The result seems to be: ‘It only counts if you can count it’.
And such faith in ONS numbers seems widespread amongst most of our leaders – politicians, economists, academics, bankers.
None seem to question whether the big measures on which they base their ideas, conclusions and actions are flawed, out-of-date or even ‘maybe dangerously wrong’.
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ARTICLE 1 – bySeema Shah, Chief Global Strategist at Principal Asset Management – in The Times:
- GDP is a flaky way to gauge growth
- GDP dictates political thinking, determines whether a country is included in the G7 and, more than any other economic data point, grabs headlines
- However, its role as the barometer of economic health is flaky at best
- GDP might be one of the most misunderstood, misrepresented and misleading indicators in economics
- At best, GDP provides a sense of the economic direction of travel – at worst, it delivers wild false positives or negatives – like using book sales to measure Prince Harry’s popularity
- Natural disasters often increase GDP – not because they are economically beneficial but because the rebuilding efforts count as increased output
- The only real way to accurately assess growth prospects is to examine a mosaic of data:
- Jobs
- Retail sales
- Industrial production
- Manufacturing surveys
- Credit spreads
- Even satellite imaging or high frequency indicators such as job postings or card spending
- In a highly uncertain economic and market climate, fixating too heavily on a single data point risks being blind-sided by the bigger picture
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ARTICLE 2 – by Paul Ormerod, economics professor at the Alliance Business School, University of Manchester – published by CityAM
- ‘If the ONS can’t measure productivity, how are we meant to improve it?’
- The ONS has come in for a lot of criticism for the accuracy of its labour market data
- Its estimates for how many people there are in employment have become less reliable because response rates to their surveys have fallen rather dramatically
- This is important because the total level of output produced in the economy divided by the number of people in employment is a key measure of productivity
- It is the level of productivity which determines how much as a nation we can afford, whether it is personal spending or national budgets for defence or the NHS
- And there has been no growth in productivity from its levels immediately before the pandemic at the end of 2019
- But this fundamental point about what is affordable has simply not struck home, especially in the public sector – witness current workfoces on strike:
- Resident doctors in the NHS
- Transport workers in London
- Publicly-owned water workers in Scotland
- Binmen in Birmingham
- Yet the UK public sector has shown no increase in productivity for almost 30 years!
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NATIONAL PRODUCTIVITY
Extracts from our tome ‘Productivity Knowhow Revisited’
- In trying to help improve productivity at organisation level and below, we are bound to consider what financial aid, policies, taxes and regulation changes should be forthcoming from national governments
- After all, they have a vested interest in the success of their private sector – where else does the money come from to fund:
- The number and quality of public services their populations want
- The open and applied research to create and support new and/ or more productive industries
- The modern infrastructure to improve the supply and distribution of all goods and services – and connectivity between people and organisations
- The education to provide the skills and thinking-power needed by all
- Hence, we have a vested interest in the stars our government follows when deciding how much of our money they say they need to invest where, and why – and it’s those same stars that we take issue with – their accuracy and the directions they indicate
- At present, government officials, expert economists, think-tanks, business journalists and the media all offer their wise advice on how best to run economies, why things went wrong or right, and what to do next for the short and longer term
- But all such advice is predicated on two, seemingly unquestioned, statistics, viz:
- GDP – representing ‘total national output’
- GDP/ Labour (FTEs or hours worked) – representing ‘national productivity’
- Sadly, these two measures are seriously flawed – whilst well-suited to the old ‘smokestack’ brawnwork days of the 20th century, they’re no longer appropriate to the new service industry/ brainwork era of the 21st century – and they focus on just the material side of modern lives, ignoring the fact that mental wellbeing has already become equally as important to many people, if not more so
- Not only that, one struggles to find any clear connection between published national productivity statistics, which no doubt cost a small fortune to produce, and specific costs and benefits of government policies and actions taken
- And I’ve yet to meet a front-line manager who compares any national productivity measure with his own
GDP flaws:
- GDP clocks transactions where money is paid for goods or services – but those figures are ‘error-prone’ or paradoxical, full of estimates or assumptions
- When a tree is chopped down and sold as wood it has a measurable value – when alive, carbon-capturing, oxygen-creating, home to a variety of flora and fauna, and admired for its looks, it doesn’t
- Some productivity improvements can even reduce, not increase, GDP viz:
- GPS navigation systems now mean fewer miles are driven so less petrol is burned and less paper maps sold
- Smartphones mean less watches are sold, and less need for document scanners
- When a man marries his housekeeper, GDP falls
- If a man falls ill and a £100 medicine saves his life, GDP clocks that £100 but not the saving of his life which he might value at more than £100
- Combating some negatives of living can also increase GDP viz:
- A traffic jam forces drivers to buy more petrol
- Medical costs to treat cigarette smokers suffering from lung cancer
- The O J Simpson trial costs, which were the equivalent of the GNP of Grenada
- The costs of operating on obese people to make them look thinner
- Then there are activities of companies who clock revenue now, which GDP counts, but not future ‘clean-up’ cost liabilities, which GDP does not subtract viz:
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- Plastic users whose products end up clogging oceans and killing sea-life
- Pesticide users destroying biodiversity
- Water companies pumping raw sewage into rivers and seas
- And what of the long-term costs to our health, wealth and wellbeing which go unmeasured, viz:
- Forests cut down to make way for agriculture and industry
- Oceans depleted of their fish stocks
- Fossil fuel burning polluting the air and leading to climate change
- One is left questioning the value of GDP measures
GDP flaws – Components uncounted – ‘Consumer Surpli’:
- Consumer surplus is defined as the difference between the highest price a consumer would have been willing to pay and the price actually paid – the extra uncounted value of the benefits customers obtain from tangible stuff they buy
- For example, when people buy a mobile phone or laptop PC, this provides free access to Google, Facebook, Twitter, WhatsApp and Wikipedia plus an ever-growing number of apps – each provides them with enormous extra value and enjoyment and saves them considerable time and effort finding answers to questions
- In particular, Google et alia do this to attract valuable personal preference data on individual purchases and interests which they then sell on to supplier companies seeking to target those most likely to buy from them – but GDP only registers the revenue those suppliers get from their sales, not the greater value their customers get from their purchases
- We already know GDP does not count the output value of many important activities which have no price tag, nor the labour inputs involved – for example:
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- Uncounted white economy:
- Housework, DIY, gardening
- Hobbies, arts, music
- Charity work, lifeboatmen
- Child/ elderly care
- Unregistered unemployed
- Uncounted black economy:
- Moonlighting
- Working for cash
- Crime
- Tax avoidance
- Hidden incomes
- Uncounted white economy:
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- We now realise the value of ‘consumer surpli’ also goes uncounted, and may even explain much of the current ‘productivity puzzle’:
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- Surpli at work:
- Better educated
- More skilled
- Better information/ decisions (add AI now)
- Google/ Skype freebies
- Wikipedia freebies
- Longer lives
- Healthier lives
- Surpli at play:
- Happiness increased
- More social connectivity
- More/ better leisure/ pleasure
- More entertainment
- More sports/ arts
- Free apps/ downloads
- Free recordings, streaming
- Surpli at work:
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As Hal Varian, Chief economist at Google, said: ‘GDP has a very hard time with free‘
The last word goes to the great Peter Drucker:
‘The absence of good measures of productivity is the biggest gap in our economic statistics and seriously weakens all attempts of economic policy to forecast and fight a business depression’