Despite impressive strides in measuring economic activity, few people truly understand what is going on in the economy. Politicians tout one number or another to support their legislation. TV pundits seize a statistic released that day and both the left and the right say why it is a good thing or not. Newspapers publish editorials about what one economic indicator means for the future.
Regardless of the deluge of statistics and amount of time the media devote to discussing it, most people remain bewildered by it all. Rather than inform them, it only serves to confuse them at best and mislead them at worst. The average person and even the well educated cannot determine how good or bad the economy is doing, and are forced to rely on politicians, pundits, and the papers to tell them whether it is getting better or worse.
Moreover, when the statistics are released, they are often compared to the same numbers from last month or last quarter. Few economic indicators are put into historical context. Without any sort of reference point, the reported numbers are meaningless. Can 3% growth considered to be high? Does unemployment of 6% means recovery? Is 3% inflation too high? Worse yet, where can the average person go to find trustworthy interpretation of it all? The media? Most people would agree it cannot be trusted to be fair and unbiased all the time. Government and government agencies? By mandate, they can offer little interpretation and analysis as to whether an indicator is good or bad; their purpose is to collect and report data. Private businesses, investment banker, or individuals? Few have completely altruistic motivations.
This lack of knowledge affects everyone’s everyday lives. Is it a good time to invest in real estate, or should they rent? Is the stock market too volatile, or is it a smart time to buy? Is the recession over, or are we about to sink further? Is it a good time to get a job, or should they stay in school? Businesses owners, too, face the same uncertainty with corporate decisions. Should they prepare their factories to get ready for an economic boom and invest now to produce more in the future, or should they get ready for a fall in orders? Is the domestic market the best place to grow, or should they expand elsewhere? Is it a smart time to borrow, or should they deleverage and quickly get rid of debt?
“Real GDP rose by 2.2% in 2012…” “Unemployment jumps to 9.2% …” “New housing starts were up by 1.5% this month compared to last year…” “Consumer spending reach an all-time high this quarter…” “The Federal Reserve announced its decision to keep interest rates at record lows…”
It seems everywhere the public eye turns, someone is using an economic measure to support their position, such as why everyone should buy gold (or not), invest in the stock market (or not), refinance (or not), or be worried about the future of America (or not).
What does it all mean? Does it make sense? What is really going on with the economy? Even expert policy advisors—the people who influence the president, members of Congress, private investors, and others who affect large pieces of the economy—lack the tools to properly assess and compare economic performance across time and against other economies. How is the U.S. doing vis-à-vis China, the U.K., and the euro area countries? Is current legislation helping or hurting the economy? Should decisions be based on any one indicator or index?
Everyone wants to know what is going on the economy but no one seems to know.
Well, almost no one.
We created this index because we believe that everyone should be able answer the question “What’s going on with the economy?” We offer a clear but powerful method of evaluating the performance of any economic entity, be it a nation, a U.S. state, or an economic bloc like the EU. It took us four years of research, including many consultations with economists, businesspeople, representatives of Congress, and others to create our own economic index. It is currently the only patent issued for an index of economic activity.
We call, simply, the Economic Performance Index, or EPI.
Of course, the Index is not perfect, as some can say that it might be too simple. Others may argue that it does not take everything possible into account. We are aware of that, but it accomplishes its original goal: to allow anyone to get an independent evaluation of the performance of the economy. Our Index empowers anyone to evaluate what is happening in any major economy, letting them draw their own conclusions about what they need to decide when it comes to their investments, their personal finances, their education choices, and, ultimately, their own economic future.
In just three simple steps, we can teach anyone how to construct the Economy Index and apply it to virtually any economic entity. As part of demonstrating how to use and interpret the Index, we have evaluated all major periods of U.S. history. In addition, we demonstrate the ability of this simple index to catch economic recessions and evaluate stock market fundamentals. But after demonstrating its capabilities, we proceed in the second part of the book to answer the real secrets of the economy, i.e. “everything you always wanted to know but were too afraid to ask.”
“See Section: EPI methodology”