Polling Power

A curious story is emerging in the aftermath of the UK General Election that suggests polling organisations may unintentionally have shaped our reality to a remarkable degree.  Consistently, in the weeks and months before the election, a wide range of polls put Labour and the Conservatives neck-and-neck.  Politicians on both sides confidently expected their party to draw ahead, but as time passed and it didn’t happen even the most bullish started admitting the obvious — it was going to be a hung parliament and whoever wanted to hold power would have to do a deal with one or more of the smaller parties.

When the Conservatives then won a comfortable majority, the polling failure was considered so serious that the British Polling Council launched an independent inquiry.  Journalists and politicians across the land poured scorn on the pollsters.  Many theories have been put forward to explain the failure — “shy Tories” reluctant to admit their allegiance, a last-minute swing driven by fear of the SNP, a poor turn-out by Labour supporters — but I am less interested in why it happened than what the consequences are.

Because of the consistent story coming out of the polls, the party manifestos — launched only a few weeks before election day — were widely seen not as promises of policies to be implemented in the event of victory but opening negotiation positions for the inevitable coalition bargaining that would follow an inconclusive vote.  We can reasonably presume that the parties themselves didn’t really expect to have to implement all of the contents of their manifestos.  Indeed they may well have included, at the last minute, more extreme policies than they wanted, expecting to bargain them away.  But then a surprise majority eliminates the need for negotiation, and suddenly the Tories are obliged to follow through on everything they’ve pledged.

Did this happen?  Did the polls influence the contents of the Conservative manifesto?  Did David Cameron and George Osborne come up with excessively right wing policies so they would have something to give up in a new deal with the Liberal Democrats?  One obvious point of contention is the £12 billion of welfare cuts the Tories want to find – but this policy was announced by Osborne in January when many Tories still expected a majority.  More likely faux-policies are the crazy Right to Buy extension, the abolition of the Human Rights Act, the Inheritance Tax threshold increase, the 500 new free schools, the benefit cap reduction and the pledge not to increase personal taxes.  Any one of these, one imagines, David Cameron might have been more than ready to give up in return for LibDem support.

Now, with a parliamentary majority, he has to stand by them all.  That will be our reality for the next five years, and there’s a good chance the pollsters — in honestly reflecting what they measured — have helped to shape it.

Back to where we started?

The headlines today are celebrating the UK’s return to pre-crisis levels of economic output.  GDP is back where it was in 2007.  Deputy Prime Minister Nick Clegg declared, “The fact that the British economy is now as large, if not slightly larger than it was just before the crisis happened, shows that the rescue mission that we said was the principal purpose of this Government has worked.”

But is this GDP figure remotely relevant?  The Chancellor and his cheerleaders would like us to believe it is a highly significant milestone in the country’s slow slow recovery.  But the total size of the UK’s economy is not nearly as important as the level of output per person.

Because while we may, as a country, be producing as much as we were before the crash, there are now many more of us doing the production.  Over two million more, in fact.  Our output per person remains well below 2007 levels, which is why our living standards remain depressed.  If we were truly back to where we started, we would expect the economy to have grown by at least as much as the population.

What practical significance is there in the truth that the total size of the economy is back to pre-crash levels?  Absolutely none.  This moment is purely symbolic — which won’t stop the government milking it to the full.

Wartime Britain flooded by imports

Speaking at the Chalke Valley History Festival last night, Professor David Edgerton had some fun dispelling a number of long-established “myths” about Britain in World War II.  Several of the “myths” were really cases of competing truths.  For example, he attacked the idea that Germany’s submarines substantially reduced British imports during the war.  Yes, imports went down when measured by volume, but the value of imports went up.

This paradox is easily explained.  With the Nazi occupation of Europe, Britain had to shift the primary source of her imports from the continent to the Americas and Australia & New Zealand, making freight journeys much longer.  Before the war, the country had imported large amounts of animal feed and iron ore, both low value raw materials.  With freight much more expensive, it made sense to switch imports to low-volume finished goods.  So imports of canned meat, finished steel, machine parts and engines increased dramatically, while imports of maize were eliminated.  Instead of growing our own cows we got the Uruguayans to do it for us.

The truth that Hitler’s U-Boats contributed to a general reduction in imports (by volume) was helpful to Churchill and successor politicians trumpeting Britain’s ability to stand alone.  The truth that imports (by value) actually increased during the war is probably more relevant.

Edgerton’s book, Britain’s War Machine, is here.

Rich Reich

Deutsch: 10 Euro Gedenkmünze 2007 - 50 Jahre D...

Deutsch: 10 Euro Gedenkmünze 2007 – 50 Jahre Deutsche Bundesbank, Wertseite (Photo credit: Wikipedia)

Proposition: The Germans should bail out the rest of the Eurozone.

Rationale: The Germans are richer than everyone else in the Eurozone.

Evidence:

Truth 1: Germany’s total GDP is €2.6 trillion, comfortably ahead of France (€2.0 trillion) and Italy (€1.6 trillion). (source: countryeconomy.com/gdp)

Truth 2: Germany has the most millionaires in Europe (one million people with investable assets of over $1 million) (source: Capgemini World Wealth Report)

Truth 3: German GDP per capita is €32,399, just ahead of France (€31,100) but behind Belgium (€34,100), Ireland (€35,600), the Netherlands (€35,900), Finland (€35,900), Austria (€36,600) and Luxembourg (€83,600). (source: countryeconomy.com/gdp)

Truth 4: Germany’s median net wealth per household is just €51,400, much lower than Greece (€101,900), Italy (€173,500), Spain (€182,700) and Cyprus (€266,900) (source: ECB)

Truth 4 is startling, and is best explained by the very low rate of home ownership in Germany compared to other countries, as well as the legacy of East German integration and the smaller average household size found in Germany.

Conclusion: The German economy is the biggest in the Eurozone (Truth 1), but aside from a bunch of very wealthy individuals (Truth 2) Germany’s people are not the richest.  Looking at Truth 3 and Truth 4 it is easy to see why many ordinary Germans feel thoroughly aggrieved at the idea of having to bankroll the rest of the Eurozone.

Coping with record employment

Job Centre Plus

Job Centre Plus (Photo credit: HelenCobain)

There are now 29.76 million people in work in the UK (ONS figures for Feb-April 2013).  That is apparently the highest level of employment since records began in 1971.  Doesn’t it feel great? (I don’t know what these young people are complaining about…)

Jobs, or the lack of jobs, is pretty much the biggest political issue in the US right now, and it is likely to play a significant role in our next general election, not to mention the Scottish independence referendum next year.  How the facts are presented, therefore, is of paramount importance.

Here are some very different truths about the UK jobs market currently in circulation:

  1. There are now more people employed in the UK than ever before.
  2. There are more job vacancies available than at any time since 2008.
  3. The unemployment rate of the economically active population is stubbornly unchanging.
  4. The number of unemployed people and the number of Jobseeker’s Allowance claimants are both dropping.
  5. The rate of long-term youth unemployment is at a record high, with more than 50% of 16-24 year olds not employed.
  6. The rate of over-65 employment is at a record high, with over one million employed for the first time.
  7. Jobs are increasingly insecure, with more part-time and temporary contracts and fewer permanent positions.
  8. The workforce is increasingly flexible, allowing greater efficiency in meeting demand and raising the productivity of the economy.
  9. Worker productivity is declining, making it less attractive for employers to take on staff.
  10. Average wages are decreasing in real terms, making it more attractive for employers to take on staff.
  11. Immigrants are taking “our” jobs.
  12. Eurozone unemployment is at a record high, making it more likely that EU nationals will migrate to the UK in search of jobs.
  13. The number of EU nationals coming to the UK for work is falling, and the number of EU nationals returning home is rising.
  14. Globalisation means more and more work is being outsourced to developing nations, driving an inevitable long-term decline in UK jobs.
  15. Technological advance means more and more work can be automated, driving an inevitable long-term decline in global jobs.
  16. Lower corporation tax rates will attract more employers to Britain, leading to job creation.
  17. Declining tax revenues, partly as a consequence of corporate tax avoidance, will force further public sector job cuts.

None of these statements are as mutually contradictory as they may seem.  Yet together they represent a handy mix of positive and negative messages, all of them probably more or less true, from which politicians and headline writers can take their pick. Voters and readers, be on your guard.

When is a recession not a recession?

The Office for National Statistics has suggested that the UK may not, after all, have suffered a double-dip recession last year.  Revised construction industry data, showing a slightly smaller contraction in Q1 2012 than previously estimated, boost overall “growth” for that quarter to 0%, rather than the 0.1% contraction originally recorded.

This tiny shift in the data has monumental importance.  The UK has now not technically been in recession since mid-2009 (a recession is defined as two successive quarters of negative growth).  There hasn’t been any growth to speak of, but a flat economy is a very different psychological deal to one that seems to keep contracting.  It’s not hard to imagine your prototypical business manager choosing to continue business as usual (including hiring and investing) in a flat economy, where repeated recessions might scare him into undue caution.  Multiply that effect across the whole country, and you can see how the double-dip story we’ve been living for the last year might have markedly damaged real economic growth.

On one level, we can see this as a problem of truth v. untruth, rather than competing truths: the data was wrong, therefore the double-dip story was an untruth.  However, the real issue is one of scale.  Macroeconomic statistics are far too imprecise to be dealing in such small fluctuations.  As Stephanie Flanders, the BBC Economics Editor, reminded us today, economists use decimal points to prove they have a sense of humour.  A shift in an estimate of 0.1% should not be this meaningful!

So we have one truth, which is the honest, considered decimal-pointed estimate our best macroeconomists can give us, quarter-by-quarter.  This shows tiny increments of growth and contraction, and may justifiably lead us to declare double- or even triple- dip recessions.  And we have another truth, taking perhaps a more realistic degree of approximation, that declares the UK economy has been basically flat for four years.

Both truths are valid, but their effects on business confidence could be poles apart.  Perhaps it’s time for our politicians and media to start ignoring the decimal-pointed estimates in favour of a different truth that may serve our economy rather better.