It's clear if you read his blog that he hadn't read the GERS methodology statement before he wrote it and - being brutally honest - he appears not to understand the basic principles of economic and statistical analysis. But as this blog will show: you don't have to take my word for that.
His core argument is that because estimates are used in GERS that means there's no data involved. I know, right? But seriously - he took to twitter to make his position on this extremely clear (follow the links if you don't believe me)
- "They may 'compile' them but there is no data underpinning them"
- "there is no data. It's almost all just estimates. GERS says so. I didn't have to make that up"
- "it's nonsense data derived from UK stats, as GERS say."
- "But there is no data: just estimates"
Nearly all analysis of national statistics relies on estimates. That's why there are codes of practice that civil servants have to follow, why we have independent bodies to assess and qualify reports and why statistical calculations are used to determine what confidence intervals are appropriate to any findings.
Richard didn't stop there though - he went on to malign the integrity of those involved in producing these figures
But who am I to question the opinions of the Professor of Practice in International Political Economy at City University? I am, after all, just a businessman and blogger - albeit a reasonably well informed one who has a hard-earned reputation for knowing what I'm talking about on this subject. So predicting the usual ad hom responses1, I decided to ask for help from a couple of the experts I'm fortunate enough to know.
I asked Professor Ronald MacDonald for his thoughts on the subject. Professor MacDonald is Research Professor in Macroeconomics and International Finance at the Adam Smith Business School; he has acted as an advisor on currency and exchange rate issues to the European Commission, IMF, World Bank, European Central Bank and a number of other central banks. He was previously Bonar Macfie Chair of Economics and Adam Smith Chair of Political Economy at the University of Glasgow and Professor of International Finance at the University of Strathclyde. I think we can fairly say that Professor MacDonald knows his stuff .
He offered the following comment:
"It is important to note that that GERS is a national Statistics publication and assessed by the independent UK Statistics Authority. The statistics are produced by civil servants, and not by a partisan group, and are best practice in the sense that they meet the Code of Practice for Official Statistics, a code that is consistent with the European Statistics Code of Practice.
As in practically any statistical exercise the GERS statistics depend on estimates and there is nothing unusual about that. In that regard it is noteworthy that the statistics produced and reported in GERS come with standard confidence intervals indicating the uncertainty with which the central estimates are held. An examination of these confidence bounds demonstrates that the generally accepted position on Scotland’s fiscal and trade positions are unchanged. This is why mainstream economists, statisticians and commentators will continue to use these statistics in their work."That really should be an end of it, the very foundation of Richard Murphy's "they're just estimates" case is shown to hopelessly naive and fundamentally flawed.
Professor Ronald MacDonald
If you're struggling with how come estimates are acceptable: your watch estimates the time, your speedometer estimates your car's speed, your scales estimate your weight. You still know with reasonable confidence the time, how fast you're driving or how much you weigh.
In case you still need convincing, I also asked Professor Angus Armstrong for his response. Angus is Director of Macroeconomics at the National Institute of Economic and Social Research (NIESR) and was previously Head of Macroeconomic Analysis at HM Treasury. It would be fair to say he too knows this subject better than most.
“All economic statistics involve sampling and estimates. But when the UK Statistics Authority designate figures as ‘National Statistics’ that’s hugely significant. This is a kite-mark showing they meet international statistical standards. Anybody who says these figures are “easily rigged” or “nonsense data” frankly doesn’t deserve to be taken seriously. The people who work to create these statistics are honest, hard-working and dedicated public servants who aren’t allowed to answer back to defend themselves. Anyone who questions our national statisticians’ honesty and integrity should take a hard look at themselves.”
Professor Angus Armstrong
I shouldn't really need to go on, should I?
Just in case some of you think by picking on Richard's tweets I'm ducking what he actually wrote in his blog, I'll quickly cover the detailed points. His is a blessedly short blog, so here's a very quick pass at some of the more obvious gaffes he made
"So forget Scottish GDP data: we just don’t know what it is."
This will come as a shock to those who believed the SNP during the independence referendum when (because of oil) they were able to say (of the then recent past): “Scotland is the 14th richest nation in the world” and "Scotland’s GDP per head is £2,300 higher than the UK as a whole”. According to Richard we can't possibly know that.
"The allocation of government spending to Scotland will be arbitrary: how much defence should it pay, for example? Or interest? The arbitrary areas will be too great for this number to really be reliable."
Notice how he says "will be" twice in this paragraph? That's a clue to the fact that he hadn't actually bothered to check; he was asserting what he assumed "will be" the case.
Anybody who has taken even a passing interest in the debate will know that what is the case is GERS apportions the two specific examples he quotes on a per capita basis. "International Affairs" is the other category allocated this way - if he'd read GERS he'd have probably thought to include that example too.
It's widely understood that while we're part of the UK we pay our population share of expenses like these that are "incurred on behalf of the UK as a whole". More importantly: when making the case for an independent Scotland these three figures are normally the first to be looked at precisely because we can see them clearly identified in GERS - that's why everybody (including the SNP with their White Paper and as we'll soon see with their Growth Commission) start with the GERS figures and then make assumptions about what would replace them if we were independent.
Richard says of all these figures "to base debate on them would be a serious mistake". That would only be true if you were to make the serious mistake of not understanding how the figures are compiled and what they tell us. In fact the data provides a perfect platform on which to base a debate about an independent Scotland's finances - that's why everybody from the SNP through to the IFS do precisely that.
Oh: and the three areas mentioned above? The only ones so crudely allocated and the one's always considered separately in debate? They represent less than 10% of Scotland's Total Managed Expenditure. In fact in 2015-16, fully 63% of TME was fully devolved expenditure; is Richard claiming Scottish Budget figures are arbitrary? Of the balance the biggest element is social protection, mainly pensions; maybe Richard doesn't believe that "London" is really paying these (hell I don't know - it's not easy trying to follow his thinking)"Let’s be blunt: no one has a clue what crosses the borders from Scotland to England and Northern Ireland. These numbers are literally made up in that case."
So here we're moving away from GERS to something else Richard clearly hasn't looked at: Export Statistics Scotland (ESS). This is data compiled by the Scottish Government, primarily using the Global Connections Survey run by the Scottish Government. Yes it's an estimate - but one triangulated with other sources and which qualifies for designation as National Statistics (which as we hopefully now understand, really means something). I suppose at some level all numbers are "made up", but to suggest the extensive work carried out by the Scottish Government in this area amounts to "no one has a clue" is as witless as it is insulting to those involved."Westminster could pretty much manipulate this data at will."
An astonishing statement, and one that could only be made by somebody who has never communicated with those responsible for this report, namely the Scottish Government's Chief Statistician and Chief Economic Advisor. The idea that Westminster could have been consistently pulling the wool over the eyes of the Scottish Government when it comes to our national finances is not only ridiculous, it's deeply insulting to the professional integrity of the honest, hard-working civil servants involved.
If you are one of those who believes that there is some Westminster conspiracy which has been so brilliantly performed that the Scottish Government haven't noticed, I've honestly no interest in debating with you - feel free to not read this blog, I won't miss you.
"if there is to be meaningful debate on this issue then the SNP have a lot of work to do to produce best possible data. The last thing they should do is trust that from London"
Well it's easy to see that Richard is new to this debate. What on earth does he think the SNP were doing during the years they prepared for the independence referendum while they were in government? I imagine there are more than a few exhausted civil servants who will be thrilled to hear that someone who demonstrably hasn't read any of their rigorous, detailed and professional work thinks they have "a lot of work to do". In fact I'm sure a few SNP politicians will find it amusing that Richard thinks they blindly "trust that from London"I could go on, I really could but - like me - life is too short.
I'll leave with this simple table that clearly Richard hadn't seen before writing his blog. It appears on page 47 of the GERS report itself, so you don't even need to go to the separate Methodology statements to find it. This table explicitly deals with the question of statistical significance and confidence with respect to each of the survey based apportionments
So to recognise the fact that there are of course estimates used in compiling these figures, instead of saying "Scotland's GERS deficit is £14.9bn" we could say "we can be 95% sure that Scotland's GERS deficit is in the range of £14.3 - 15.5bn"2. It would be tedious if we said that every time though, I'm sure you'll agree.
To finish with another example of how confidence intervals work: when Richard Murphy repeatedly claims "there is no data", we can say be 100% sure that he doesn't have a clue what he's talking about.
1. apparently the fact that my little £20m turnover online business (employing people in Scotland, of course) sells - among other things - dog food means I can't have any credibility in this debate. Who knew?
2. as many of us have pointed out, there is one other significant allocation uncertainty on the revenue side which is not survey based but assumption based and that's corporation tax. After a few years of disagreement, on this figure HMRC and GERS make very similar assumptions, basically assigning £2.9bn or 7.3% of corporation taxes to Scotland. As a sanity check, Scotland account for 8.3% of the UK's population. The simple truth is that given companies are not currently required to report profit split between Scotland and the rest of the UK, nobody knows what these figures would be were Scotland to be independent - changes to tax rates and corporates' decisions around where to base activities and how to report profits make this figure a moving feast anyway.