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Damned lies and statistics

Official statistics are political constructions with tenuous connections to the real world, writes Frank Lee.

T

he notion that permanent state institutions e.g., the judiciary, Bank of England and various statistical agencies - are somehow immune from and above political manipulation is sadly misguided.

Those state departments charged with collecting and collating politically sensitive data form a new template for contemporary practise. The compilation of economics statistics underwent a profound change when the way that unemployment was measured in 1982. A re-definition of unemployment resulted in a fall in unemployment statistics; but this was not the same as changes in the real level unemployment. It simply resulted from the way in which unemployment was measured. Most governments are keen to minimise the appearance of unemployment, not only for political reasons but also for the economic signals it sends out. Over the last 35 years, numerous revisions to the official definition of 'unemployment' have been made, which have almost universally revised it downwards. Labour frequently accused the Conservatives during the 1980s of moving unemployed people on to sickness benefits - classifying them as economically inactive rather than unemployed - as a strategy for cutting the unemployment figure.

One Tory wet, Sir Iain Gilmour, then a member of Mrs T's cabinet, made the sarcastic comment, that 'now we have succeeded in lowering the unemployment figures perhaps we can make a start on reducing unemployment.' He was duly sacked from his Cabinet position.

More recently the definition of unemployment has, again for reasons of political expediency, undergone change. One of the current wheezes of statistical manipulation in this area is to count part-time jobs even zero contract hours as full time jobs. It should be understood that there are some 8 million of these workers most of whom would like full-time jobs, but sufficient full-time jobs are not available. These workers belong to the reserve army of the 'hidden' unemployed, along with seasonal and temporary workers, both of which tend to drift in and out of work. Additionally, 2.26 million people of the 9 million currently deemed 'economically inactive' have told the Office of National Statistics they would like a job, but are not counted in the official unemployment figures either because they have not looked for work in the last four weeks, or would not be available to start work immediately.

It is the same with inflation. In the UK the calculation of inflation changed with the introduction of Consumer Price Index (CPI) for the older measure of Retail Price Index (RPI). Predictably this change, brought in by Gordon Brown, led immediately to a fall in the rate of inflation. Without going into the tedious minutiae we can summarise as follows: The best known coverage difference is that the CPI excludes most owner occupier housing costs while the RPI includes mortgage interest payments and house depreciation. But this is not the only factor. Council tax, vehicle excise duty, TV licences are among elements excluded from the CPI which also includes spending by overseas residents while visiting the UK.

The result of this, since CPI was introduced 15 or so years ago, has been a cumulative inflation rate since 1996 is 53.6% (RPI) while that for CPI is 35.6% 2. A notional private pensioner who retired in 1996 and whose pension had been uplifted by RPI would today be 13% better off than a notional person starting on a similar pension uplifted by CPI. What amounts to an on-going reduction in the incomes of those on pensions, benefits, and now wages, is exacerbated further by these income groups' increases not even matching the fraudulent CPI inflation figure.

But one characteristic at least seems fixed: every time a new definition is used the inflation figures go down. As with unemployment, inflation is whisked away by changes in definition. It is not beyond the wit of these people to change the definition of inflation which excludes all items which rise in price. This brings us on to GDP growth. GDP growth measures the increase (in expenditure terms) of the level and size of an economy over a given period: usually quarterly or annually. All investment and consumption expenditures are aggregated into one figure called GDP. If this figure is larger from one time period to the next then economic growth has taken place.

Care must be taken, however, to exclude inflationary increases. Inflationary price increases are not real growth and have to be excluded from the calculations. This is carried out by use of a deflator. Growth is thus adjusted for inflation and the real figure for growth established.

The CPI plays a role in the determination of the real GDP; therefore, manipulation of the CPI could imply manipulation of the GDP because the CPI is used to deflate some of the nominal GDP components for the effects of inflation. CPI and GDP have an inverse relationship, so a lower CPI - and its inverse effect on GDP - could suggest to investors that the economy is stronger and healthier than it really is. In short: under-estimated inflation figures lead to over-estimated GDP growth figures.

This was precisely the method of statistical compilation used by GOSPLAN, the Soviet economic statistical service; basically a type of mass propaganda. But now nominally democratic governments seem to be countenancing the same approach. And for its part, the media, with some noble exceptions, is taking all the official bullshit figures at face value, and going along with this mass deception.