Economic

Monday briefing: How to understand the huge numbers that rule our economy | Economics

Good morning. I don’t really understand numbers. There, I’ve said it. I don’t! I mean, I understand some very rough numbers: I know that £1 is a pint of milk and change, and £100 is a tank of petrol, and £1,000 is a holiday, and £10,000 is a reliable car, and £1m is a big house in Leeds and a small one in London, and £10m is a mediocre Premier League footballer probably on Southampton’s radar.

These are all numbers I can put on a scale without thinking about it, because I have a lot of practice, especially with the last. But outside a few quite limited realms, confusion descends more quickly than I’m generally prepared to admit.

I’m making this confession because I know I’m not alone. Polls have long found that our estimates are wildly off for things like the number of asylum seekers, or benefit fraud, or average salaries, or the scale of crime and terrorism, or the severity of the climate crisis, or how many people die of cancer.

But there’s also the problem of scale, which is hugely important to grasping the big economic picture. Everyone has some idea of how much £1,000 or £100,000 is, and what they could do with it. But for most of us, billions and trillions are in the realm of the vaguely enormous, even though they’re wildly different – and that makes it much harder to assess what politicians promise, and what economists tell us about the reality.

So – as we find ourselves in the middle of an economic crisis and a Conservative leadership campaign where zeros get tossed around like confetti, today’s newsletter is my attempt to help myself with that. It may possibly be useful for you too. Here are the headlines.

PS – I’m taking some time off to recover from the mental strain of putting this together, so Nimo and a ***special guest*** will be with you until the 17th. See you then.

Five big stories

  1. Police | 650 children were strip searched by the Metropolitan police between 2018-2020, a report by the children’s commissioner for England has found. 58% of those strip searched were black children and in almost a quarter of all cases an appropriate adult was not present.

  2. Gaza | A ceasefire has come into effect between Israel and the Palestinian militant group Islamic Jihad in the Gaza strip after three days of violence, which has left 44 Palestinians, including 15 children, dead.

  3. Energy | Charities have issued warnings of the serious consequences of people not paying their energy bills on 1 October. The campaign Don’t Pay UK has been gaining significant momentum, with 80,000 pledges to refuse payments when the price cap rises.

  4. Conservatives | Tory MPs want to do a deal with Boris Johnson for him to quit parliament and in return axe the inquiry into whether he misled them over Partygate, as allies of the prime minister branded it a “witch-hunt”. One source said that backbenchers want to “move on from this psychodrama”.

  5. Museums | The Horniman museum in London has returned 72 Benin treasures to Nigeria, making it the first government-funded institution to return artefacts that were looted by British forces in 1897.

In depth: What GDP, inflation and public spending figures actually look like

The UK’s GDP is £2.77tn – how many cheeseburgers could Archie buy with that?
The UK’s GDP is £2.77tn – how many cheeseburgers could Archie buy with that? Photograph: Tolga Akmen/EPA

Before we get into the specifics, let’s start by trying to equip ourselves with a useful sense of scale. In a brilliant piece for The Conversation in 2017, US mathematician Andrew D Hwang wrote that he and his colleagues are not Spock-like masters of mental calculation, but “habitual estimators and analogy-makers”. Basically, when numbers get so vast, the easiest way to understand them is to compare them to something.

Try to fix this useful comparison, with thanks to Hwang, in your head: if a penny represents one million, then a thousand pennies, or £10, represents one billion, and a million pennies, or £10,000, represents one trillion. Hang on to that idea, try not to wince, and let’s take a look at some specifics:


UK’s annual GDP: £2.77tn

There are different ways to estimate this depending on whether you account for inflation, but this figure for 2021 will do as a ballpark figure. Gross Domestic Product is a measure of the monetary value created by a country in goods and services, and the £2.77tn ($3.34tn) above is hard to gauge, other than to say it’s a lot. Maybe you can imagine it as about 2.8m times more than £1m, or 3,000 times the estimated wealth of JK Rowling, or 10 times the estimated wealth of Elon Musk. If that’s no help, we can also say that per capita – that is, the amount produced averaged out across every person in the UK, including children and retirees – the figure is £41,117.

Another is to say that it went down a bit in 2020 because of the pandemic, and then up above pre-pandemic levels last year. The UK had the fifth biggest total GDP in the world last year – a measure of the relative overall size of the economy – and the 19th highest GDP per capita among the 42 industrialised countries in the Organisation for Economic Co-operation and Development (OECD) – a better measure of productivity.


UK expected government spending 2022-23: £1.09tn

That figure is from the Office of Budget Responsibility. Again, hard to make sense of on its own. But you can get a feel for the scale by comparing it to total national income over the same period: the OBR says that it’s about 43%.

That percentage fell throughout the 2010s, jumped up sharply when coronavirus hit, and is now back down towards pre-pandemic levels. It’s in the middle of the pack for OECD countries – we spend a higher percentage of our national income on public services than Korea, Japan, or the US, but much less than Finland or France.

We can also compare it to the public sector’s income, mostly through tax: £988bn, which leaves a deficit of £99bn to be funded through borrowing – about 3.9% of national income.

One context where you might want to bear in mind this scale is when you hear politicians promising to dispense with “wasteful” public spending. Last week, for example, in the proposal to cut public sector pay by £8.8bn (that she quickly dropped because it required the dubious mechanism of hacking at the salaries of teachers and nurses outside London) Liz Truss did offer another way to hack at the bloated state: get rid of diversity and inclusion jobs in the civil service. (She’s still going ahead with that bit.)

The Sun wrote that up as “vowing to ditch diversity and inclusion jobs to save taxpayers £11bn a year.” The actual saving attributed to those cuts: £12m, or just over a thousandth of the Sun’s claim. Coronavirus loan fraud, to pick a random but actually meaningful source of waste as a comparison: £4.9bn.


Claimed ‘fiscal headroom’: £30bn

The £30bn “fiscal headroom” figure is a Treasury estimate of how much money the government can spend without breaking the rules it has set itself about bringing debt down and only borrowing for long-term investment. It’s equivalent to about 3% of expected public spending next year.

That number is part of how Liz Truss and Rishi Sunak say they would fund their additional spending promises. In total, those promises add up to an estimated £29bn for Sunak (all of the “headroom”) and £80bn for Truss (nearly three times more).

But the contraction in the economy forecast by the Bank of England last week would obliterate that room for manoeuvre, because of lower tax receipts, higher welfare payments, and bigger debt repayments. If the eventual prime minister wants to go ahead with their pledges, they may have to borrow more to do so.


Forecast peak inflation: 13%

Maybe it’s just me – but, perhaps because we’ve got used to low inflation in the last 30 years, I find the consequences of that 13% very hard to grasp intuitively. A large part of my small brain wants to interpret it as meaning that a specific item will cost 13% more than its previous price at a particular moment, but when inflation gets back to “normal”, it will go back down again. I’ll have to buy the cup of tea that previously cost me £1 for £1.13, but soon after that it’ll be £1.

But that, of course, is not the case. If the Bank of England’s forecast of continuing high inflation through 2023 is correct, there will be a compounding effect: even if inflation falls back to 10%, my £1.13 coffee will go up again – to £1.24. All that’s happening is that the rate of increase is slowing. When inflation does eventually come back to something like 2%, it will take years of wage increases above that number to finally feel like I’m getting the original £1 value.

This is a big part of why inflation can be so damaging: it’s not just that it makes us temporarily poorer. It’s that once it starts to climb, its effects can be felt for a very long time to come.


Elon Musk’s net worth: £268bn

Don’t get me wrong: I’d absolutely love to have £1bn. Maybe two, why not! But I’m not sure what I’d do with £268bn, exactly. Musk’s wealth is worth trying to understand mostly as a guide to the vast, intergalactic chasm between what it’s possible to earn as a salaried worker, and how much money it’s possible to accrue with equity.

For somebody making the median UK income in the UK last year of £31,400, it would take almost 32 years to earn £1m. It would take nearly 32,000 years to earn £1bn. And to reach £268bn, it would take nearly 8.6m years. Even if you were on £250,000 a year, it’d take more than a million years. Still, maybe by then they’ll have invented a time machine, and you can come straight back to 2022 and pretend to buy Twitter.


Distance to the nearest star system: 4.24 light-years

Speaking of vast intergalactic chasms! The distance to the Alpha Centauri system only makes the list because all examinations of numerical scale are obliged to include something about space. How far is 4.24 light years? Too far for there to be any point in making sense of it, is one answer. Another is: use a popular analogy which imagines the Sun as the size of a grapefruit. On that scale, Earth is about 15 metres away. The distance to Proxima Centauri, the nearest star in the Alpha Centauri system, is about 2,500 miles, or roughly the distance from the UK to Azerbaijan. What does this tell us? Nothing useful. But it seems like a reasonable reward for getting through the GDP bit.

What else we’ve been reading

  • Himbos are having a moment, which was ample excuse for Saturday magazine to make poor Tim Jonze dress up as one for a day (but also write interestingly about why we might like them). Please enjoy the results. Archie

  • In this heartwarming interview, Harriet Gibsone spoke with comedian Sara Pascoe about her changing self-image and her winding journey to the stardom. Nimo

  • John Harris is good on the “strange hallucination” of the Tory leadership campaign’s failure to grapple with a coming era of mass fuel poverty. “I am not sure that talk of a “poll tax moment” adequately describes what is about to happen,” he writes. Archie

  • Shanti Das investigates one of the most successful men on TikTokAndrew Tate, a relatively unknown former Big Brother contestant who pushes violent, misogynistic content. Nimo

  • I’m late to this, but Lisa Miller’s long read for New York magazine on US prosecutors trying to hold Jennifer and James Crumbley responsible for their son’s mass shooting is superbly reported, nuanced, disturbing, and thought-provoking. Archie

Sport

Football | Erik ten Hag suffered a shock defeat at home to Brighton in his first match as manager of Manchester United, the Seagulls winning 2-1.

Commonwealth Games | England won gold in the men’s 4x100m sprint relay, while Nigeria took the women’s title. New Zealand thrashed England by eight wickets in the women’s cricket bronze medal match.

Golf | South African Ashleigh Buhail defeated Chun In-gee after four extra holes in the Women’s Open.

The front pages

Guardian front page 8 August 2022
Photograph: Guardian

The Times leads with “Get inflation down before cutting tax, voters urge,” while the Express says “Truss: I won’t rule out urgent help on bills” and the FT goes with “Tory frontrunner Truss faces pressure over cost of living plan”. The Mirror has “Get back to sort crisis,” reporting that former prime minister Gordon Brown “demands action” on cost of living pressures. The Mail has “Tories ‘must quit Boris witch-hunt’”.

The Guardian’s splash reads “Alarm as leak reveals Raab plan for new assault on judges’ powers”. The Independent leads with “Police forced to prop up NHS, watchdog warns” and the Telegraph says “Sprint to avoid NHS meltdown this winter”. The Metro leads with “Trauma of 650 kids in police strip searches”.

The Sun has “Ash yer lot” and says fire chiefs want garden barbecues stamped out amid fears of another heatwave.

Today in Focus

File photo dated 4/5/1979 of Margaret Thatcher in a car.
Photograph: PA

The Tory leadership race and the ghost of Margaret Thatcher

Guardian columnist Polly Toynbee identifies how Tory leadership candidates Liz Truss and Rishi Sunak have channelled the former prime minister, and what it says about the Conservative party in 2022.

Cartoon of the day | Edith Pritchett

Edith Pritchett / the Guardian
Edith Pritchett / the Guardian

Sign up for Inside Saturday to see more of Edith Pritchett’s cartoons, the best Saturday magazine content and an exclusive look behind the scenes.

The Upside

A bit of good news to remind you that the world’s not all bad

Wellbeing Cheerfulness
Wellbeing Cheerfulness Illustration: eva bee

The climate crisis, the cost of living crisis, the pandemic: there are many external factors that make life hard to bear. But Timothy Hampton, a professor at the University of California, Berkeley, has authored a book about how being cheerful on the outside, can help you, and those around you, feel it on the inside. Cheerfulness is not happiness or optimism or hopefulness, he says, it’s something you do. It’s the way you talk to people, or the way you choose to view the world. “It’s ephemeral,” Hampton says, “it comes and goes. It’s a resource of the self, an uptick in one’s emotional wellbeing that raises your energy levels briefly. We don’t really recognise it, unless we’re doing it.”

Sign up here for a weekly roundup of The Upside, sent to you every Sunday

Bored at work?

And finally, the Guardian’s crosswords to keep you entertained throughout the day – with plenty more on the Guardian’s Puzzles app for iOS and Android. Until tomorrow.

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