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Take care with summary statistics when the underlying population is changing

Since 2008, UK employment has risen substantially and working hours have increased but output has barely grown. To explain this productivity puzzle we must dig into the detail of how aggregate statistics are built up.

UK election confirms many beliefs are held in the absence of facts (truthiness)

We are all subject to confirmation bias — a tendency to find, or interpret, facts to support opinions we already hold. But truthiness is more extreme, occuring when conviction is prized over information.

Why worry about deflation?

Our perception that inflation is the normal condition is no more than a reflection of the experience of people alive today. And there is no qualitative difference between an economy in which prices are rising slightly and one in which prices are falling slightly.

To assess value it’s wise to escape the market crowd

The belief that an aggregate of casual opinions provides a better process of value discovery than a flow of informed judgment through close engagement by investors, is an article of faith rather than a matter of empirical evidence.

If “capital is back” it’s in a different sense

The days when economic power was acquired by inheriting the mill are long gone. Mr Buffett began his business career as a mill owner, but closed the mills and went into insurance. That is the reality of capital in modern economics.

Precise inflation figures ignore evolutions in product quality and consumer choice

Price indices are compiled by measuring the changes in the cost of buying a fixed bundle of goods chosen to represent the consumption of an average household. But what the average household buys changes with the arrival of new goods; and with changes in relative prices; as well as with variations – good and bad – in quality

Why simple and robust regulation is the way to reduce financial complexity

Much of the complexity of modern finance is the result of regulatory arbitrage – avoiding or minimising restrictions by engaging in a transaction with more or less identical effect but more favourable regulatory treatment. Many regulators still cling to the hope that it could be eliminated if only rules were sufficiently extensive and sufficiently carefully prescribed. But this is an illusion.

The welfare cap replaces political judgment with spin

Whatever initial misconceptions spin doctors may promote, reality will out.

Economic abstractions conceal the true contours of human life

No economic model can describe “the world as it really is”.

How big data lets us see a little further into the unknown

Big data can help us understand the past and the present but it can help us understand the future only to the extent that the future is, in some relevant way, contained in the present.