously correlated series; this divergence is interesting, but series do diverge from time to time, and that’s not necessarily a sign that someone has gotten creative with the underlying data.

From TheAtlantic – shaping the national debate on the most critical issues of our times, from politics, business, and the economy, to technology, arts, and culture.

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