Posted at 1:13 PM
Simon Kuznets is not a household name. Born to a Jewish family in pre-Soviet Belarus in 1901, Kuznets studied economics in Ukraine until 1922, when Russian persecution led him to immigrate to America. In New York, Kuznets would complete his studies at Columbia University and go on to become one of the world’s most renowned economists, whose work still shapes the way we understand our economy today.
Given my own family’s roots in pre-Soviet Ukraine, Dr. Kuznets’ story has personal meaning to me. Yet as U.S. Secretary of Commerce, his contributions to economics are also integral to our mission to create the conditions for American businesses, entrepreneurs, and workers to succeed.
During the 1930s, the Commerce Department commissioned Kuznets to help policymakers understand, and ultimately respond to, the dire conditions of Great Depression. Rising to the challenge, Kuznets invented a metric for our national economic accounts – a figure we know today as U.S. gross domestic product, or GDP.
Today, GDP influences everything from the President’s agenda and the budget passed by Congress, to private sector hiring and investment decisions. Without it, policymakers, business leaders, investors, and governments would struggle to diagnose our economic challenges and craft the right solutions.
In 1971, Kuznets’ innovation earned him the Nobel Prize for Economics. And in 1999 my predecessor, Secretary Bill Daley called his invention the Commerce Department’s “greatest achievement” of the 20th century.
In today’s “big data” economy, we are building on Dr. Kuznets’ legacy by embracing digital tools and technologies to sharpen our measurements of the economy in the 21st century. Every quarter, economists, policymakers, and business leaders look out not only for the GDP estimates issued by our Bureau of Economic Analysis, but also the subsequent revisions that incorporate the latest data from the U.S. Census Bureau.
While our government’s statistics are already regarded as the most trustworthy in the world, the reality is that today the slightest changes in GDP estimates – even a tenth of a percent – are seismic in an economy worth more than $18 trillion.
As “America’s Data Agency,” the Commerce Department collects and creates enough data every day to fill the Library of Congress – twice. Our goal is to maximize the value of these incredible resources by using new technologies, tools, and tactics to share more data between agencies and narrow the gap between our initial and revised estimates.
Last year for example, Census streamlined BEA’s access to imports and exports data, enabling our economists to incorporate more official international trade figures into our first estimate of quarterly GDP. As a result, we reduced subsequent revisions by more than a tenth of a percentage point. And if that sounds negligible, let me put it this way: in an $18 trillion economy, a revision of two tenths of a percentage point is $36 billion - hardly a microscopic improvement in precision for the businesses, investors, and economists who rely on this information.
This year, we continue to enhance our GDP estimates by accelerating access to data in areas like business inventories. Our data innovations have already tightened the gap between our most recent estimate on September 29 and the initial estimate on July 29. For instance, the July estimate showed GDP accelerated 1.2 percent in the second quarter of this year, and the update released in September was 1.4 percent – a difference of 0.2 or $34.3 billion. In previous years, based on an analysis of revisions from 1993 - 2014, revisions were larger – on average 0.6 percent between the first and third estimate, indicating that faster access to source data means more reliable initial economic estimates for the American people.
Well ahead of his time, Simon Kuznets predicted, “The mass application of technological innovations constitutes much of the distinctive substance of modern economic growth.”
Indeed, in the 21st century our economy is bigger, our markets more global, and the pace of innovation faster than ever before. At Commerce, we will continue to harness the power of data to provide businesses, policymakers, and communities with the economic intelligence they need to succeed in today’s fast-paced global economy.