Sunday, June 12, 2005

Statistics Are Usually Misleading, Regardless Where They Come From, Because Conditions Change

The New York Times on Saturday, June 11, published a story estimating that if the Bush Adminstration's plan to shore up pensions was enacted into law, a good many companies that project large payments this year could legally get by with paying nothing into their pension plans in 2005.

The existing law allowed United Airlines and many other firms to claim they had adequately funded their pension plans without, actually, having done so. Now that it is in bankruptcy, United Airlines has gotten away already with declaring it can no longer fund its pension and has handed it over to the federal pension guarantee agency, which already has a deficit and will pay many of United's retired employees drastically less than they had been projected to get when United was solvent.

I haven't flown United in some time and do not intend to do so in the future. I think these misstatements of how healthy a pension plan is may constitute a fraud. But it is true, projections of how some financial systems may do over several years are frequently very much off base. evem when there aren't loopholes in the law that allow companies to get away with bloody murder.

The bottom line with all this is that, as frequently has been said, "Statistics don't lie, but liars figure>"

I found out during my years as an L.A. Times reporter, covering the insurance industry and the legal profession for a large part of that time, that virtually every statistic proffered on insurance and the costs of the tort system, was, to say the least, disputable.

In fact, the lasting value of the figures was so dubious that it was easy to get bogged down simply citing conflicting statistics whenever I wrote about the arguments between the insurers and the trial lawyers. I finally decided it was usually fruitless to even discuss statistics, or to discuss them in more than a cursory way. They simply were not illuminating the situation in any useful way.

The L.A. Times, like other newspapers, has frequently been victimized by misleading statistics. Just in the last year or two, the paper has repeatedly run estimates of how much would be saved in Worker's Compensation premiums if the Legislature adopted certain reforms.

The reform finally enacted has been disappointing in its results thus far. It hasn't cut premiums nearly as much as its sponsors said it would. The legislators, bamboozled by the various lobbyists in Saramento, pretended to the public and perhaps even to themselves that they were passing a bill that would sharply reduce premiums by cutting claims, only to find later that the insurers weren't reducing premiums by more than a pittance.

Times coverage in the Business section of the worker's comp issue has been very weak, because the writers bought the notion that you could cut premiums without writing into the reform bill a specific guarantee for the cuts and without enabling such a cut to take place by reducing legal costs.

The insurers fought giving any guarantee of how much they would cut premiums, and the lawyers resisted any reduction in legal costs. The result was that the reform adopted was meaningless. The premium cuts have been inconsequential.

The same trouble with figures is seen in budget estimates. We should not forget that when George W. Bush became President, there were projections of huge federal budget surpluses in the years ahead. Within months of 9-11, these surpluses had completely disappeared and been replaced by deficits running into the hundreds of billions of dollars.

Conditions had changed materially and all the statistic projections turned out o be worthless.

I suspect that the projections on how long the Social Security and Medicare surpluses will last are all wet, and that they will change dramatically year by year, that the Congress presently debating the future of these large entitlement programs has no better idea that the Bush Administration, even conceding their possible sincerity, exactly what should be projected.

Often, as in the Savings and Loan debacle, Workers Comp, pensions, Medicare and the price of housing, all the major arguments of the past and future among economists, the statistics are without any lasting value.

The press has to be more careful using such figures. Many people are being lulled into a totally false sense of security by their use. Most everything is just a big guess.

0 Comments:

Post a Comment

Links to this post:

Create a Link

<< Home