In reference to this news article here: http://www.bbc.co.uk/news/business-37274279
Why would the above article be of any use or news to either musicians and more importantly to economists who don’t do music? Well, here goes.
Before the introduction of barcodes and point of sales data, music charts were compiled by teams of researchers asking record store owners how particular records were selling/doing in their store that week. They were never asked how many units were sold. At best it was a guesstimate with no hard sales figures. Essentially a ‘quality’ was converted into a number, treated as an incontrovertible fact. Many records and artists received variously hued discs in recognition of sales of said items. Even the production numbers from record labels did not provide an accurate accounting of sales as record labels tended to press more than they sold, destroyed the unsold items and only reported the sold items. Doing this ensured that a record didn’t look like a ‘dud’!
Once hard data items were deployed using point of sales systems i.e. barcodes, the landscape of the music charts changed. Arguably streaming brings a whole other dimension into play but we’ll leave this for another day.
So what does all of this have to do with the article anyway? It struck me when reading it, and researching very quickly how the survey is compiled, that it is very similar to telephone researchers phoning up record stores and getting a less than accurate response back that is then converted into numbers to be treated as hard data that results in an improvement in the UK economy that results in a positive forecast of growth. If ever economics wanted to be a treated as a science then this piece of chicanery is a piece of arch deception.
Plainly speaking, it is a company (Markit and CIPS) ‘innovation’, PMI (Purchasing Managers’ Index ) whereby they create a tool of impatience and charge you for the use of it whereby hard data is fed back to all interested parties resulting in one of three positions:
- Positive – improvement in the economic outlook
- Negative – a downturn in the economic outlook
- No Change – better than the previous forecast but potential a downward trend
So what is the score required to result in a positive outlook? 50! Achieving a score better than 50 can improve the economic outlook of the country, improve currency value and growth predictions. The opposite, rather like being downgraded by credit agencies, can result in negative effects.
However, let us be clear, this is wholly based upon a business manager’s subjective opinion of how well their business is performing. It’s a tool of impatience and therefore a tool of false economy, because, allegedly, the real hard data arrives too late to be of use, so they end up creating something that is an impression at best and not real. Huh??!
Economics is illusory. It deals in a sophisticated and elaborate illusion of science and data mixed in a way that they should not have. Even the economist Fredrich Hayek had this to say about data:
But Hayek pointed out that the data are not “given.” The data do not exist, and cannot exist, in any one mind or small number of minds. Rather, each individual has knowledge about particular resources and potential opportunities for using these resources that a central planner can never have. The virtue of the free market, argued Hayek, is that it gives the maximum latitude for people to use information that only they have. In short, the market process generates the data. Without markets, data are almost nonexistent. Concise Encyclopedia of Economics
It could be argued that Markit/CIPS and their PMI survey are the free market but they are a bureaucratic instrument masquerading as free market agents. When they created the reporting mechanism they created an instrument that is very ‘Statist’. Secondly, by sampling the thoughts of businesses they could argue that they are operating mindfully of the ‘small number of minds’ and gathering data of a ‘market consciousness’. However the problem is already apparent when freedom/freewill is removed by the publication of this data. What in truth happens is that the qualitative views of business are transformed into numbers that affect the stock market that ultimately leads to affecting the Nation’s Financial health, prosperity and growth. Clearly not what Hayek was advocating and why this is a bureaucratic instrument rather than a business tool.
The key problem here is that Markit/CIPS and all the industry commentators must allow the illusion to exist without question. They do not realise the degree to which they are agents of the State rather than free market agents. If this were so then they’d behave in a more renegade/independent/radical fashion, for example, as George Soros or Warren Buffet et. al rather than in this ultra conservative herd mentality. In many ways they operate like A&R men where the classic joke punchline is:
I don’t know, what do you think?
In the end what should you do? In the absence of any other valid and possible game being played or system of measurement based on fact, you are going to have to rely on some bloke’s opinion of how his business is doing and that opinion being converted into data which is then used to determine your nation’s fiscal health and growth for the coming quarter. It’s an abstraction rendered as truth delivered by an illusory mechanism masquerading as business intelligence. An oxymoron if ever there was one. What we have here are risk averse people attempting to create as much false security as possible whilst profiting from the use of their tool, purchase of reports etc. Unless everyone chooses to reject it which is never going to happen.
All we are left with is a subjective personal opinion/impression that leads to a nation embarking on the roller coaster of uncertainty being navigated every quarter with no relief from the constant chatter of those who seem to not grasp what they’ve signed up for. File under: Intelligent for all the wrong reasons!
Seb Konstantine 