Page 38 - The Importance of Common Metrics for Advacing Social Science Theory and Research

The Importance of Common Metrics for Advancing Social Science Theory and Research: A Workshop Summary
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26 THE IMPORTANCE OF COMMON METRICS

macroeconomics is still built around this equation. In the national
accounts literature, this equation is usually called an accounting
identity, but it is properly understood from macroeconomic theory
as an equilibrium condition. There is therefore a linkage between
the basic macroeconomic theory, the macro structure of the ac-
counts, and macroeconomic analysis, which is based on the theory.
• Consumer price index: Triplett noted that the Bureau of Labor
Statistics (BLS) considers the CPI to be an approximation to a cost
of living index, which is an established concept in economic theory.
He added that the BLS regards the producer price index as an ap-
proximation to a different economic concept, which is based on the
theory of the output price index. The BLS is therefore an example
of a statistical agency producing economic series that explicitly
correspond to economic theory.
• Economic classifications: Triplett recalled that since 1997 the
United States (indeed, all of North America) has produced industry
classifications that were guided by the economic theory of aggrega-
tion. An industry is an aggregation of producing units.

Triplett also offered examples of economic statistics for which no
theory seems to apply. For example, he knew of no economic theory that
guides the unemployment rate. Economists use it as a measure of excess
supply, but there is no tight linkage between the unemployment rate and the
concept of excess supply. He remarked that the questionnaire used as the
basis for estimating the unemployment rate is motivated by search theory,
not labor supply (that is, it asks if the respondent has looked for work, not
the number of hours the respondent wants to work at existing wage rates).
As an additional limit to the application of economic theory to eco-
nomic measurement, he noted that sometimes economists disagree on the
interpretation of theory. In other cases, some economists may deny that a
particular theory applies to an economic measurement—this has happened
in some discussions of the CPI in recent years.
Triplett turned next to quality differences between goods and services
that can undermine cross-country comparisons and inter-temporal com-
parisons. Constructing any price index or output measure must take into
account gradations of quality. In medical care, quality change arises with
changes in treatment. The basic unit of measurement for medical care out-
put is a treatment for a disease. However, Triplett pointed out, the treat-
ment can change over time. If treatments are improving, simply counting
identical treatments will underestimate the growth in medical output. What
is needed to adjust medical care output measures (and medical care price
measures) for improved treatments is a medical outcome measure, of the
type discussed by Dennis Fryback. The importance of probable mismeasure-

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