It's The Economy, Stupid

Economic and demographic data is hard enough for most of us to understand.  When we add in hard to understand or misleading comparisons it can completely lead people to misunderstand the point that is being made.

One of my biggest gripes in this area is the terms “as a share of” and “relative to”.  For the sake of ease, economists will talk about everything “as a share of” something else to indicate relative size.  For example, public debt “as a share of GDP” or public spending as a share of GDP.  What they really should be using is “relative to”.  Public debt is not a sub-set of GDP and when we say “as a share of” we are making that implication.  When someone says Government of New Brunswick spending is 29% of provincial GDP they are trying to put the size of spending in context.  It’s not that GNB spending is 29% of GDP (a sub-set of GDP).  So, in reality it would be better to say that GNB spending is 29% relative to the size of GDP.

This is an important concept because we do want to ensure people understand scale.  If we can’t help the reader understand relative scale than a specific datapoint doesn’t mean much.  If I say there are “eight bicycles in the neighbourhood” and leave it at that there isn’t much value.  If I say there are “eight bicycles per 100 people” and the average is 37 per 100 people, then we get to value.

As a different example, economists might say that household debt as a share of annual household income is 210%.  What they should say is household debt is 2.1 times the size of annual household income.

A simple graphic illustrates the point.  As a share of should be taken literally to mean a part of something and “relative to” should describe relative size/scale.  Household spending on coffee as a share of total household spending is 0.2%.   Public debt is 89% relative to GDP – gives us the relative size of the debt without implying it is a sub-set of GDP.

So ends your lesson on economic reporting.