About 70 Tory MPs are planning to sabotage the coalition government's attempt to reform the House of Lords, mainly by filibustering it to death.
Lord (Nigel, abu Nigella) Lawson was on TV last night, pouring scorn on the reformists' idea of moving to a PR-based Upper Chamber. (The plan would see 80% of the Lords elected using PR, with the rest of the seats reserved for a smattering of the existing incumbents). The new peers, he said, would in effect be "selected by the political parties, from lists of people who aren't good enough to get themselves elected to the Commons". Don't hold back there, Nige -- tell us what you really think.
Put that way, the reform proposal doesn't sound all that great -- though as a basis for selecting lawmakers for the 21st century, it does seem just a little bit preferable to heredity and patronage.
Monday, 9 July 2012
Thursday, 5 July 2012
The unspeakable in pursuit of the uneatable
That's Oscar Wilde's famous description of foxhunting, but it seems increasingly applicable to the frenzied attempts of politicians and the media to chase down and punish those deemed responsible for the LIBOR fixing "scandal".
Yesterday Barclays' ex-CEO Bob Diamond testified before a rabid gathering of politicians, and emerged unscathed and unabashed. Today those politicians are bemoaning the fact that they "let him get away with it", an outcome that may have had something to do with the fact that none of them had the least idea of what Diamond or his bank had supposedly done wrong, or what harm it might have caused.
Last night there was an expert on the news channels talking about how the UK's "tripartite system" of financial market regulation had failed. He seemed to think that one of the three bodies among whom financial regulation had fatefully been shared under that system was the BBA, the British Bankers Association. This is in fact, as its name might suggest, the bankers' trade association, which might be considered to exclude it from a role in regulating the industry.*
It's hard to recall any other issue of public interest in recent years where it has been so painfully obvious that hardly anyone offering their opinion actually knows what they're talking about. I must, however, make an honourable exception for Stephanie Flanders at the BBC. This description of LIBOR and its inherent flaws is first-rate. Too bad none of the politicians who grilled Bob Diamond seems to have had time to read it.
* Then again, it could hardly have done a worse job than the Bank of England, Treasury and FSA seem to have done.
Yesterday Barclays' ex-CEO Bob Diamond testified before a rabid gathering of politicians, and emerged unscathed and unabashed. Today those politicians are bemoaning the fact that they "let him get away with it", an outcome that may have had something to do with the fact that none of them had the least idea of what Diamond or his bank had supposedly done wrong, or what harm it might have caused.
Last night there was an expert on the news channels talking about how the UK's "tripartite system" of financial market regulation had failed. He seemed to think that one of the three bodies among whom financial regulation had fatefully been shared under that system was the BBA, the British Bankers Association. This is in fact, as its name might suggest, the bankers' trade association, which might be considered to exclude it from a role in regulating the industry.*
It's hard to recall any other issue of public interest in recent years where it has been so painfully obvious that hardly anyone offering their opinion actually knows what they're talking about. I must, however, make an honourable exception for Stephanie Flanders at the BBC. This description of LIBOR and its inherent flaws is first-rate. Too bad none of the politicians who grilled Bob Diamond seems to have had time to read it.
* Then again, it could hardly have done a worse job than the Bank of England, Treasury and FSA seem to have done.
Tuesday, 3 July 2012
Spoiling the ship for a ha'porth of tar
The media are going ever further over the top in their coverage of the LIBOR "fixing" "scandal". For the last couple of days, Sky News has been running a live ticker of UK bank stock prices at the bottom of the screen throughout the trading day! Very informative it is, too. When I was watching a while ago we were told: "HSBC: 559.40"; then, "-7.0"; and finally, "-0.7%"! Guess they must be using an ex-Barclays LIBOR trader to do their calculations.
Bob Diamond has now fallen on his sword -- in the process, bizarrely, unimpaling his Chairman, Marcus Agius, from his -- but before he did so, he sent a letter to all Barclays employees. He noted, undoubtedly correctly, that the likely impact on the LIBOR setting of any finagling by Barclays would never have been much more than 0.001%, on the basis that said finagling was never by more than 1 basis point, and Barclays' submission was always averaged along with 7 others in compiling the published LIBOR figure.
That hasn't discouraged the media, who are still claiming that the impact of even that small piece of fiddling on Barclays' bottom line would amount to millions, because of the huge value of deals that are priced off the LIBOR benchmark. Well, maybe, but the added value of a tenth of a basis point on £1 million for a full year is only £100 -- and Barclays would only make even that if it was able to move LIBOR artificially higher every single day of the year. Given the way the LIBOR setting takes place, that would be very unlikely -- and in any case, for much of the time, Barclays was apparently entering artificially low figures, which would presumably erode its profits, not boost them. But that's no kind of story at all, is it?
It's hard to escape the suspicion that the media are not doing this story to death because of its importance, and still less because they understand it, but because it's finally knocked press standards off the front pages. When was the last time you saw anything about the Leveson Inquiry?
The media aren't the only ones losing their perspective here. The politicians are at it too, finger-pointing with shameless abandon. (George Osborne in the Commons, looking at Ed Balls: "Hands up if you were at the Treasury when Barclays was rigging LIBOR".) One idea getting a lot of play in political circles is that the problem with LIBOR is the very fact that it's set by the banks. So the power to do so should be taken away from them, and presumably vested in some scrupulously neutral LIBOR God who's been in the wings all along, just waiting for this opportunity. The Bank of England is apparently in favour of advocating the replacement of LIBOR with a new rate that reflects actual interbank transactions. That would surely be even easier to "game" than LIBOR, and not just by fractions of a basis point either.
The most popular single post on this blog is still "Shine on you crazy Barclays", which I wrote when Diamond was appointed CEO. I implied at the time that the firm was asking for trouble. I can't claim this was the kind of trouble I had in mind, but there's no question that the value of the firm's franchise has suffered serious damage, out of all proportion to any damage its LIBOR shenanigans have caused.
FOOTNOTE, 4 July: This is from the BBC report on Bob Diamond's Parliamentary testimony, which is now under way: "David Cameron said it was "outrageous" that homeowners and businesses paid higher interest rates as a result of the bank's rate-rigging." There appears to be no factual basis whatsoever for the PM's confected outrage, but that's not going to deter him.
Bob Diamond has now fallen on his sword -- in the process, bizarrely, unimpaling his Chairman, Marcus Agius, from his -- but before he did so, he sent a letter to all Barclays employees. He noted, undoubtedly correctly, that the likely impact on the LIBOR setting of any finagling by Barclays would never have been much more than 0.001%, on the basis that said finagling was never by more than 1 basis point, and Barclays' submission was always averaged along with 7 others in compiling the published LIBOR figure.
That hasn't discouraged the media, who are still claiming that the impact of even that small piece of fiddling on Barclays' bottom line would amount to millions, because of the huge value of deals that are priced off the LIBOR benchmark. Well, maybe, but the added value of a tenth of a basis point on £1 million for a full year is only £100 -- and Barclays would only make even that if it was able to move LIBOR artificially higher every single day of the year. Given the way the LIBOR setting takes place, that would be very unlikely -- and in any case, for much of the time, Barclays was apparently entering artificially low figures, which would presumably erode its profits, not boost them. But that's no kind of story at all, is it?
It's hard to escape the suspicion that the media are not doing this story to death because of its importance, and still less because they understand it, but because it's finally knocked press standards off the front pages. When was the last time you saw anything about the Leveson Inquiry?
The media aren't the only ones losing their perspective here. The politicians are at it too, finger-pointing with shameless abandon. (George Osborne in the Commons, looking at Ed Balls: "Hands up if you were at the Treasury when Barclays was rigging LIBOR".) One idea getting a lot of play in political circles is that the problem with LIBOR is the very fact that it's set by the banks. So the power to do so should be taken away from them, and presumably vested in some scrupulously neutral LIBOR God who's been in the wings all along, just waiting for this opportunity. The Bank of England is apparently in favour of advocating the replacement of LIBOR with a new rate that reflects actual interbank transactions. That would surely be even easier to "game" than LIBOR, and not just by fractions of a basis point either.
The most popular single post on this blog is still "Shine on you crazy Barclays", which I wrote when Diamond was appointed CEO. I implied at the time that the firm was asking for trouble. I can't claim this was the kind of trouble I had in mind, but there's no question that the value of the firm's franchise has suffered serious damage, out of all proportion to any damage its LIBOR shenanigans have caused.
FOOTNOTE, 4 July: This is from the BBC report on Bob Diamond's Parliamentary testimony, which is now under way: "David Cameron said it was "outrageous" that homeowners and businesses paid higher interest rates as a result of the bank's rate-rigging." There appears to be no factual basis whatsoever for the PM's confected outrage, but that's not going to deter him.
Friday, 29 June 2012
Lie bore
OK, let's have a quick primer on the latest banking scandal.
There's overnight LIBOR, one week LIBOR, one month LIBOR, three month LIBOR. There's US dollar LIBOR. There's Sterling LIBOR. There's LIMEAN. There's LIBID. There's LUXIBOR. There's EURIBOR.
These interbank rates are often described as "the rate at which banks lend each other money", but that's not exactly right. Each bank sets its own rate for interbank lending on a minute-by-minute basis. Once a day, however, sixteen large global banks tell the LIBOR compilers (Thomson Reuters) what their lending rate is on that day. Reuters eliminates the high four and low four numbers and averages the rest to come up with the LIBOR rate, which it then publishes. That rate is then used as a benchmark, for example in calculating loan interest or pricing the floating rate side of interest rate swaps.
With so many banks on the panel, it isn't easy for any individual institution to manipulate the rate to its own advantage. If you look at the e-mails that have been quoted in the Barclays case ("done for you , big boy") you find they were talking about shifting the rate by as little as a basis point (one hundredth of one percent). Moreover, again staying with Barclays, it appears that while the traders occasionally attempted to get the day's LIBOR setting nudged higher, there were also occasions when they tried to set it lower, in order to conceal the pressure on the bank's own funding costs at the height of the financial crisis.
Barclays shouldn't have done it, of course, but its actions scarcely merit the scandalised tone of much of the media coverage we've seen over the past couple of days. The FSA's report on its investigation is very nuanced: while asserting that the Bank's traders attempted to influence the LIBOR setting, it does not claim to have proof that they actually succeeded in doing so. Not that the lack of evidence of harm is deterring the press, though: the Daily Mail is suggesting that mortgage borrowers will seek to sue Barclays even in the absence of any such proof, and there is unlikely to be any shortage of lawyers ready to take the case on.
Anyway, is this all clear to you? No? Good! Let's get you down to make-up, and you can lead off the news bulletin at the top of the hour.
There's overnight LIBOR, one week LIBOR, one month LIBOR, three month LIBOR. There's US dollar LIBOR. There's Sterling LIBOR. There's LIMEAN. There's LIBID. There's LUXIBOR. There's EURIBOR.
These interbank rates are often described as "the rate at which banks lend each other money", but that's not exactly right. Each bank sets its own rate for interbank lending on a minute-by-minute basis. Once a day, however, sixteen large global banks tell the LIBOR compilers (Thomson Reuters) what their lending rate is on that day. Reuters eliminates the high four and low four numbers and averages the rest to come up with the LIBOR rate, which it then publishes. That rate is then used as a benchmark, for example in calculating loan interest or pricing the floating rate side of interest rate swaps.
With so many banks on the panel, it isn't easy for any individual institution to manipulate the rate to its own advantage. If you look at the e-mails that have been quoted in the Barclays case ("done for you , big boy") you find they were talking about shifting the rate by as little as a basis point (one hundredth of one percent). Moreover, again staying with Barclays, it appears that while the traders occasionally attempted to get the day's LIBOR setting nudged higher, there were also occasions when they tried to set it lower, in order to conceal the pressure on the bank's own funding costs at the height of the financial crisis.
Barclays shouldn't have done it, of course, but its actions scarcely merit the scandalised tone of much of the media coverage we've seen over the past couple of days. The FSA's report on its investigation is very nuanced: while asserting that the Bank's traders attempted to influence the LIBOR setting, it does not claim to have proof that they actually succeeded in doing so. Not that the lack of evidence of harm is deterring the press, though: the Daily Mail is suggesting that mortgage borrowers will seek to sue Barclays even in the absence of any such proof, and there is unlikely to be any shortage of lawyers ready to take the case on.
Anyway, is this all clear to you? No? Good! Let's get you down to make-up, and you can lead off the news bulletin at the top of the hour.
Tuesday, 26 June 2012
Osborne's double whammy
UK fiscal data for May, released this morning, are ugly. Borrowing for the month was almost £18 billion, up from £15 billion in the May 2011. The main culprits: a 7% fall in income tax receipts, which appears to be mostly due to the slowing economy, though high earners' efforts to avoid the 50% tax rate are getting some of the blame too; and an 8% jump in public spending, driven by an 11.7% rise in welfare payments.
Opposition spokespeople have naturally pounced on the data, saying that they prove that the Government's austerity programme is fundamentally mistaken. That's true, but what George Osborne and his pals have achieved is worse than that. As the rise in spending shows, they haven't actually imposed any real austerity. In fact, Government spending has been virtually the sole source of growth in the economy in recent times. But by banging on about budget cuts all the time, they seem to struck a serious blow to consumer and, more importantly, business confidence. The unwillingness of businesses to invest , even though many are sitting on significant piles of cash, is making it all but impossible for the economy to mount the sustained recovery that might allow the country to start to "grow out of" the debt problem.
The latest data will hasten efforts already under way in Whitehall to find a second round of spending cuts, which is just what the economy doesn't need. In the firing line: welfare programmes. David Cameron signalled this week that the Government wants to end the "something for nothing" culture that supposedly exists among welfare recipients.
One brilliant idea on the table is to reduce welfare payments in poorer regions. I suppose it wouldn't occur to anyone in the Cabinet that such a policy might tempt a good number of benefits claimants to migrate to areas where the payments remained higher. That would presumably include London and the South East, where local authorities have already been trying to move benefits recipients in the opposite direction because they can't afford the cost of housing them. It was Tony Blair that used to talk about "joined-up government". We don't seem to be any closer to achieving it.
Opposition spokespeople have naturally pounced on the data, saying that they prove that the Government's austerity programme is fundamentally mistaken. That's true, but what George Osborne and his pals have achieved is worse than that. As the rise in spending shows, they haven't actually imposed any real austerity. In fact, Government spending has been virtually the sole source of growth in the economy in recent times. But by banging on about budget cuts all the time, they seem to struck a serious blow to consumer and, more importantly, business confidence. The unwillingness of businesses to invest , even though many are sitting on significant piles of cash, is making it all but impossible for the economy to mount the sustained recovery that might allow the country to start to "grow out of" the debt problem.
The latest data will hasten efforts already under way in Whitehall to find a second round of spending cuts, which is just what the economy doesn't need. In the firing line: welfare programmes. David Cameron signalled this week that the Government wants to end the "something for nothing" culture that supposedly exists among welfare recipients.
One brilliant idea on the table is to reduce welfare payments in poorer regions. I suppose it wouldn't occur to anyone in the Cabinet that such a policy might tempt a good number of benefits claimants to migrate to areas where the payments remained higher. That would presumably include London and the South East, where local authorities have already been trying to move benefits recipients in the opposite direction because they can't afford the cost of housing them. It was Tony Blair that used to talk about "joined-up government". We don't seem to be any closer to achieving it.
Monday, 25 June 2012
"We're not very good, we're not very good..."
England going out of Euro 2012 at the quarter-final stage, after a penalty shoot-out -- who'd have expected that? The optimists, that's who -- pessimistic (or even just realistic) fans never expected them to get beyond the group stage. Last night's game was so lopsided that it's actually a relief to have the team on its way home -- fluking their way into a one-sided semi-final thrashing by Germany would have been downright embarrassing.
The tournament did allow us to dispel a few myths, however. For example:
Myth #1: that England lose because their rope-a-dope tactic, waiting for the opposition to come onto them and then hitting them on the break, causes them to tire out. How many times have you heard commentators say that "it's far more tiring chasing the ball than passing it around"? Well, at the end of the group stage, the OPTA statistics showed, as anyone who watched the games would realise, that England had enjoyed far less than 50% possession of the ball in all of their games -- yet the total distance covered by England players was actually the lowest of any of the sixteen teams that started the tournament. Seems England players don't rush around like madmen trying to harry their more skilled opponents into making mistakes; they mainly just stand around waiting for the ball to hit them.
Myth #2: that Wayne Rooney is a world-class player. Wazza hasn't scored a goal in the final stages of a major tournament since 2004, but his apologists have always been able to cite injuries in mitigation. This time he missed the first two games as a result of a suspension, but was confidently expected to turn up for the final group game "loaded for bear", and to carry the team forward from there. In the event he was heavy-legged and clumsy. Sure, he scored in the Ukraine game, but as the columnist Giles Smith put it, it was a goal Pele could be proud of -- the current 71-year old Pele, that is, not the Pele of old. After this tournament, anyone who calls Rooney a world-class player deserves to be bitch-slapped by any and all of Lionel Messi, Cristiano Ronaldo, Andrea Pirlo and Bastian Schweinsteiger, to name but a few.
Myth #3: that Roy Hodgson is a good manager. Sure, he didn't have much time to work with the players, and there were a lot of injuries, but really! He selected Stewart Downing for the squad, a man who recorded neither a goal nor an assist in league football last season. Predictably, Downing didn't get on the field. And what of those who did get on the field? Well, we've already looked at Rooney, but what about Ashley Young? At the end of the knockout stage, the OPTA stats rated him as the least effective player in the England's group -- the whole group, mark you, not just the England squad. Yet Hodgson allowed him to start the quarter final, where he turned in another startlingly disengaged performance, and then became the first England player to fail to score in the penalty shoot-out.
Myth #4: despite this latest setback, the future still looks bright. On what possible basis?? England's best players over the past two weeks were Steven Gerrard, John Terry, Ashley Cole and Joleon Lescott. The first three of that quartet will be getting quite long in the tooth by the time of the World Cup in Brazil, in 2014. The various up-and-comers in the squad either got only limited playing time (Oxlade-Chamberlain) or no playing time at all (Phil Jones, among others). Unless you really think travel broadens the mind, it's hard to see how the experience of flying around Eastern Europe, only to watch games from the sidelines, can have done anything for these players' future development.
I've mentioned the OPTA statistics a couple of times here, and this post gives me the opportunity to cite my favourite OPTA number of all time. A few years ago the Swedish striker Zlatan Ibrahimovic was substituted after about 60 minutes of a Champions League Game. At that time, he had only run 500 metres further than his own goalkeeper! Yet Ibrahimovic would walk into the current England team. Quite literally, perhaps.
The tournament did allow us to dispel a few myths, however. For example:
Myth #1: that England lose because their rope-a-dope tactic, waiting for the opposition to come onto them and then hitting them on the break, causes them to tire out. How many times have you heard commentators say that "it's far more tiring chasing the ball than passing it around"? Well, at the end of the group stage, the OPTA statistics showed, as anyone who watched the games would realise, that England had enjoyed far less than 50% possession of the ball in all of their games -- yet the total distance covered by England players was actually the lowest of any of the sixteen teams that started the tournament. Seems England players don't rush around like madmen trying to harry their more skilled opponents into making mistakes; they mainly just stand around waiting for the ball to hit them.
Myth #2: that Wayne Rooney is a world-class player. Wazza hasn't scored a goal in the final stages of a major tournament since 2004, but his apologists have always been able to cite injuries in mitigation. This time he missed the first two games as a result of a suspension, but was confidently expected to turn up for the final group game "loaded for bear", and to carry the team forward from there. In the event he was heavy-legged and clumsy. Sure, he scored in the Ukraine game, but as the columnist Giles Smith put it, it was a goal Pele could be proud of -- the current 71-year old Pele, that is, not the Pele of old. After this tournament, anyone who calls Rooney a world-class player deserves to be bitch-slapped by any and all of Lionel Messi, Cristiano Ronaldo, Andrea Pirlo and Bastian Schweinsteiger, to name but a few.
Myth #3: that Roy Hodgson is a good manager. Sure, he didn't have much time to work with the players, and there were a lot of injuries, but really! He selected Stewart Downing for the squad, a man who recorded neither a goal nor an assist in league football last season. Predictably, Downing didn't get on the field. And what of those who did get on the field? Well, we've already looked at Rooney, but what about Ashley Young? At the end of the knockout stage, the OPTA stats rated him as the least effective player in the England's group -- the whole group, mark you, not just the England squad. Yet Hodgson allowed him to start the quarter final, where he turned in another startlingly disengaged performance, and then became the first England player to fail to score in the penalty shoot-out.
Myth #4: despite this latest setback, the future still looks bright. On what possible basis?? England's best players over the past two weeks were Steven Gerrard, John Terry, Ashley Cole and Joleon Lescott. The first three of that quartet will be getting quite long in the tooth by the time of the World Cup in Brazil, in 2014. The various up-and-comers in the squad either got only limited playing time (Oxlade-Chamberlain) or no playing time at all (Phil Jones, among others). Unless you really think travel broadens the mind, it's hard to see how the experience of flying around Eastern Europe, only to watch games from the sidelines, can have done anything for these players' future development.
I've mentioned the OPTA statistics a couple of times here, and this post gives me the opportunity to cite my favourite OPTA number of all time. A few years ago the Swedish striker Zlatan Ibrahimovic was substituted after about 60 minutes of a Champions League Game. At that time, he had only run 500 metres further than his own goalkeeper! Yet Ibrahimovic would walk into the current England team. Quite literally, perhaps.
Thursday, 21 June 2012
Dodgy data
At the world's least ecologically sound event -- the Rio +20 "earth summit" shindig -- Nick Clegg has announced that starting in 2020, the UK will no longer use GDP data as the sole measure of economic progress. I wasn't aware that we currently did that, and I'd be the last to deny that GDP is a pretty ropey statistic -- more of which below -- but what Clegg appears to be proposing seems downright daft. No real surprise there, I guess.
According to Professor Clegg, GDP will give way to something known as GDP+, which will take account of the impact of economic activity on the nation's "natural wealth". Just how will that work? If a particular activity uses up non-renewable resources, will that be deducted from "GDP+"? Or will it be even more airy-fairy than that, as the linked article from the Telegraph website rather ominously hints? Would anyone really think, to quote the example in that article, that there's a reasonable way of deducting damage to the Chiltern Hills from the economic growth that the HS2 railway project might create? Who gets to quantify the damage? The local NIMBYs, who would presumably assess it as being close to infinity, on the basis that it would be effectively irreversible? Or the people who use the new train line, who would assess it as almost zero, on the basis that they themselves didn't actually live in the Chilterns?
The key problem with GDP as it currently stands is that it aggregates hard-to-measure things in a way that all too readily obscures any real meaning. If an economy produces ten apples and ten oranges, we can say that its GDP amounts to twenty pieces of fruit, but even by doing that, we've lost a level of information that may be crucial. In aggregating production for a much more complex real world economy into a GDP figure, that becomes much more of a issue. If you then decide to stick in all sorts of unmeasurables -- resource depletion, loss of amenity for people near train lines, erosion of mediaeval gargoyles as a result of increased air pollution, or whatever -- you come up with a measure that's both intrinsically unreliable and impossible to interpret.
None of this is meant to suggest that the existing GDP data are ideal, even for the relatively narrow purposes for which they were designed. The ONS has reported that UK real GDP fell by 0.3% in the first quarter of this year, a number that seems wildly at odds with all of the more upbeat anecdotal evidence that has come to hand, especially the sectoral PMI surveys compiled by the good folks a Markit. Yesterday we received a labour force report that casts even more doubt on the GDP estimate. Between February and April, unemployment fell by 51,000, while the number employed rose by 166,000, with big increases in both private sector jobs and full-time employment. That's simply not consistent with the GDP numbers, a conclusion that still holds true even if you regard employment as a lagging indicator of growth -- after all, the economy was supposedly shrinking in the final quarter of 2011 as well, so just how long is that lag supposed to be?
Meanwhile, what about the current quarter? The sectoral PMI data have generally moved lower, which sounds bad, but today we learn that retail sales jumped 1.4% in May, a development apparently attributed in part to warm weather during the month, a happy meteorological event that I must somehow have missed. Individual stores, especially in the consumer electronics field, are also offering some upbeat trading reports.
So what does all this tell us about GDP for the current quarter? Frankly, who knows? And that's why it's important not to become fixated on GDP as the "sole measure" of economic progress, to use Nick Clegg's term again. By all means let's look at better indicators -- but I don't think we should rely on Clegg and his pals to tell us what those might be.
According to Professor Clegg, GDP will give way to something known as GDP+, which will take account of the impact of economic activity on the nation's "natural wealth". Just how will that work? If a particular activity uses up non-renewable resources, will that be deducted from "GDP+"? Or will it be even more airy-fairy than that, as the linked article from the Telegraph website rather ominously hints? Would anyone really think, to quote the example in that article, that there's a reasonable way of deducting damage to the Chiltern Hills from the economic growth that the HS2 railway project might create? Who gets to quantify the damage? The local NIMBYs, who would presumably assess it as being close to infinity, on the basis that it would be effectively irreversible? Or the people who use the new train line, who would assess it as almost zero, on the basis that they themselves didn't actually live in the Chilterns?
The key problem with GDP as it currently stands is that it aggregates hard-to-measure things in a way that all too readily obscures any real meaning. If an economy produces ten apples and ten oranges, we can say that its GDP amounts to twenty pieces of fruit, but even by doing that, we've lost a level of information that may be crucial. In aggregating production for a much more complex real world economy into a GDP figure, that becomes much more of a issue. If you then decide to stick in all sorts of unmeasurables -- resource depletion, loss of amenity for people near train lines, erosion of mediaeval gargoyles as a result of increased air pollution, or whatever -- you come up with a measure that's both intrinsically unreliable and impossible to interpret.
None of this is meant to suggest that the existing GDP data are ideal, even for the relatively narrow purposes for which they were designed. The ONS has reported that UK real GDP fell by 0.3% in the first quarter of this year, a number that seems wildly at odds with all of the more upbeat anecdotal evidence that has come to hand, especially the sectoral PMI surveys compiled by the good folks a Markit. Yesterday we received a labour force report that casts even more doubt on the GDP estimate. Between February and April, unemployment fell by 51,000, while the number employed rose by 166,000, with big increases in both private sector jobs and full-time employment. That's simply not consistent with the GDP numbers, a conclusion that still holds true even if you regard employment as a lagging indicator of growth -- after all, the economy was supposedly shrinking in the final quarter of 2011 as well, so just how long is that lag supposed to be?
Meanwhile, what about the current quarter? The sectoral PMI data have generally moved lower, which sounds bad, but today we learn that retail sales jumped 1.4% in May, a development apparently attributed in part to warm weather during the month, a happy meteorological event that I must somehow have missed. Individual stores, especially in the consumer electronics field, are also offering some upbeat trading reports.
So what does all this tell us about GDP for the current quarter? Frankly, who knows? And that's why it's important not to become fixated on GDP as the "sole measure" of economic progress, to use Nick Clegg's term again. By all means let's look at better indicators -- but I don't think we should rely on Clegg and his pals to tell us what those might be.
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