Measurement error

By Megan McArdle

Mortgage fraud rose last year even though the number of mortgages issued fell sharply.  Or did it?  The Washington Post article notes that reporting has probably gone up, because banks are more worried about tracking fraud.  There's also the fact that, as I said in the last post, recessions uncover what auditors can't:  undoubtedly, a number of people who might have gotten away with the fraud in kinder, gentler times, got caught short.

A propos of which, I offer this quotation from John Kenneth Galbraith:

To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country's business and banks. This inventory - it should be called the bezzle. It also varies in size with the business cycle. 

This article available online at:

http://www.theatlantic.com/business/archive/2009/03/measurement-error/4825/