Misleading government statistics can have devastating effects. Two former chancellors of the exchequer, whose lives we’ve been remembering in recent days, could certainly have testified to that. Geoffrey Howe could have cut interest rates earlier and faster if the money supply statistics that were guiding him in the early 1980s had been reliable. Hundreds of thousands of manufacturing jobs might have survived the huge squeeze of the period. Denis Healey could have taken a smaller cap in his hand to the IMF in 1976 if the Treasury hadn’t badly exaggerated the growth in government spending and, therefore, of Britain’s borrowing needs. Some speculate that his humiliating trip might have been avoided altogether.
Even when statistics are reasonably accurate we don’t necessarily measure the right things. In recent years, for example, the inflation rate experienced by lower-income Americans has been, for about 80 per cent of the time, higher than the average inflation rate. When important welfare benefits, including pensions, are set by the inflation rate this has significant social consequences.
National income data has also stopped telling us enough of what we need to know. Until the 1970s the median income rose pretty much in line with GDP and we all benefited pretty equally from growth. In the years before the recession some estimates suggest that two thirds of higher US national income went to the richest 1 per cent. Inequality is not as stark in Britain but millions of families’ wages were falling in the noughties — even when the economy was growing.
Given the dangers of misleading statistics the temptation might be to follow Sir John Cowperthwaite, the financial secretary of Hong Kong during the island’s boomiest of boom years. Sir John, a hero of Milton Friedman, refused to collect economic statistics because he didn’t trust their reliability and he knew that bureaucrats would use them as a justification to meddle in the economy. As a staunch free marketeer he believed that government medicines often caused more headaches than the free market diseases they were prescribed to cure.
Perhaps in a libertarian world we would abolish statistics but voters don’t want to live in a libertarian world. Libertarian politicians almost never do well in elections. Rand Paul, the latest great hope of laissez-faire fundamentalists, is flopping in his bid to be the Republican candidate for American president. He’s scoring a paltry 2 per cent in some surveys. So long as voters want governments to fight social ills we need good statistics or else policymakers will be fighting blind. And, most of all, we need the right kind of statistics or else politicians will focus on meeting the wrong kinds of targets.
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David Cameron believes that the wrong kind of poverty statistics have certainly encouraged the wrong kind of war on poverty. Freed from coalition with the Liberal Democrats, Tory ministers have embarked upon a massive reform of how Britain measures poverty. The reform is far from a book-keeping exercise. Iain Duncan Smith regards it as one of the most important things he’ll do in politics. By changing the way Whitehall measures poverty he’s aiming to change the way that Whitehall fights poverty, too.
The Tory plan is to supplement income-based measures of poverty with assessments of “life chances”. Applying the five pathways to poverty that the Centre for Social Justice popularised, ministers will be required to focus on joblessness, educational failure, family breakdown, indebtedness and addiction as the causes of poverty. The illusion that poverty is in retreat just because benefits have been increased by 2, 5 or 10 per cent will be buried. Poverty only retreats on a sustainable basis if the private sector creates jobs, if pupils acquire real skills and if more children live in happy, stable homes. There will no longer just be a speedometer on the welfare dashboard — there’ll be a fuel gauge, a sat-nav and a lot more warning lights. The drive against poverty will, it is hoped, get a good deal more sophisticated.
It’s an approach that Angus Deaton, Scottish-born winner of the Nobel Prize for Economics, would probably approve of. He has been directing Adam Smith’s discipline away from a narrow focus on materialist indicators of progress. Deaton has identified education, early intervention in young lives and healthcare as essential underpinnings of happy, prosperous and more equal societies.
He has worried that the World Bank’s relentless focus on the number of people living on or below $1.90 per day is like chasing a unicorn through the woods. “Why,” he asks, “do we say that someone who is just below the poverty line is poor, and thus a candidate for transfers, while someone who is just above it, whether by sixpence or by six annas, needs no help and can be safely left to their own devices?”
The weakness in the government’s new approach is that while the employment and education measures are likely to be placed on a statutory basis — and therefore require high levels of parliamentary accountability — the family measures will have a second-class status. Thus the role of parenting in advancing life chances could continue to be downplayed. It will mean that for every £100 of damage caused by family breakdown our government may continue to spend just 1.5p preventing it. Or £7.5 million on relationship support to tackle a £47 billion problem.
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A new map might be about to guide the war on poverty but when it comes to family policy the government is still bringing a penknife to a swordfight.