Mitchell B Feierstein: We must take a stand against lies, damned lies and statistical data
Economic View: We're told recovering asset prices reflect a recovering economy. That's nonsense
Tuesday 03 December 2013
Last week, a brave police constable told a startled Parliamentary select committee that crime statistics were being artificially manipulated to keep recorded crime on its downward path.
In one remarkable exchange, the committee's chair, Bernard Jenkin, asked: "This [the police process] would finish up with trying to persuade a victim that they weren't raped, for example?" The police officer, James Patrick, replied: "Effectively, yes." He also said that officers who tried to challenge the prevailing culture were regarded as poor team-players and effectively marginalised.
Rapes that aren't rape. Domestic violence that isn't. Child protection that's whisked away because the appearance of falling crime is more important than the reality. These are the grimmest possible outcomes of fiddled statistics, but the fact is that our financial culture is also riddled with unreliable, or misinterpreted, data and those statistical fiddles will also lead to dark consequences for ordinary people.
Take, for example, inflation. The issue that most affects ordinary families in the UK is the inability of either the retail or consumer price indexes to focus on essential goods: food, energy, petrol, rent. An index of essential goods inflation would have outpaced either of the broader brush measures and would do a lot to explain the pressure that so many families are currently feeling.
That feeling is real and deserves statistical expression and media interest. For that reason, it doesn't exist and probably won't. But fiddles can be more subtle than that. Suppose last year a given brand of fruit juice was selling at £1 for apple juice and £1.50 for orange juice. This year the prices moved to £1.10 and £1.65 respectively. If you were asked to calculate a "fruit juice inflation index", you'd probably think that it would reveal an inflation rate of 10 per cent.
That's obvious, no? But if so, it's too obvious for our statisticians, who point out that the higher price of orange juice will probably persuade a proportion of buyers to switch from orange to apple. Since apple juice sales will therefore increase, our data-pushers now reweight the index to give greater weight to the cheaper product.
The effect of that shimmy is to depress the published inflation figure – and to depress it because people are switching in order to mitigate the effect of excessive inflation. It's crazy, but it happens.
Unemployment data? The same thing. There's a lot of attention given to the unemployment rate, which in recent months has been looking perkier in both the US and the UK. Yet we all know the economy is in the doldrums. In America the labour participation rate has fallen calamitously; the only reason the unemployment rate has come down is that fewer people are even trying to look for work.
In Britain, our experience has been different, but similar. Our labour participation rate is fine, but our productivity growth has been tragic. If the point of an unemployment measure is to draw attention to the unused slack in the economy, then the British experience has been dire – and a surfeit of low wage, part-time and temporary jobs shouldn't blind us to that basic fact.
It's the same wherever you look. We're told that recovering asset prices – houses and equities – reflect a recovering economy. That's dangerous nonsense. For one thing, equity prices in the US are roughly 50 per cent above their long-term levels (measured using stabilised earnings data, following the work of Nobel Prize-winner Robert Shiller). And since the share of profits in the economy has climbed to an all-time and unsustainable high, there's good reason to think that Mr Shiller's data actually flatters the equity markets.
The simple truth is that the equity markets are in a bubble, whose bursting will cause a new swathe of economic destruction. And where does that bubble come from? Andrew Huszar, a former Federal Reserve official and another brave whistle-blower, gives the answer in a piece for The Wall Street Journal. He writes: "The central bank continues to spin QE [quantitative easing] as a tool for helping Main Street. But I've come to recognise the programme for what it really is: the greatest backdoor Wall Street bailout of all time.... Trading for the first round of QE ended on 31 March 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the US central bank's bond purchases had been an absolute coup for Wall Street..."
It's hard for us, citizens of this spun and manipulated world, to remember that there are real facts beyond those fed to us by those with an interest in presenting the world as better than it actually is. But when whistle-blowers reveal the truth, we can hang on to it, and demand change. When the official inflation data flies in the face of simple evidence – the evidence of our wallets – we can check the facts and demand better data. When equity market bulls and QE-addicts call for further central bank manipulation of markets, we can demand evidence that has any credible traction in the real economy.
Above all, we can cultivate our own scepticism and remember that the greater the dysfunctional manipulation of markets by central planners, the greater will be the bubble, and the greater the eventual crash.
Mitchell Feierstein is the author of 'Planet Ponzi' and chief executive of the Glacier Environmental Fund
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