Samizdata

I sometimes look at the statistics on the back pages of the Economist. Although I am not generally interested in mathematics and (as a student of the Austrian school) do not regard mathematics as a vital part of the study of economics, I have long had a mild fondness for statistics (I know that to many people that seems a dark perversion to admit, but there we are).

Last week I noticed that the Economist had altered its presentation, whether this is a first issue of the year thing, or will be carried on the next issue I do not know, and I had the feeling that something had been left out.

However, it was only after looking again today that my tired old brain finally worked out was missing. There were no money supply figures.

Nothing for either M0 or MB (basically notes and coins, plus a few Treasury instruments) growth, and nothing for any of the broader measures of credit money (M3 and so on). Certainly measuring credit money growth is not easy (there are lots of arguments) – but no money supply stats at all? At least not in the paper version of the Economist, and it is the paper version that most people, who look at the Economist at all, look at.

Perhaps the young people who now dominate the staff of the Economist believe that inflation, which they may think of as rising prices in the shops, if they are not aware that a rising money supply may also cause asset price rises in such things as the stock market and the property market, comes about by union power: for example, obstructing a entrance of an enterprise by ‘picketing’, or government bans on replacing workers who do not turn up to work – or some other non market means, raising wages which, if the money supply is not increased to pay for wages being pushed higher than supply and demand would have done, really leads to higher unemployment – not to greatly rising prices in the shops or in the asset markets. Or perhaps they believe that it is caused by exchange rates – and that governments, via central banks, should set interest rates to influence these exchange rates (no matter how many times efforts to manipulate exchange rates blow up in peoples faces there is never any shortage of folk advising yet more manipulation).

It is hard to know. After all I am not an economist, I am only a student (in the old sense of the word) of this subject so my level of knowledge of the subject should be well below the standard of economists in Britain. But this is not the case, most economists in Britain seem to know very little about economics. Perhaps this is because there are few economics departments in British universities where even Chicago school (let alone Austrian school economics) is taught – so young ‘trained economists’ get hired by the Economist ‘newspaper’ (as the magazine calls itself) but do not know much about economics.

This would explain, why the Economist supports things like ‘land reform’ (i.e. land theft) in Latin America, the absurdity of government ‘anti-trust’ or ‘anti-monopoly’ policy all over the world (a policy based on the treating the ‘perfect competition’ model of neoclassical economics, with everyone having the same level of knowledge and all enterprises being much alike, as something ‘fair’ that governments should try and create in the real world), and supporting ever more taxpayers money for the ‘public services’ (in most of the countries of the world).

Of course it would not explain why the Economist supports the European Union (although not all its activities), but I can not think of anything that could explain that level of perversity.

Still… I should return to statistics.

The vanishing of money supply stats put me in mind of something that used to annoy me about the United States Annual Abstract of Statistics.

There was no simple presentation of the size of State and local government spending or taxation.

The stats for government spending and tax were given only ‘per capita’, which of course takes no account of the fact that in some States of the United States people have higher incomes than in other States.

Later on on found that till the mid 1970’s the Annual Abstract had also given State and local government spending and taxation per thousand Dollars of income – which (again of course) made it very easy to see what percentage of the economy was going to State and local government in a given State of the United States (if you are interested the private Tax Foundation still provides such information).

Was it all a dark plot to disguise the real size of government in different States? Much as some people have suggested that the liking of the statistical office for the ‘median’ (the number in the middle of a group of stats – for example with “1, 3, 4, 5, 7,” the median would be “4”) rather than the ‘mean’ (get all the amounts and divide by “number of numbers” – what the layman thinks of as an “average”) as its measure of average, is due to a hated of inequality (which using the mean for such things as “average income” is supposed to ignore). I do not think so – I think it is more the fashions of the world of statistics which I, as a non-mathematician, should not expect to understand, although I do not expect the ‘mode’ to become a popular measure of average any time soon.

However, it is irritating that the Statistical Office stopped publishing a useful number, such as total State and local taxes per thousand Dollars of income, but continued to publish a useless number, such as total State and local taxes per capita.

Just as it is irritating that the Economist published inflation numbers (the staff there, like most modern people, perhaps think of ‘inflation’ as price rises in the shops), while not publishing money supply growth figures – as if the money supply could explode and there be no consequences ever.

My co-Samizdatista Brian Micklethwait has some comments on the fact that British retailers had a bad Christmas, and that people did not really get spending until the last few days, when shops had pre-Christmas sales and dropped their prices heavily. I think the real story is actually this one. Britain’s high street stores have horrible cost structures, which they have been able to get away with because they have traditionally faced relatively little competition. For this, as for almost everything, I blame planning laws. Large shopping malls – particularly large out of town shopping malls – barely exist in Britain, as their growth has been hindered by government on supposed aesthetic grounds, and to “prevent the ruin of our high streets”. Of course, the people who pay for this are consumers through high prices. Retailers charge high prices and pay high rents. Landlords pay high mortgages rates, and economic value is generally destroyed.

In the past few years, parallel retail channels (not just the internet, but that is the biggest one) have sprung up without the high cost structures and with much lower prices. Most people would actually prefer to shop in a store at Christmas time, as this makes it much easier to take goods back later and/or get customer service, but they will not do so if goods are dramatically more expensive. So, they hold off buying, playing a game of chicken, and eventually prices drop a couple of days before Christmas (however the internet retail sector has boomed right through the Christmas season). Economic theory is pretty clear that in a perfectly competitive market, retail prices approach marginal costs. In vaguer terms, the more competitive a market, the more prices relate to costs. The British retail market is certainly not a perfectly competitive market, but it is closer to one than it was a decade ago.

Inevitably, with collapsing margins come situations where shops can no longer afford to pay their rent. One would expect this to lead to either a fall in rental yields and ultimately retail real estate values, or a change in use of a lot of retail space from retail to residential or to offices, given that London’s residential real estate market is booming. A further possibility is of course an improvement in customer service, as bricks and mortar retailers attempt to provide additional value for higher prices. However, another possibility is that it leads to even stronger planning laws aimed at preventing this and further trying to “save our high streets”.

Interestingly enough, the stores that are suffering the most are probably not the quirky independent stores that the Evening Standard loves to champion as much as the less well run high street chains: shops that sell boring, goods that can be easily sold in bigger shops or over the internet. People like Dixons and Woolworths. Well run businesses, most notably Tesco, do fine of course.

Actually, come to think of it, the Dixons name has vanished from the High Street, as the stores have all been rebranded Currys, except for the airport stores, which are still Dixons. The answer to why this is is quite an interesting one. DSG International (aka Dixons Group) hit an interesting problem, which other retailers have also encountered when setting up internet businesses. One would think that an electrical retailer with high street stores would have certain advantages setting up an internet retailer. Because people have heard of them they are more likely to trust that they will still exist tomorrow. They can use the bricks and mortar stores to handle returns and after sales service.

The trouble with this in the electronics business in Britain is that internet retail prices are dramatically lower than high street prices. Customers who see a price on the internet from a brand retailer expect to be able to get the same price in a store of that same retailer. If they cannot do so, they feel cheated. Therefore Dixons was between a rock and a hard place. Either they made their internet prices so uncompetitive that they would not sell anything online, or they annoyed the customers of their bricks and mortar stores by refusing to offer them the same prices they offered online. The solution was to use the Currys brand (which they had long used for their out of town retail park stores) for their high street stores as well, and to use the Dixons brand merely for online retail. And for airport stores, as nobody expects prices in airport stores to be the same as elsewhere. On the website, they leave subtle signs that they are the same customer to reassure online customers that they can be trusted, but hopefully not enough to make potential bricks and mortar customers think that they are being cheated by not getting the same prices.

As another example: consider these three websites. One. Two. Three. They are all the same company, which is a big presence in the British High street. The first website is branded the same as the high street retailer, and offers more or less the same prices it does. The second website is clearly but less obviously connected to it, and offers lower prices. The third is less obviously connected to it still, and offers lower prices still. It is really quite clever.