Separating Inflation and Growth

I am glad to have discovered this 2016 article by Steve Drew, Phil Lewis and Craig McLaren [2],  describing "chain-linking methods used in the U.K. national accounts". I am finally able to clear up some questions that have been bothering me since 2009.  

It is a complex subject, and it may be that they handle the complexities well. But I wish they had written more clearly; their lack of commas, relative pronouns, and examples make their text hard-going for the newcomer. 

        Drew et al. do define their terms, albeit clumsily, and in a jumbled order.

"A current price (CP) estimate records the actual or estimated monetary value for a defined period. The current price estimate is the value expressed in terms of the prices of that period. A time series of CP estimates can be constructed."

(Or, perhaps, put more simply as: "The Current Price estimate of a product is the actual (or estimated) monetary value expressed in terms of the prices of that period. A time series of CP estimates can be constructed."). 

They follow this with a definition of value (which might have been better defined first):

value = volume x price

        For a car factory, volume could be number of cars produced; for a winery, litres of wine. By converting to value the disparate products may be summed. In this way the total productivity of a country can be found year by year, and tabulated in what Drew et al. call 'a time series of Current Price estimates'. (See e.g. Table 1 from [1])

                                Table 1

Year	UK GDP in US$B
1960	73
1961	78
1962	81
1963	87
1964	94
1965	102
1966	109
1967	113
1968	108

However, the question arises, what part of the increase in GDP is real growth, and what part is inflation? If it was just cars or just wine, we could look at the volume figures to see real growth as a factor or  % increase year on year. And, indeed, we could look at the price figures to see inflation in wine price, or inflation in car price. But it is a big job to work out how important wine is to total GDP. 

The method now used in USA, Europe and the UK for GDP, is to tabulate a 'Chained Volume Series' -- thus. 

1. For our year of interest, list every product in the economy with its volume and its price. (We know that the sum of the products of those two quantities give us the GDP.) 
2. List in parallel the data for the previous year.  
3. Instead of multiplying this year's volumes by this year's prices, use the previous year's prices from the adjacent column. 

The GDP so calculated is inflation-proofed, and any increase over the year is due to volume; at least for the 12 month from last year to this.   Why not simply look at volumes? The answer is that we do not know the relative importance of cars and wine, unless we calculate the "values". Or, for another way of seeing this, you cannot sum "wine + cars", only "£ + £". [3]

                                                                        Table 2

Item	Vol. in 2000	Price in 2000	Value in 2000	Vol. in 2001	Price in 2001	Value in 2001	'Volume only GDP' in 2001
Cars	10	100	1,000	10	101	1,010	1,000
Wine	20	1	20	80	1.0	80	80
GDP			1,020			1,090	1, 080

        In Table 2, the right hand column ('Volume-only GDP' in 2001) could be called 'inflation-corrected GDP for 2001. We see that the apparent 6.8%  (1090/1020) increase in 'uncorrected GDP' was partly (1%) due to inflation, and partly (1080/1020 ≣ 5.9%) due to a good wine harvest. 

So far, in this exposition, there is no 'chaining'. So let us look at 2002, or year 2. The question is whether to keep 2000 as base year (year 0) for the next 2 decades, or always use the 'previous year'. The advantage of chaining over indexing to a distant reference year, is explained by the International Monetary Fund [5]: 

"A key recommendation in the 2008 SNA.....is to move away from the traditional national accounts measures “at constant prices”  toward chain-linked measures. Annual chain indices are superior to fixed-base indices, because weights are updated every year to reflect the current economic conditions. Chaining also avoids the need for re-weighting price and volume series when the base year is updated every five or ten years, which usually generates large revisions in the history of price and volume developments." [5]

Table 3, Showing an economy of 3 items through 3 years.

(P0=Prices in year 0, Q= quantity or volume, PxQ =Value in currency units.  C.f. [6].)

	P0	Q0	P0 xQ0	P1	Q1	P1xQ1	P0 xQ1	P2	Q2	P2 xQ2	P0 xQ2	P1 xQ2
Cars	100	10	1000	101	10	1010	1000	102	10	1020	1000	1010
Wine	1.0	20	20	1.0	80	80	80	1.5	20	30	20	20
Paint	1	100	100	2	100	200	100	4	95	380	95	190
GDP 'current'			1120			1290				1430
GDP 'constant'			1120				1180				1115
GDP 'prev. year'							1180					1220

We can see, by comparing P0 with P1, that there is inflation, but we do not know how important the price of paint is to the whole economy.  Uncorrected GDP (shown here as the sum of all the products of P1 x Q1) increase from 1120 to 1290  (which is  a rise of 15%); corrected GDP only rose from 1120 to 1180 (i.e. by +5.4%). It looks like annual inflation of some 10%; growth of 5.4%. (Even though car prices have only gone up 1%, and wine 0%.)

Comparing year 2 with year 1, the uncorrected GDP has risen by a factor of 1430/1290 (i.e. by 1.109 or 10.9% ). But, using P1 prices for both years, we see that GDP corrected for inflation (GDP 'constant p') has fallen 1220/1290, so real GDP fell by a factor of  0.9457, or -5.42%.

Using P0 throughout, we would conclude growth in the first year was from 1120 to 1180 (i.e. growth of 5.36%), and, in the second year, negative growth from 1180 to 1115 (i.e. negative growth of -5.5%) more than cancelling the positive increase the provious year. So, between year 0 and year 2, negative growth 1120 to 1115  (so -0.4%).

Just as we can strip out inflation from real growth by comparing adjacent years using the prices of the earlier year, so we can strip out growth by comparing adjacent years using the quantities from the earlier years (or the later years, or both and take the average) to find an index of pure inflation freed from growth. 

=================

References:

[1]  https://www.macrotrends.net/countries/GBR/united-kingdom/gdp-gross-domestic-product

[2]  https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/chainlinkingmethodsusedwithintheuknationalaccounts#chain-linking 

[3]  Note (for the scientifically minded): Volume [in litres] x Price [in GB£ per litre] = Value [in GB£].

[4]  https://researchbriefings.files.parliament.uk/documents/SN04962/SN04962.pdf 

[5]  https://www.imf.org/external/pubs/ft/qna/pdf/2017/chapter8.pdf 

[6]  https://www.dsec.gov.mo/elearning/en/knowledge/124

Suppose car volume remains at 100 but price continues to rise, let us say to £1022/car. 

We could express the value in current (2002) prices as £102,200. 

Or we could express the 2002 value in 2001 prices as £102,200 x 1010/1022=£101,000.

Or we could express it in 2000 prices as £102,200 x 1010/1022 x 1000/1010=£100,000, chaining back to our initial year.  

Emotion versus Reason

 Emotion versus Reason

Stimulated by some words in Meeting on Sunday, I recalled that I preferred sorting disputes by recourse to reason, rather than emotion. This strong preference of mine emerged during the period around the break-up of my marriage. In many soliloquies I had silently verbalised my preference thus: suppose one party wants this and the other party wants that, how can they  negotiate, short of 'giving-in'? How can they each know the strength of the other's wanting? It seemed to me that the best way forward was to seek reasons and arguments; talk, therefore, in terms of money, time, resources, where numbers could be put on the strengths of each case. I suspect I still feel that reason is my preferred way out of an emotional conflict. 

However, as I made my way home from Meeting, two further realisations flooded over me.
[1] I have been on a number of training courses on 'Conciliation'. I understand the nub of the technique to be that each party is brought to see very clearly the emotional impact of the problem at issue on the other party. Thus, with the two contestants (A & B) and the conciliator (C) in a protected ('safe') arena, A and then B each explain to C their case, and how they feel. Conflicts that matter are conflicts of emotions. (Conflicts over facts are easily resolved, as Father showed us children: you can force it to an issue by offering a 6-penny bet on your favoured outcome, then you 'look-up' the answer.)
[2] It occurred to me that I was essentially admitting an inability to assess either my own emotions, or those of other people with whom I interact; or of both parties. This is close to admitting to  'Asperger's Syndrome', which I understand as a deficit in the ability to read the emotional significance of the observable actions of other people. It is very hard to know, as I had always assumed myself to be 'standard'. But perhaps I am deficient! 

I can certainly see the observable actions (or think I can). Nor do I think of myself as lacking emotions; the opposite rather, for I weep with joy when I see kindness, and I feel contaminated when protagonists in a drama tell a lie. But I might be suppressing my emotions, shuffling them out of (conscious) sight, precisely because they are too painful. 

How can I test that possibility?  Any such attempt sounds like a recipe for noise and stress. Perhaps I shall continue with my present strategies. 

Life after Death

 Life after Death

    I think there is some truth in maintaining that of the many claims made on behalf of Christianity, the one chiefly responsible for it becoming the world's 'most-followed' religion, was its promise of  'Life after Death'. (A feature it shares with Islam, the 'second biggest' religion.)  Yet how can any sane person believe "the resurection of the dead, in the flesh"? And did Jesus himself believe in that?

    The idea that something, the soul or core or essence of a person, could survive death seems to be irresistibly comforting to the human psyche. It was widely discussed in the Middle East long before Jesus. To Plato, writing some 400 years before the birth of Jesus, the essence of a table was not the table itself, the hard fact; it was the idea of a table [1]. The essential table might exist in the mind of God. So, a Platonist might think that the essence of Mr. Harold Blum existed in the mind of God independent of any real, corporeal, existence.

    It seems (to me) certain that the idea of bodily survival after death was not the message that Jesus was trying to teach. Indeed, he explicitly scoffed at it (Matthew 22:23 ).  But the mistaken, the literal, interpretation proved enormously popular and, over the centuries, the idea of bodily survival was grafted onto the teaching of Jesus, and has brought many hopeful converts to Christianity. 

    Did the initial disciples of Jesus, by emphasising the empty tomb and the resurrection of Jesus, perpetrate a scam? Or were they honestly describing their experience? By 325 CE, when the bishops met at Nicea, politics seem to have dominated the discussion. For the Nicene Creed quite explicitly promises the resurrection of the dead [See References below].  

    Does Christianity (by which I mean, not the teaching of Jesus, but the more-or-less unified teaching of the Christian bishops in 325 CE) deliver any sort of 'Life after Death'? Perhaps yes, if you can believe and are inspired by the hope. But certainly no, if you cannot so believe. And nowadays many cannot. 

    By distinguishing between the teaching of Jesus and that of the Christian bishops, I have opened up the question -- was Jesus a Christian? I mean, could Jesus himself have subscribed to the Nicene or any other 'Christian' creed on the question of Life after Death; does the explicitly quoted teaching of Jesus promise anything like that which Christian Bishops have promised in his name? I think not. 

    If not, we may ask whether the explicit teaching of Jesus (such as we have) do better at delivering on its promises?

    Jesus is reported to have said that "God is not the God of the dead, but of the living." (Matth 22:32).  He is also reported as saying that the idea of meeting up with your spouse after death shows a misconception of Heaven; "Ye do err, not knowing the scriptures, nor the power of God. " (Matth 22:29 ).  Heaven is (he suggested) more like when a king prepares a wedding feast for his son, and sends out invitations, but the invitees do not come (Matth 22:3 ).   So he sends out invitations to all and any. (Matth 22: 9).  They come, but those that come to the party in the wrong frame of mind get nothing out of it. (Matth 22: 12).

    In this, was not Jesus saying something like: God is for the living, and Heaven is for the living, not for the dead. That we are invited to join him, in Heaven; so should we not attend? And if we accept the invitation, and go to the party, it surely behoves us to attend in the right frame of mind; count our blessings and feel glad to be there. 

    I feel the same way. I feel that to love creation with all one's heart, and with all one's mind (Matth.22:37), and to love and treat your neighbour as you treat yourself (Matth.22:39), creates a better world, an acceptable world, a world in which to be glad, in which to be grateful, and for which to wear festive clothes.  Even if plenty problems remain. 

    In that sense I find that Jesus delivers.

The part that dies and the part that lives on.

    To get anywhere in discussing the question of Life-after-Death, it is essential to be quite clear about the concepts of material reality and ideal thought. (The term 'Spirit' is undefined and is therefore avoided.) It is also essential to seek the truth, and embrace it.  

    Life, as far as I understand it, requires a flow of oxygen to the heart, and to the brain; without that flow, life and thought is impossible. 

    I attended a Quaker funeral at Whitley Bay Crematorium in 2008. One Quaker read a poem of Betty Walters about a leaf, containing the consoling idea that it, the leaf (i.e. the poet), might be reabsorbed back into 'God'. So I refrained from reading the poem of Francis Thompson that my mother had quoted as she prepared herself for death, though I think it excellently appropriate, and making a slightly different point – that birth implies death and death implies birth; "Nothing dies but something lives". 

    Instead, I found myself developing a thought I had started earlier in the day – that there are two parts to a person: a part that dies and a part that does not. What we love about a person is not a kilogram of cardiac muscle, or mushy liver. That, of course, is the part that dies. What we love is the husband, father, grandfather, the earner, the musician, the student, a smile, an anecdote; in fact more the idea of a person than the reality of a person. And that is the part that does not die, but lingers in the memories of the still-living. So, in effect, I have reached the conclusion that, to our emotions, a person (alive or dead) is more important as an 'idea' than as a 'thing'.

    I am not able to believe in Life Everlasting 'in the flesh', so get no comfort from the Christian promise, which (to me) is unsubstantiated, unlikely and unhelpful. But I do find some value in the undeniable fact that ideas about the good points of bygone people linger in the minds of the living; and may linger for a generation in most cases, and for two millennia in outstanding cases. In thus lingering, these memories support us in our endeavour 'to find heaven on earth'. 

References:

[1]  https://en.wikipedia.org/wiki/Plato

Several 'Christian' Creeds

 (https://www3.nd.edu/~afreddos/courses/43801/creeds.pdf )

[2] "We look for the resurrection of the dead and the life of the world to come". (Nicene Creed, CE 325)

[3] "I believe in .... the resurrection of the body, and life everlasting." (Apostle's creed, c. CE 500, Wikipedia)

[4]  41. "At whose coming all men shall rise again with their bodies";

42.  "..and shall give account of their own works".

        43. "And they that have done good shall go into life everlasting and they that have done evil into everlasting fire."
        44. "This is the catholic faith, which except a man believe faithfully he cannot be saved." (Athanasian creed, c. CE 500, Wikipedia) 

Palestine could lease land to Israel

Palestine could lease land to Israel.

Israeli settlements in the West Bank are deemed illegal. 

(The Palestinian West Bank is land taken by Israel by force in the war of 1967, and the Israeli presence is thus against International law. )

Israel covets that land.

(There are many Israelis who want to live in Arab land with such a fierce craving that they break the laws of normal civilised life in attempts to oust the Arab residents. The political majority in Israel condones that barbaric behaviour, thus showing itself not competent to govern the area.) 

Land purchases between states have been agreed in the past.

(Admittedly with mixed success. Florida was acquired off Spain in 1819 for $5million of settled citizen claims. In 1848, by the Treaty of Guadalupe Hidalgo, the USA paid Mexico $15million plus $3million in claims for 1,360,000 square km of land, i.e. Arizona, California, western Colorado, Nevada, New Mexico, Texas, and Utah. The USA, in 1867, purchased Alaska off Russia at a fair price; $7.2million for 1.5million square km of land. Neither side particularly wanted the land.)

Could Israel occupy and enjoy Arab land legally? 

(Perhaps Israel could buy some land. But, if Palestine did not want to sell, perhaps they could agree to let out the land for an annual rent. Or negotiate a 99 year lease, as the British did with Hong Kong.)

Or are we living in a more barbaric, Post-Enlightenment, age?

Is happiness elusive because mostly in the mind?

 To a pen-friend I was fated never to meet.

I think of myself as searching for a happiness which seems destined always to evade me. I wonder if that is because the happiness I seek is imaginary. 

In our heads we can piece together imaginary animals which can be thought of, but which could never exist; like centaurs with the body and legs of a horse. Similarly we can imagine a day of sunny summer weather, then add in a wonderful meal, a punt, my charming companion a gifted pianist. But poor old reality stumbles along, completely unable to keep up with the fantasy. There are empty beer cans on the grass, a fly in the ointment, and the pretty girl does not want to make love with me. 

Should I be content with the dream, or learn to be content with reality, and its empty beer cans? 

Standing Charges for Energy

 Dear OFGEM,

You ask for feedback on the question of Standing Charges, (to the email address StandingCharges@ofgem.gov.uk.)

I have been against Standing Charges for a long time, both in regard to energy and water. There is, of course, a certain cost involved in connecting a house to the grid and in providing a meter, even when energy is not used. And some charge for those services is legitimate. (It cost a deal of money to build a car-making factory, a cost that is shared among those who buy cars, but not by is not imposed on those who do not buy cars.)

However, there is no reason why that standing energy charge should increase when the cost of fuel increases!!! It is clear that companies are using Standing Charges as a way to mislead customers into thinking that their electricity is cheaper than that of rivals, because their unit cost is cheaper. 

It is true that customers have no need to be fooled in this way; they can choose the company with the lowest standing charge (as indicating the most honest). Or they can do a more elaborate calculation using their own personal daily energy consumption.

There are two reasons why OFGEM might step in to moderate this ‘deceitfulness’. In a warming world with looming deadlines, there is some virtue in pressing down on the consumption of energy with a modest but consistent pressure. This effect is maximised when the standing charge is minimised.

For OFGEM to condone the practice of shunting some of the energy price rises into Standing-Charge-rises is to sully the reputation of OFGEM.

Yours sincerely, Ian West

Refs: 

[1] https://occidentis.blogspot.com/2022/09/standing-charges.html; 

[2] https://occidentis.blogspot.com/2022/10/average-electricity-consumption-part-2.html

(If you write to StandingCharges@ofgem.gov.uk, you might consider copying me in at: cawstein@gmail.com )