We have to get better at data

WITH costs of living going steadily upwards, we are looking at a very bleak financial future and now is the time to look at new ways of tackling our economy.

For the last 70 years, successive governments have been more preoccupied with tackling inflation by raising interest rates. However that doesn’t help those who have taken out mortgages or indeed those looking for a deal for their first mortgage. The cost of our supermarket trip has gone up, as have our energy bills. Merely tackling inflation is clearly not enough and there should now be a real discussion on what else can be done to stop this dangerous upward spiral of our day to day cost of living as well as the data we collect.

The Consumer Price Index or CPIH is the representative “basket” of reasonable household goods that the Office of National Statistics uses to work out the headline inflation figure. However, many central bankers would admit that this doesn’t really give a full or fair figure upon which to base the decision to raise interest rates. This is because these figures don’t tell us which prices are changing, why and in what direction.

Bankers are increasingly admitting that there’s no reliable theory on how inflation works. This is concerning, considering that for the last 70 years, central banks have been using this as a baseline for economic predictions.

Surely, now is the time to look for a much more reliable means upon which central banks can make better informed decisions?

Many economists argue that targeted support for the most vulnerable would be the best policy approach. It should also be pointed out that economic policy making has often been from the point of view of supporting industrial development, often leading to a small number of hugely powerful companies steadily becoming more powerful. Think Shell, Google and the like. Their significant control of their market share has allowed them to set their own pricing, separate from market price competition and therefore

largely unaffected by central bank economic decisions.

This does not put the consumer in control and stifles price competition, therefore widening the gap between small and medium enterprises (of which the vast majority of jobs rely upon) and the those multi-national conglomerates.

Labour and the Lib Dems propose a price freeze on fuel costs. However that would simply lead to a greater reliance on fossil fuels and slow down the transition to greener forms of energy due to the sheer size of the market fossil fuel companies control.

There is no silver bullet. However the first thing we must all begin to agree upon regardless of our political persuasions, is that economic decisions are not currently made on sound economic research at the moment. It’s time to look closer at how policy decisions are shared across Government departments, the Bank of England and Number 10. Only then, can we really nail down what can be done to improve our economic futures.

Targeting the most vulnerable would be the soundest approach while we seek better data, otherwise the situation would get worse for the vulnerable as well as the wider cost to our infrastructure such as housing, jobs, schools and the NHS. Spending a little more now towards avoiding a much larger catastrophe would be prudent.

This is by no means a long term solution. We must get better at collecting the right data, share information across stakeholders and discourage the obsession with inflation alone.

Windfall taxes, price freezes and state intervention will not solve anything. In fact, these policies led to further money printing (quantitative easing), higher inflation and lower incomes in Revolutionary France, the Weimar Republic, China under Mao Zedong and Zimbabwe under Mugabe. Those regimes brought nothing but misery. While there were more nuanced reasons for each of those regimes to take the decisions they did, the point still stands that they didn’t improve anything.

Will we ever learn?