So the UK economy is substantially larger than previously thought. The recession was not as bad as estimated, and we passed the previous peak in output nearly a year earlier than billed. Economics is a tricky, confusing, annoying subject, isn’t it?
Today we had the quarterly accounts to the end of June this year. That is where these revisions to growth, the recession and the recovery come. They confirm pretty much what we knew already, but we should not think they will be the final word on the matter, for they too will be further revised in the years ahead. My guess is that these further revisions will eventually show that this recent recession was not as bad as the one in the early 1980s, certainly if you allow for the rising North Sea oil output then and the falling output now. But we have to wait.
We will have to wait another month for the next update on what happened in the past, with the publication of the Blue Book and the Pink Book. Those are the two annual publications that pull together just about everything we know about the economy. The one with the blue cover is the UK National Accounts, and it tells us about the flows of funds within the country. The one with the pink cover is the UK Balance of Payments, and it tells us about the flows between this country and the rest of the world.
This year the new Blue Book is particularly important because there are huge revisions going right back to the 1990s. Revisions feature partly because there is a new EU accounting standard, but also because the underlying figures have been updated. Usually they come in July or August, but because of all these revisions this year, the publication of the Blue Book and the Pink Book has been delayed to the end of October.
For most of us this is all very frustrating. It is absurd to see economists earnestly commenting on what some new data says about the economy only to discover that the basis on which they were intoning was completely wrong. Unfortunately wrong figures do influence financial markets, they may distort economic policy, and they certainly affect politics. So what should we do?
There are really two sorts of problem: one is measurement, the other concept.
There are some things that you can measure precisely. We know exactly how many new cars are registered each month. We know how much fuel is sold at the pumps and how much electricity is used. That tells us a lot, but only about a small chunk of the economy. The wider you go the less precise the figures. Take employment: we know how many National Insurance numbers are issued – that is an exact number – but we don’t know much about what is happening in self-employment, now about 15 per cent of the total. As the economy shifts further to services and away from manufacturing, measurement becomes harder still. One explanation for the faster rise in consumption than the earnings figures would suggest is a combination of climbing self-employment and a shift to the informal or cash economy.
If the problem of measurement is tough, that of concept is tougher. We measure paid services, not unpaid ones. So the whole world of voluntary service is excluded from all calculations. One of the changes to the national accounts is that activities such as drug dealing are now, I understand, included in GDP. Cash passes hands so it should be, but is it not strange that we measure the work of a drug dealer but not that of a volunteer in a charity shop?
There are further quirks. Many of the improvements in our standard of living, those brought about by the IT revolution, are barely counted in GDP. What price do you put on being able to communicate with people over Twitter? (No comments please about people who mis-communicate in that way.) Or the value of location-based services? Or Google maps? My feeling is that thanks to IT our standard of living is rising much faster than the stats show, but there is no evidence to support this.
There is a further particular problem with the concept of investment. Some investment you can see – a new factory or a new bypass – but much investment now is in human capital, not physical capital. So if someone takes themselves to evening classes in book-keeping, that is true investment, but it may appear as consumption. On the other hand, many politicians go on about investing in some project when actually what they are doing is spending – “invest” is a nicer word than “spend”.
Faced with all this what should we do? For a start, we should not blame the statisticians because it really is very difficult. But equally none of us should use statistics aggressively in argument, without questioning whether they really tell us anything worthwhile. Most important of all, we should apply common sense to economic analysis. Apply that to these new GDP numbers and you might conclude that while there was never a double dip, let alone a triple dip, the long slog out of recession has been just that – a long slog – and there is more slog ahead.
Straight in the top corner from 40 yards – that’s some intellectual property
Virgin Media versus the Premier League – that is a match of the moment. Virgin has complained to Ofcom that the auction process for selling rights to the league – currently shared by BT and BSkyB – is driving up prices for fans and causing “significant consumer harm”.
So two big players in the game of creation and distribution of intellectual property are going head to head.
It is interesting from an economic perspective because the Premier League is both a unique product and a very good example of the diverse nature of intellectual property. IP takes many forms, from the patents behind some live-saving drug, to pictures of Rihanna, to the TV rights to a football match. Each is unique, and because it is unique, the value being set by the market may be distorted.
There is a general rule that one of the most profitable corners of the commercial forest is a well-tended monopoly: you give a good service and charge just enough to keep up your return on capital but not too much to make consumers angry. But the Premier League is such a strong monopoly that the practical question for the Premier League is not so much whether it is keeping its customers happy but whether it is abusing that position.
There is no clear moral answer to this. This is not the little man or woman against the great corporation, for Virgin Media is no minnow. What it is about is how to value intellectual property, and the outcome at Ofcom, currently considering what it should do with Virgin’s complaint, will resonate beyond the game itself.Reuse content