The Economist has an excellent Economics Focus this week on how the official statistics give us a misleading portrait of the U.S. economy. Among other things, the piece considers how we account for public sector debt:

The definition used in Washington, DC, is “federal government debt held by the public”, which stood at 62% of GDP at the end of 2010. But if you instead use Europe’s preferred measure—general government gross debt, which also includes the borrowing of state and local governments and Treasury securities held by other government bodies, such as the Social Security Trust Fund—it jumps to 92% of GDP (see left-hand chart). That is on a par with Portugal’s level of public debt. Likewise, America’s budget deficit of 8.9% of GDP last year would have been 10.6% using Europe’s preferred measure.

I’m not even sure this is adequate, as it doesn’t take into account various credit guarantees that aren’t on official balance sheets.

Then there is the impact of our inefficient public sector on overall productivity:

Official figures also flatter America’s relative performance on productivity growth. The headline figures compiled by America’s Bureau of Labour Statistics are based on output per man-hour in the non-farm business sector. The European Central Bank tracks GDP per worker across the whole economy. By excluding the less efficient public sector, America’s productivity growth is bumped up. And by taking output per worker rather than output per hour, Europe’s measured productivity growth is reduced because average hours worked have fallen. Between 1995 and 2010 America’s real GDP per hour worked rose by an annual average of 2.1%, considerably less than the 2.7% rate in the non-farm business sector although still faster than the 1.1% pace in the euro area.

This is a scandal. We don’t have an accurate view of how the rapid expansion of an inefficient public sector has sapped our growth potential. If we did have a clearer picture, perhaps we’d have more of a collective sense of urgency about reforming our outmoded health and education sectors.