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Benford’s Law Wins Another Round

There are more quantities that start with 1 than start with  2.  Those that start with 2 in turn outnumber those that start with 3, and so on.  This is true for just about every measurement – from the size of asteroids to financial ledger entries to economic statistics. Why?  Because there are more small things than large things, of course.

The distribution of integers in the first several digits of numbers follows a pattern that is so well-understood, it’s been given a name, Benford’s Law, after the physicist who codified it about 80 years ago.  It’s also been a key investigative tool in forensic accounting for decades; numbers that are being manipulated to cover up fraud will deviate from Benford’s Law significantly.

Now, it’s nabbed another malefactor: the Chinese government:

An examination of the quarterly GDP growth rate from December 1991 to September 2012 shows zero occurred as the second digit 21 times, much higher than what Benford would calculate and suggesting a rounding-up to achieve a bigger leading digit.

This shouldn’t surprise you.  Year after year, for decades on end, in almost miraculous fashion, the Chinese have matched almost exactly their annual growth targets for specific industries and for their economy as a whole.  Did you really think they were that good at forecasting an economy where the data collection that’s permitted is riddled with security restrictions?  No, me either.

For more about Benford’s Law, here’s a great podcast from one of my favorite shows, RadioLab.

Posted in Business, Economics, Foreign Policy.