Do the maths!

People have some number blindness particularly when they’re trying to be positive. I come across this all the time, and in particular, in this recession, people are keen to feel good about their jobs and their houses. So they forget what the numbers really mean – particularly percentages.

If your house has dropped by 50% in value, and then goes up by 50%, it doesn’t go up to the same level it was at the start. Let’s do the sums.

Price year one £100,000
50% price fall -£50,000
Price at the beginning of year two £50,000
50% price rise £25,000
Price at the end of year two £75,000

Do you see how percentages can mislead us? And oh how we are being misled at the moment!

The government told us that the economy’s performance in the first quarter of this year showed a 1.9% drop. Now that has been revised to 2.4% drop. I wonder if more revisions are coming. That’s 4.9% in the 12 months by the way. The largest deficit since official records began just after the war. They didn’t offer us this fact – you had to go look yourself.

Let’s look at the USA for a moment. Employment numbers last month showed a better than expected drop. This wasn’t though a genuine improvement, but new and improved techniques for recording the numbers. More adjustments for seasonal adjustments and birth and death models were built in. The discouraged workers – those who have given up looking – were not included in the jobless figures at all, for the first time. Without all these shenanigans, the figures would have shown unemployment getting worse at the same pace as last year. If the authorities were measuring on the same basis as in the 1930s, then they will be showing similar levels as those in the Great Depression – about 20% of the workforce. But we can’t tell people that can we?
My message is simple – check the numbers and question the basis.

Now here’s the entertainment – Warren Buffett’s response to an enquiry about when the positive effects of the US government stimulus package will be seen “ We’ll see the benefits eventually but not yet. You can’t make a baby in a month by getting nine women pregnant”.

But the one I really like comes from Ryanair CEO Michael O’Leary “ the UK needs a new government because they are a group of witless, hopeless Scots whose solution to the recession is to tax your way out of it. If that was the answer, Ted Heath would have an elected to six successive terms.”

Question – assuming that the government is going to lose the next election, are they setting up the next administration to fail so they get back in five years time? Of course, that implies that we are paying for this.