On the way home the other night, I picked up an Evening Standard from outside the station as usual. The headline, blazing across the front page in large letters, was ‘COST OF WINE AND BEER HITS RECORD’. At the end of a tiring day, I found this mildly depressing.


The headline falls into a broad category of statements that are completely true, but at the same time completely meaningless. And, unfortunately, these statements seem to be cropping up everywhere. The article was referring to May’s CPI figures, which showed inflation unchanged at 4.5%Y/Y, with strong increases in alcoholic drinks within that. This partly reflects the duty changes that Osborne put through in the March Budget, but also a notable decline in the incidence of supermarket promotions on alcohol. The Standard complained that Osborne was taxing people having fun during a period of economic malaise, which sits rather awkwardly alongside the broader goal of reducing alcohol-related illness and encouraging responsible drinking. But consistency has never been the media’s strongest point – I’m sure there will be another story about excessive drinking back in the Standard within the next few months.

However, my reaction to the headline was not the critique of stopping people cheering themselves up at a gloomy time (if indeed copious amounts of alcohol achieve that). Rather, it was the fact that the Standard could technically have used that headline correctly several times over in recent years, and will be able to recycle it going forwards. Or, in other words, while high inflation probably is still newsworthy, record prices shouldn’t be.

Even in a balanced, growing economy with no budget or trade deficit, unemployment at 6%, and inflation on target at 2%, prices would still hit ‘record highs’ every single year. A positive inflation target implies that the cost of living in the economy goes up (a bit) every year – so if whisky costs £30 this year, and duties, costs, margins etc (ie ultimately prices) all move in line with the inflation target, then it will cost £30.60 next year. And £31.21 the year after, followed by £31.84 the year after that. Every year, the price will reach a new record.

At the same time, that fact is almost completely meaningless. Under the economic framework set out above, in aggregate prices should hit new highs each year – the inflation target does not mean prices in the economy as a whole should stay flat. A far more meaningful headline would be that alcohol prices jumped sharply (which they did), as then we know that things are out of kilter. But referring to the level of prices, when we are targeting changes, isn’t particularly insightful on its own.

Unfortunately, more and more statements like these, or similar variants, seem to be cropping up. A few weeks ago I heard a junior Tory minister (I think) talking about the labour market. He made the point that around 400K more people were employed in the first three months of this year than they were at the start of 2010 – proof the coalition’s policies were working (etc etc). This statement was true, and not (completely) useless. But it is the wrong way to look at the labour market. At the same time that around 400K people had more jobs, the working population had increased by around 400K – so most of the increase in employment reflected what would happen in a normal economy if the employment rate was stable. A more accurate picture would have been to talk about the 0.4 percentage point rise in the employment rate over the same period, or the 0.2 percentage point fall in the unemployment rate. But the problem is that progress doesn’t sound as impressive on this basis (because it isn’t), and it also reminds people that almost 8% of the labour force is (actively) unemployed.

A final example, from an investor presentation I gave last week, was from a chap who was upset with my assessment of the role of entrepreneurs. (I had pointed out that new and small businesses have a pretty high failure rate, which in truth is not a big failing.) Entrepreneurs were critical, he said, because without them no businesses would ever have been set up, and what they do now is tied back to the founders. Just as, without my grandfather siring my dad, and him in turn siring me, this article would never have happened. So this article is clearly all down to Granddad Dean, which is impressive given that he’s been dead for quite a long time now. Jack Cohen, who founded Tesco, is clearly responsible for Clubcard in the same way.

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