Winner of the New Statesman SPERI Prize in Political Economy 2016

Sunday 14 July 2013

Behaving like Luddites

The Luddites were 19th-century English textile artisans who protested against newly developed labour-saving machinery from 1811 to 1817. Activists smashed Heathcote's lacemaking machine in Loughborough in 1816. At the time, the BBC said that the increase in employment that would result from destroying the machinery “was of course good news”, but there was a concern that output might fall as a result. But some experts proclaimed that, thanks to the Luddites, we should celebrate that Britain was now leading the way in employment creation. A prominent politician that supported the Luddites accused the BBC of being hopelessly biased, and “peeing all over British workers”. The BBC Trust subsequently held a seminar on impartiality and economics reporting.

OK, the first two sentences come from Wikipedia, and the rest is nonsense. The idea that the BBC might describe additional employment that resulted from not using labour saving machinery as good news is surely unthinkable. If a journalist pointed out that these actions were problematic because productivity would fall, it must be inconceivable that any serious politician would accuse that journalist of bias. Unfortunately, if you follow the links, you will see that I made very little of that paragraph up, but just transposed things that happened a year ago back another 200 years.

There is one sense in which my transposition may be slightly unfair. In a recession, low productivity growth means that unemployment is lower. So I would have no problem with a line that went: “Of course the growth in UK employment, given flat output, is bad news. However, if this slowdown in productivity growth is temporary, and we catch up in terms of productivity levels later on, it may have a silver lining. Low productivity growth means that unemployment is lower, so that the pain of the recession is being more evenly spread by (nearly) everyone receiving lower real wages.” In a car crash, it is good when things like seat belts mean that people escape with minor injuries. But no one should describe the car crash itself as good news. [1]

At the seminar that the BBC Trust did hold in November 2012, there was disagreement over “whether BBC coverage should reflect a consensus view, in areas where there is one, or whether instead it must reflect the range of opinions even if parts of that range are minority views.” I would suggest that the overwhelming view today is that high productivity growth is beneficial, and that low productivity growth is a serious cause for concern, even if it might in the short term keep unemployment low. Do we really want the media to portray this as just ‘one perspective’, and then give equal time to the ‘opposing view’ that strong employment growth and low productivity growth is simply good news. In the case of the BBC and UK productivity, the BBC currently follows the 'opinions on shape of the earth differ' approach, and is then accused of bias for even mentioning that low productivity growth might be a concern.

It is vital that the media does not let politicians dictate how facts are interpreted. In George Osborne’s Orwellian nightmare, support for his handling of the economy is growing, and opposition to austerity is crumbling, whereas in the real world the case for austerity has never been weaker. It was always obvious that when the economy started recovering, this would be proclaimed as proof that the government’s policies are working, whereas what it really tells us is how used we have become to a no-growth economy.

Now if politicians want to be Luddites that is of course their choice. We trust in the system to quickly find them out, so that they do not get to hold positions of responsibility. Yet how is that supposed to happen, when the media insists on giving the Luddites equal space. As the opinion poll results presented by Professor Schifferes to the Trust showed, many people follow economics news closely, but remain confused by it. They rely on the media not just to present the news, but to put that news into context. Reporting that says one day ‘output growth low: bad’ and the next ‘employment growth high: good’, without putting the two together, is bad reporting.

Tim Harford has a recent post that pokes fun at some of the common misperceptions that the UK public has, such as crime is rising, a third of the population was born overseas, or that teenage pregnancy is widespread. What Tim does not ask is where these incorrect perceptions come from. He does note that they often do not come from direct experience: “people generally believe that their own area is closer to the way they like it with lower crime, lower unemployment, better policing, fewer immigrants. It’s the rest of the country they worry about.” So where do these perceptions about the rest of the country come from, if they do not come from the official statistics? The answer is pretty obvious - they come from the media.

There is a large part of the media, in the UK and elsewhere, that would regard the perceptions Tim quotes as indications of success rather than failure. It is not a coincidence that these misperceptions all tend to encourage a rather illiberal political agenda. However these perceptions should be a source of deep concern for organisations like the BBC, whose mission is “To enrich people's lives with programmes and services that inform, educate and entertain.”

Of course the ‘two sides’ approach has its place. It is not clear, for example, how much of the productivity slowdown in the UK is the government’s fault. However given what we know about output, the strong growth in UK employment is self-evidently bad news. As the coincident slow growth in UK wages shows, we are (nearly) all significantly worse off as a result. It is time the UK media recognised that the Luddites were wrong, and update its reporting accordingly.

[1] In the US in particular, monthly employment numbers are used as an indicator of what is happening to output, which is something completely different. Here I am talking about commentary that at least has the potential to compare what is happening to employment and output.


  1. (NB. I wrote the previous post on BBC search results comparing think tanks to Krugman, Stiglitz, and Shiller.)

    The battle over the BBC is this: is Auntie to be part of the insurance state, a part that seeks to insurance against bad knowledge puffed out of privately owned newspapers? Or is the BBC to follow these press barons with the backbone of a jellyfish, as it does currently?

    The Oxford historian Ross McKibbin at the LRB has written a nice blog post 'Defend the BBC!' over why the press supported the Beeb being continued with in the 1920s (advertising revenue), and how the invention of the internet has brought them into new conflict (again, advertising revenue).

    And McKibbin has also written elsewhere this year that "the strategy of turning the working class against itself is not new – it was practised by the Conservatives in the 1930s with some success. It exploits a tendency in working-class life for people to distrust their own class more than they distrust the people above them. Hitherto, negative stereotyping has worked", and then he gives a list of popular statistical misconceptions drawn from the tabloid press similar to that of Harford's.

    I notice also that Krugman again attacked the Beeb for its use of Ferguson for the Reith Lectures, "The refugees of Outer Derpistan are sad cases, but they don’t have any real influence, even if the BBC thinks they should give prestigious lectures and stuff" (blog July 6, 2013 'Regions of Derpistan').

    It is not good enough for the BBC's Editor of our Business and Economics unit to write to me to say that:

    ""The job of our economics team is to make sense of hugely complicated areas such as these for general audiences, and for that reason they would often choose not to deploy such difficult jargonistic terms as liquidity trap...the wider point, of course, is that the Bank of England and Fed in the US would not agree we are in such a trap, even if there are some economists who do."

    The idea that the best economists go into central banking is new to me and, ultimately, one man's jargon is another man's food bank.

    And so, on the run-up to the 2015 election, I will want to see the economy of Japan and its 'three arrows' being focused on (see Stiglitz article, 'The Promise of Abenomics'), and how that affects future UK policy. We are not capitalism in one country!!

  2. You miss one important point, it is: if low productivity jobs growth happens because potentially higher productivity people get those jobs.

    As such low productivity jobs are useful, very useful providing that these jobs are taken by people who are not able to perform higher productivity jobs. One of the main problems in countries like the UK is that approx 20% of the workforce is effectively written off. Usually not even half of these show up in official unemployment statistics. The remainder as disabled, having low added value government jobs, early retirement etc. especially the North West of Europe is good at dressing up their employment figures this way.

    However it simply looks like this group has become too large, with aging hitting in and future growth prospects being soso it simply starts to look that the income situation of this group 'outcasts' will come under pressure.
    In that respect at least them having some income and likely to have a much better prospect of moving forward lateron is a good thing.
    Of course some solution still has to be found for the income gap. The gap between their economic earning potential and minimum costs of living. But at least the gap is not 100% as it often is now.
    Furthermore it will strengthen the platform for keeping the welfarestate in tact as mucg as possible. Support for that is simply eroding. Not in the way that most people in Europe like to keep the welfarestate, they probably do. But in the way they donot want to pay for it. Which leads to the same result (as the PIIGS solution on this appears not to be working and those bloody Germans donot want to pay for it).

    However the current problem is that higher potential people take these jobs.

    Probably caused by the fact that competitiveness is a huge worry in the whole of the Western world (including places like Germany, Holland with huge surpluses). Same quality people are much cheaper to hire in India, China and an increasing number of other places. And jobs moving/outsourcing is a slow moving process which also is difficult if not impossible to be reversed. And at the end of the day you can not run a worldclass economy on selling 8 Euro (or GBP) latte frappucinos to each other.
    Clearly business is preparing for a next step in outsourcing or growth in other markets. As said this is a very dangerous trend as it nearly impossible to reverse at a larger scale and the part that can be reversed takes a very long time. You donot close your new factory in China you wait till there is a an occasion for that (a next crisis, change in markets. Anyway these things point into closing European factories etc iso Chinese ones).

    In the US this trend (move to lower wage jobs) is even stronger. The economy is more dynamic and adjusts faster and there is the Obamacare effect (exhanging 1 higher wage full time job with for 2 Ba-jobs to avoid the high costs of the insurance).
    So expect this to go on in the UK.

    Anyway imho policies should be put in place that if (if not when) the economy gets back on track these jobs could be taken by lower potentials. Which is not happening now.

  3. On misconceptions.
    People simply are not used to 24hours worldnews. They still live mentally largely in the pre-CNN, pre-internet age.
    And they let themselves be fooled by the media. In the way that media in general bring an event as something really interesting (otherwise it and the network/paper etc doesnot sell). And are not able to put things into perspective and the media doesnot because 'into perspective' doesnot sell.
    Have 3 items on Oxford professors helping old ladies to cross the street and all of them will become much more credible. Have 3 professors (not from Oxford of course) portrait as paedophiles and all will be seems as dodgy and suspect. These sorts of newsitems are not used to illustrate a trend or something, they are seen by media as a newsitem. The public however makes the trend subsequently up themselves (whether there is a trend or not).

    BBC is imho (and an increasing number of others) a relict of the 80's. It simply still holds the views (mostly leftish) from that period. While the population has moved on (forward might not describe it properly).
    Therefor at the homefront it simply lost a lot of its credibility. It is simply nearly completely focussed on social stuff not on the economics. Look at the 'Greek' reporting it is mainly 'poor people',, but not that via contagion the EZ might be tanked (with disastrous consequences for the UK). That woman that reports on economy clearly knows what she is talking about, but the rest is simply looking at social problems that should be solved (and absolutely not how to pay for them).
    Outside the UK that process has just recently started. Simply seen increasingly as a biased institution both on the UK and on world news. Rest of the media is also crap (or worse) so it doesnot get that much attention.

    Anyway it looks to be the media's perception that their clients want mainly good news at the moment. So from left to right (Bloomie for instance) the news is often spinned positively.
    Apparently even the media that should know are not willing to tell outright that the way things were might be over.

    Of course next to the terrible drop in standards all over the media. We get the news much faster these days but in return therefor it is usually crap. It is not only the financing that is the problem. It is imho mainly that news has become 'marketinged'. Meaning it has moved from targetgroups: elite, educated middleclasses and workingclass with a desire for progress to the moronic part of society.
    In the process forgetting that there is no businessmodel known (for papers mainly) that works at that part of the market (under the present conditions).

    Same with the BBC with its platform for popular support eroding fast. You neednot be a rocket scientist to predict that likely the taxpayer funding is not far from getting under heavy scrutiny.

  4. The flatlining of economic output whilst employment rises is a bit of a mystery for all concerned. I was at a regional Bank of England briefing last month and the BoE spokesman did not offer a reason for the trend - maybe as he was concerned about getting into the realms of politics.

    The only theory offred to explain it I have heard is from John Redwood's diary: "It could be a rebalancing of the economy". Presumably away from Finance and towards more lower level manaufacturing/service jobs. A world with fewer casino bankers and more worthwhile jobs doesn't sound too bad.

    No doubt we will find out at some stage when someone offers us some meaningful statistics.

    1. As Redwood mentiones is what happens in the US. The number of family size wages fulltime jobs declines while the number of parttime low wages jobs is increasing. Jobs increase mainly in the traditionally low paid sectors.
      Result no. of jobs goes up, but economic output goes up much less than that (taking productivity into consideration).

      Usually the 2 economies are not that different.
      However in the US you got the Ba-care issue. Which makes it attractive for employers to hire say 2 parttime workers (but both counted as fulltime likely for unemployment figures) iso 1 real fulltime. This is typically US. Look at employment figures of this year.

      Next move to automation (and new economy Internetshopping and such) (which works in the other direction).

      Another important one in the US is decline of workforce (relative to population even when taking into account aging).

  5. Productivity measures in a service economy are weird beasties. If lawyers and accountants fees go down, due to increased competition, then that is surely a good thing, yet it would should up as declining productivity, as the value of a service is whatever you pay for it.

    On the other hand, if doctors charge more for their services we call it "inflation" not "productivity increase" because of the weird NHS accounting that assigns a nominal value/cost to operations.

    In an old school manufacturing economy its pretty safe to assume that lower productivity will lead to lower real wages. In a modern service economy causality runs in the other direction, and falling real wages mean productivity is less by definition.

    So I would not pay much attention to "productivity" if I were you.

  6. The particular flatlining of monetary end result even though work rises is a bit of a mystery for many anxious. I had been with a regional Standard bank associated with England briefing last month and also the BoE spokesperson did not offer a cause of the excitement : possibly as they ended up being concerned about engaging in the particular area associated with governmental rs gold
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