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Ireland's 26 percent GDP growth just doesn't add up

Leprechauns
Paul Faith | Getty Images
Leprechauns

Ireland's Central Statistics Office told the world this week that the country's economy grew 26 percent in 2015.

Such "data" can be totally bogus, and in this case they are. A lot of people focus on numbers and push them around in press releases, government documents, research reports, trade agreements, news stories and on and on. But when the underlying method for getting these numbers is bogus, then you have a real problem.

Data are just like computers — garbage in, garbage out. It's about humans and their definitions for what goes where.

In the case of Ireland, let's review a few basic questions:

Did the country produce 26 percent more goods? No.

Did the citizens enjoy 26 percent higher incomes? No.

Was the country 26 percent more productive? No.

Inversions

The only reason for such high growth numbers is that Ireland is the home of big-time corporate inversions. Consider Medtronic, an American company that merged with Ireland's Covidien. The new company became based in Dublin, moving $43 billion of assets to Ireland.

This is the problem with bad rules of data. The assets only got "moved" by definition, but not in reality. Where the work truly got done didn't change. But all of a sudden Irish GDP gets a boost from the merger. And technically, U.S. GDP took a tiny hit from the assets "leaving" the States.

Enough of these big inversions happened last year to spike Irish GDP to that 26.3 percent figure.

"It's meaningless," economist Jim Power told the Financial Review. "We would be laughing" if those same numbers came out of China, he said.

Obviously he wasn't the only critic. The Wall Street Journal said the figures shouldn't be taken at face value. Sinn Fein's David Cullinane said the figures showed there is "no credibility to the national account figures."

Economist and New York Times columnist Paul Krugman tweeted the phrase "Leprechaun economics," and asked why all these line items are even in GDP.

Data at large

When shuffling paper can result in massive changes to GDP, it has to give pause about the other numbers out there in the world.

How many of them can actually be trusted? Where do the numbers come from? What happens if you start playing with the loopholes in the rules of their definitions? If Ireland can "grow" by 26 percent in a year, who knows what other weird things can happen?

The scary part is that we only know the Ireland numbers are misleading because the inversions were massive, causing a giant spike.

But if inversions had been much smaller, maybe the world wouldn't have noticed. Maybe the regular growth rate might have been juiced by a few percentage points, big enough to make Ireland look amazing, but small enough to not seem totally out of the ordinary.

That's the scarier thing, when numbers that seem accurate can make their way through the news cycle without proper criticism or analysis.