Thoughts on politics and life from a liberal perspective

Monday, 4 January 2010

Fraser Nelson and numbers shorn of meaning

Fraser Nelson wrote a piece on the Spectator blog yesterday where he took David Cameron to task for what he described as a new year's speech that was "vapid nonsense". I quite agree, however I wanted to focus on something Fraser said towards the end of his article in response to one of the points that Cameron made:

“Since I started speaking today, more than half a million pounds has been added to our national debt.” I have to hand it to Cameron, I do like that line. He should use that more often.

I am afraid I very much disagree. The big problem is that how is someone supposed to relate half a million pounds in the space of a few minutes to their own lives? It is basically meaningless shorn of context and mentioned in this way.

In fact I did a piece for The Pod Delusion podcast a few weeks ago where I talked about precisely this sort of way of representing figures, the contents of which I have reproduced below:

Numbers! They’re great aren’t they? 98. 65536. Pi. E. Brilliant!

Something’s been bugging me for a long time though in the way that they are used, especially related to politics and economics.

A few years ago there was a big hooha in the media when the total amount of personal debt (which includes things like loans, credit card debts and mortgages) in this country went over £1 Trillion for the first time. There were all sorts of doom mongers on the news decrying this fact and explaining how terrible it was that this had happened.

The thing is, as I was watching how this “news” story was unfolding I started to realise that I had no idea whether it was a bad thing or not. What were they comparing it with? How did this relate to me as an individual or to my household?

£1 Trillion is a scary amount of money. It’s way, way more than I will ever earn in my lifetime, even if I worked really, really hard. Even if I won the lottery. So I can’t really conceive of what it means. So in the end I sat down and worked out a few figures myself.

I took the headline figure and then divided it by the population of the country which I knew was roughly 60 million. So the amount of personal debt for each person in the country turned out to be £16,666.67. Ish. Or perhaps a better figure would be to divide it by the number of people in employment which was around 30 million. That would give us £33,333.33. Or maybe it would be better to divvy it up between households given that a decent chunk of this debt is going to be mortgage related. So that meant dividing it by 21.5 million to give an average debt per household of £46,511.63.

Now I don’t know which one of those is fairest but one thing I do know is that it is much easier to relate those sort of figures to people’s ordinary lives. I have to say that once I went through that quick exercise I came to the conclusion that given these figures include mortgages, an average debt of less than £50K per household was not too bad relatively speaking given that average wages were around £23K. Seemed like a manageable amount of debt although you wouldn’t think so listening to the apocalyptic headlines. By the way I am well aware that there will be individuals who will have an unmanageable amount of debt for them and I’m not trying to minimise their problems. I’m just talking about averages in the context of trying to make sense of the figures.

Another thing that’s worth noting here is why it was newsworthy in the first place. 1 Trillion is a fairly arbitrary amount. The only reason it is even significant at all is because we have 10 digits on our hands. That’s why we use the base 10 number system and hence why 10 to the power 12 is a noteworthy figure. Incidentally it has always bugged me that The Simpsons characters have 8 digits on their hands and yet don’t use octal. Anyway, I digress.

The media is just looking for a hook to hang these stories off and £1 Trillion worth of debt is that hook. £46,511.63 average household debt is not a nice round figure and more importantly is not scary enough!

The acid test of these sort of figures for me is to imagine if they were an order of magnitude lower or higher. Imagine if the figure was £100 Billion or £10 Trillion. Would most people know what a reasonable figure for household debt was when described in these sort of terms? I would suggest not.

I was reminded of this recently when someone I follow on Twitter who was trying to highlight how high government debt is tweeted:

Let's not forget UK government debt still growing at £32,000 every 5 seconds. More than the average worker's annual salary.

Now to be fair, he was trying to relate it to ordinary people by pitching the figure above the average workers salary. There’s something to compare it with eh? Unfortunately not. How many people know what they earn in 5 seconds? It fails my acid test straight away. Would a figure of £3,200 per 5 seconds or £320,000 per 5 seconds mean anything to most people? No. I didn’t have a clue. I had to multiply the figure by the number of 5 second intervals in a year and then divide it by the number of people in employment which then gave a figure of around £6,700. Now that does seem quite scary that in one year the government would be running up debts equivalent to that amount for every working person in the country. THAT would have been a much more effective message and indeed when I tweeted him about it he then tweeted the more understandable figure himself.

I long for the day when the media put all their figures into a more meaningful context like this. Until then I guess I’ll just have to ready with my calculator.

So, to apply my acid test to Cameron's figure, if it had been £5 million debt racked up in the few minutes he had been speaking or £50,000 would most of us be any the wiser? I suspect not. Like I said, the way he is presenting the figures is basically meaningless without context.

You can listen to the whole episode of the Pod Delusion that this was a part of here:


Alex said...

"The acid test of these sort of figures for me is to imagine if they were an order of magnitude lower or higher. Imagine if the figure was £100 Billion or £10 Trillion. Would most people know what a reasonable figure for household debt was when described in these sort of terms? I would suggest not."

That has to be the wisest thing I've read in quite a while.

I should also point out that the stat you got from twitter doesn't add up - the person has used a government debt figure of roughly £200 bn when it should be £175 bn.

I should also point out that the twitter person, Cameron and Nelson all don't seem to understand economics. Why is this debt supposed to be a bad thing? The debt is the symptom of our real problem, which is the fact we're in a recession! The tax take has plummeted, and welfare payments have increased (and this partly helps us, since it is in some small sense a Keynesian response to just allow these "automatic stabilizers" to just kick in and not fight against them). And a fiscal stimulus (which the government did in some small way, although not good enough try, with its VAT tax cut) helps us even more by bringing back growth, even though it increases the debt further (though not as much as the automatic stabilizers) in the short run (in the long run, the debt is less than if we took no action though).

Alex said...

And before I forget, a warning for Cameron from Japan:

Cardinal Richelieu's mole said...

A sound acid test. Although keep in mind the public at large and nearly all the infotainment industry are virtually innumerate and so it is often a forlorn hope to offer explanation through numbers.

Also, the half million pounds figure is not such a bad example perhaps. The message has been given that the debt is way too high, disasterously so (*), and being able to say it has increased by £1/2 million in a known (to the audience) period of time may well be effective. £1/2 million is a graspable figure for many - 2 or 3 times the worth of the average home.

(*) This is not a Keynsian-type recession and large debt balances may be a symptom of past errors but bring their own fresh probems.