Sunday, April 29, 2012

Inaccuracies, Damn Inaccuracies and Statistics

The Independent reports that official figures on economic growth may be wrong. According to Goldman Sachs the UK's economy is growing at between 1% and 2%, not, as the official stats claim, shrinking. It's not just the UK's stats that are called into question. The Euro area is doing better than official figures suggest, while the US isn't doing quite as well as claimed.

This shouldn't come as a surprise. Official figures always seem to be wrong. But it's growth predictions that are renowned for their almost comical inaccuracy. This new measure suggests actual growth figures are inaccurate for at least two to three years after the period they represent.

If this new measure is accurate, what is not comical is the damage being done to confidence in the British economy by the current talk of recession, that potentially could become a self fulfilling prophecy. For the government, news of recession has been leapt upon by opponents and the media keen to lay into them for a number of, mostly self serving, reasons. The figures came as a surprise as many were expecting a slight upturn. They may yet be revised upwards, but the damage is done in people's minds. Consumers and investors will become more cautious in spending their money leading to a higher likelyhood of a further downturn.

Politically, also, there are potential consequences. There are few respectable dissenting voices on the governments attempts to bring public spending under control. But those, less than respectable voices, that do dissent are getting louder and a lot more airtime and column inches as they shriek "I told you so!"; that cutting government spending inevitably leads to recession. In fact, spending is still increasing, but the likes of Ed Balls are never ones to let mere facts get in the way of their pseudo-Keynesian logic. And the more notice people take of Balls et al, the more pressure the government will feel to abandon the course they've taken, as arguably too cautious as it is. And that certainly would guarantee this country's continued decline for decades to come.

Of course, if the new measure is accurate, Osborne should find himself in a strong position come 2015, general election year. That is, if the coalition can survive the perception of failure in the meantime.


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