A misleadingly optimistic chart

 

Wherever there’s confusion and an informational vacuum, there’ll be someone willing to pour industrial strength farm slurry straight into it. All under the guise of “helping” you.

Here’s an example. Imagine we’re back in 2010.

The world is still reeling from the financial crisis…

Confidence is shot…

And in Britain we’re about to have a general election.

An unscrupulous commentator, perhaps working hand-in-glove with the government, wants to play down the gloom.

So he might show you a chart like this, which shows how Britain’s economy has grown over time:

Source: Bank of England

Sure, there was a bit of a dip in 2009. But look at all that wealth!

A tidal wave of prosperity raising all our living standards. We’ve never had it so good!

Of course, few would be taken in by such nonsense, either then or now.

And quite right too. Because the chart above is totally and utterly bogus.

It shows the rise in nominal GDP over time. The nominal measure makes no adjustment for inflation, of which we’ve had rather a lot over the period, especially from the 1970s.

That means it flatters the economic growth we’ve had (although, to be fair, the economy has clearly grown in real terms).

My hypothetical commentator deliberately and cynically chose this nominal measure to make the most dramatic chart possible.

Be on your guard against this type of thing.

Unless inflation had been at or close to zero throughout the period (a preposterous assumption, as you’ll know all too well if you lived through the 1970s), any chart showing you a nominal measure is pretty worthless.

One of my colleagues tells me he recently saw a chart of UK Public Debt that, much like the GDP chart I knocked up above, takes no account of inflation.

As you might imagine, it’s looks pretty scary at first glance. I grabbed an example of such a chart from the first website Google threw up:

Source: ukpublicspending.co.uk

Wow!

Scary!

But saying we owe loads and loads more than we did in the 1920s is rather silly on its own.

I’m sure the government’s annual tax revenues are a much bigger number than they were back then…

As is the cost of a cup of tea, the value of your house, a trip to the seaside and myriad other things.

It’s a silly chart.

The same website has a more meaningful chart just below that one:

Source: ukpublicspending.co.uk

This one shows public debt as a percentage of GDP. In other words, it takes account not only how big the debt is but the capacity to service it.

It’s a bit like saying someone has a £300,000 mortgage. Is that manageable?

You’ve no idea unless, at the very least, you know what their salary is or that they have some assets to offset the liability.

It’s annoying seeing charts like that first debt one above. They take a serious issue – Britain’s public finances – and treat it with contempt.

It’s dangerous, too. Because when there are people handling an important issue so incompetently, it presents an easy counterargument to those trying to play the whole thing down.

The thing is, Britain’s debt/GDP ratio has been rising. And that does pose a danger.

A serious treatment of the issue would not rely on a bogus, misleading nominal chart. A frivolous treatment, more interested in a scary picture than providing valuable information, would.

The reason I’ve spilled this ink in bringing it up today is because using nominal charts like the first one, rather than the more meaningful second one, strikes me as a deliberate and cynical attempt to mislead people.

That or it’s simply honest incompetence.

Either way, be on your guard against such tactics, which as I say I’m told are back in vogue.

Ask yourself why someone might choose the most dramatic and least meaningful way to make their point, and whether they really have your interests in mind when doing so.