LONDON – JANUARY 08: A Bank of England sign displayed outside the Bank on January 8, 2009 … [+]
The UK’s Office for National Statistics (ONS) was recently forced to change the way it calculates the level of unemployment. There were good reasons to do so, but it certainly appears to be trying to make life difficult for policymakers at the Bank of England (BoE), Britain’s version of the Federal Reserve.
The reason given was that Millennials and Gen Z Popes were not answering their phones and therefore the ONS could not determine who was unemployed and looking for a new one. according to a recent Fortune report.
This seems like a legitimate reason. But this raises a whole series of problems.
The key to any data analysis is that it is collected in the same way over very long periods of time. Simply put, the question is straightforward: Is the data I have today comparable to the data I look at from months and years ago?
If it’s not comparable, it’s almost useless.
This is why college grades are almost useless as a measure of anything. An A rating given half a century ago is probably not as exclusive as one given more recently. That’s not to say an A grade isn’t worth it; It is. It’s just that the two are not necessarily comparable.
The truth is that almost no one in the business world cares about college grades. But what they care about is accurate, useful analysis that will be used to solve real-world problems.
The real problem with the world is that, in this case, it is the Bank of England’s war on British inflation, which for some reason is seen as linked to the unemployment rate.
Recent inflation in the UK recorded a high rate of 6.7% in August, compared to 11.1% last November. according to data collated by the Trading Economics websitee. This is much higher than the recent level of almost 3% in the US (for some reason I’ve never really understood, the UK is particularly vulnerable to inflationary surges and has been for a long time.)
BoE policymakers, like many central bankers, appear to believe that a slowing economy and rising unemployment are helping to curb inflation.
But what if you don’t really know what the new inflation measure means? Can you have complete confidence in new data over old data?
Hard work at the top
I’m sure the ONS has done a thorough job of readjusting the metric to get around the software of younger members of the workforce. However, mistakes happen and are only revealed long after the fact.
So, in a way, BoE policymakers are not trying to find their way in the dark, but also not with a clear set of information. They already had a difficult job, made even more difficult by the refusal of two generations of people to pick up the phone.
LONDON, ENGLAND – AUGUST 04: Bank of England Governor Andrew Bailey speaks at Bank meeting … [+]
Let’s call it working at dusk with some vision but not at an optimal level. This means the BoE is far more likely to overstep its bounds in its policy efforts by keeping interest rates high for too long. This could lead to a deeper recession or slowdown than is absolutely necessary.