In summary, our decentralized statistical system has advantages and disadvantages relative to a centralized one but is operating under substantial financial, human, and technological constraints. Actually, if the estimates are fairly close and obtaining better measures is enormously expensive, perhaps so. Most of the time, when the economy is operating in pretty good shape, small errors in the economic statistics would be unlikely to give rise to a huge mistake. For example, it is unlikely that small errors in inventory data would give rise to a miscalculation by the Federal Reserve of the probability of a recession. But a large error in exactly this data series did give the wrong signals in the mid-1970s, leading to a long delay in recognizing how severe the downturn was and perhaps to a monetary policy that was less than optimal.
Some economic statistics have great ramifications, even if they are only off a little.
Inflation, or the change in the cost of living, is difficult to measure in a complex dynamic market economy. But if the inflation measure is off by what would be thought of as a little in terms of macroeconomic consequences, the consequences for the federal budget compounded over a few years would be enormous because one-third of the federal budget is escalated by changes in the consumer price index, as are the tax brackets. In this case even a small error is consequential, unless it is almost sure to be reversed quickly. Even small or modest errors, if they cumulate and compound, can make an immense difference to private decision making, the federal budget, monetary policy, and citizens' understanding of economic reality. Each of these basic economic concepts might appear easy to measure accurately and track through time, for we are all used to a supply and demand diagram defined over a homogeneous product and period of time, with a unique price for the product characterizing the equilibrium of the market.