many[i] recent communiques and statements from the government sector have me thinking more and more about wording[ii] above.

I think it’s important to realize that statistics can be very useful, but they can also greatly distort reality, especially if presented without context and if not analyzed more carefully.

The basis of some calculations, the method of calculation, the base period and the one to which it is compared, the terms used, their legal definition (as opposed to the intuitive meaning for an uninformed layman), confusion of concepts, abbreviated citation, the way statistical results are presented, etc. can lead to the perception , which is completely different from what actually happens.

To better illustrate what I mean, below I will give 3 recent examples (just to get the point across without making the text too long or using artificially complicated terms).

1. They say that in 2023 inflation has decreased

Most Romanians have probably heard this statement in recent months. This is only partially true. To understand what is wrong with him, it is useful to consider the following:

a) Inflation, in fact, shows the increase in prices from year to year relative to the consumer basket (included in the CPI – consumer price index), which is considered more relevant for the population. It basically refers to price increases for commonly used goods or services, price increases that reduce the amount of what a person can buy during the year if their salary/income remains the same as last year.

b) In parentheses, inflation does not simply occur as many official statements in our country suggest, as if it were a plague that appeared out of nowhere. This phenomenon is mostly associated with government policies that involve an excessive increase in money (money supply). While the pound was pegged to gold, Britain had absolutely no inflation for hundreds of years.

Of course, some price increases are not the fault of the state (as in the case of imported energy carriers), and not all increases in the money supply are determined by inflation (it is calculated, as mentioned above, on the basis of a specific basket). products, when the total money supply (M3) includes, for example, money on time deposits).

Furthermore, in relatively open economies such as the EU member states, money actually available cannot be fully and permanently controlled (and the difference between the amounts of money that are immediately available and those locked up in instruments with different maturities also have value in practice).

However, there could not be higher inflation if the relevant state did not make decisions about its conscious promotion, including by issuing large additional sums of money unrelated to productivity and real growth of goods and services.

in. Returning to the problem of the above statement, the inflation rate for 2023 is estimated at 10.7%[iii]making it actually lower than in 2022 when it was 13.8%[iv]. This is a positive aspect.

However, it is partly wrong to say that inflation itself (and not only its annual rate) has fallen, because it is not the same inflation.

Thus, calculating inflation as an evolution compared to the previous year, inflation of 10.7% in 2023 does not at all mean that 13.8% in 2022 has decreased to 10.7%, and what in 2023 was added to the level of 2022, only slightly less.

Mostly this means that a lot of money continued to be printed/issued without covering real value added, and there was a lot of borrowing.

Moreover, according to the BNR[v]the total amount of additional money supply in 2023 was higher than the additional amount in 2022 (only a part, however, is important for the calculation of inflation), and the total money supply (M3) reached a level of about 33% more in 2023 in Romania than in 2020.

In addition, over the last 4 years, Romania’s external debt has increased by approximately 50 billion dollars.

d. It should also be understood that when we talk about inflation for 2023 of 10.7%, it refers to the level reached in the previous year and regarding the base for calculating interest. That is, it’s 10.7% of 113.8% – so it’s actually about 12.18% if we’re referring to the same starting level – the one in 2021 – and not the one that’s already increased in 2022 for the inflation of that year. .

At the end of this point, in 2023 the rate of inflation has decreased (this is good), but not inflation as such, not the same inflation. The cost of the consumer basket continued to grow quite strongly (significantly above the average level in the Eurozone, for example).

This happened mainly due to the lack of reforms.

The winners are irresponsible politicians and, to some extent, those who have profited excessively from the very large increases in government spending in recent years. Most Romanians are damaged.

2. The case of Romania’s budget deficit of 6.3%[vi] in 2022 and (at least) 6% in 2023 …GDP

And recently there are many references to these numbers in the public space.

In 2022, the percentage of Romania’s budget deficit is higher (6.3% of GDP) is already officially established.

The figure for 2023 has not yet been determined, but broad estimates put the deficit at at least 6% of GDP.

It should be understood, first of all, about these data that the budget deficit means that the government spends more than it collects from fees, taxes and other regular budget revenues.

The difference in spending money comes from borrowing (for example, from external debt, government bonds to own citizens, etc.).

It is also important to note that the percentages themselves are very high – 2nd place out of 27 EU countries in the last 2 years[vii].

But apart from these aspects, the presentation of the above statistics in the Romanian public space is often misleading in at least three aspects:

a. Many times a statement on television or in the press is not completed, omitting the clarification that the percentage of the budget deficit is actually calculated relative to … gross domestic product (GDP).

Most Romanians, even if they were attentive to the wording, would thus not understand that the government spent in 2022 and 2023 more than 20% more than it had its own revenues, and not “only” 6.3/6%.

Therefore, since Romania’s public budget is approximately 30% of GDP, a budget deficit equal to 6.3/6% of GDP is equivalent to a budget deficit more than 20% of the budget).

b. Even when the statements state that it is a figure actually calculated as a percentage of GDP, our minds usually miss the trick, because they are talking about a budget deficit…, many Romanians are not in any case informed at school about what that means gross domestic product (or even the abbreviation GDP).

Thus, it is quite natural and logical for us to be tempted to tie the percentage to the budget, and not to GDP (since we are talking about a budget deficit, and the state spends from the budget, not from GDP).

It would be nice to systematically present the percentage of budget deficit to… budget or at least one and the other, not a very misleading figure for the vast majority of Romanians.

c. The relevance of the budget deficit is also masked in comparison with other countries.

Since a budget deficit means debt, and the debt must be repaid at a certain time, it matters how much you pay in interest. In addition, since the debts are paid from the budget, and not from GDP, the future room for maneuver of the budget is also of great importance.

Or it is one thing to have a budget deficit of 6.3% of … GDP, when the vast majority of the budget goes to salaries, compared to a situation with a much larger margin. The relevance also varies depending on the share of the budget in GDP (lower than the EU average in the case of Romania).

The cost of financing is also higher for Romania compared to many other EU countries, the share in the budget of annual interest payments on accumulated debts is in the process of full growth, etc.

Last but not least, since the government budget is mostly reflected in GDP, excessive budget deficits create somewhat artificial economic growth, especially given that much of the increase in spending went to non-productivity increases in employment and wages. I’ll talk about that a bit below

At the end of this point, referring to percentages of GDP, talking about the budget deficit, is misleading. In recent years, the budget deficit in Romania has been irresponsibly high – more than 20% (of the annual budget). This figure is even more negative than it seems, due to the small margin of non-structural spending, the lower share of the budget in GDP and the inefficient use of very large sums.

3. Romania would have economic growth of 2.2%[viii] in 2023

This is technically true, but misleading what an uninformed person infers.

Thus, when we talk about economic growth, we are actually talking about gross domestic product (GDP) growth.

Currently, GDP is the main indicator for measuring the national economy and is defined as the value of all goods and services produced in the economy, minus the value of these goods and services used to create them.

Although gross domestic product (GDP) refers to a … product, meaning production, GDP can actually be calculated using three methods: the production method, the expenditure method, and the income method, not just one.

In addition, as in other EU countries, the gross domestic product is calculated by the National Institute of Statistics according to the … cost method.

Essentially, the formula is: GDP = consumption (both private and public sector, etc.) + investment + export – import.

So, the growth of the economy is actually the growth of GDP, and it is actually the growth of gross expenditures (without a change in prices).

Although the annual increase in spending usually reflects an increase in a country’s wealth (and available products and services), whether this is truly a real and sustainable increase in one’s own wealth or a temporary phenomenon depends on several factors.

The budget deficit, which I talked about in the previous example, is very important.

Since GDP is determined by spending/consumption, and this also includes government spending on finished goods and services (including spending on government personnel)[ix]the more some public institutions absurdly increase the corresponding costs – for example, by hiring people who do nothing or paying 500 euros for a broom, the more GDP increases.

However, in recent years the Government has not only proven to be a “champion” in increasing public spending, but has done so in large percentages through a budget deficit, and we have seen above that deficit means borrowed money.

If the budget deficit in 2023 was 6% of GDP, and GDP growth was 2.2%, then it is closer to the truth to say that the economy REAL decreased in 2023 than increased.

It is true that the budget deficit was about the same in 2022, but at least the increase then was double that of 2023 (the above also applies to that year, but to a lesser extent).

At the end of this point, it would be more accurate to say that consumption grew in 2023, not Romania’s real economy (“buying” growth through debt and inefficient use of large sums). _ Read the rest of the article and comment on Contributors.ro