Thursday, October 25, 2012

GDP when growth isn't growth

The latest GDP figures are expected to be announced soon and it's expected to show growth. Whoo hoo we're out of recession - happy times are hear again. Let's spend lots of money (to paraphrase the Pet Shop Boys). Except what all the experts are whittering on about are percentage changes month on month (or quarter on quarter) and that makes a large difference in two connected ways.

Firstly let's say a person makes £100 a day and their salary is cut by 10%. 10% of 100 is 10 so it drops to £90. Now let's raise their salary by 10%. 10% of 90 is 9 so it increases to £99; they're still a pound worse off.

Secondly consider that £100. On Monday it's £10 less; on Tuesday it's only £5; on Wednesday it's £2.50 less; on Thursday nothing is removed and on Friday that person gains £2.50 and the boss tells them "Hey now you can afford to splurge". Um no I'm still £15 down on the week

It's still good that we have growth, but don't release the cheerleaders quite yet.