Over the last few weeks there has been a debate on independence going on in Scotland. I’ve been somewhat active in it on social media. I sort of expected statistics to be abused, but have been appalled by the unquestioning acceptance of much that is said. I have come to realise that many people, even intelligent ones, lack even the most basic tools to process the information. This is my attempt at a basic guide.
Disclaimer: I’m going to use examples that are fresh in my mind, and some of those reflect the digging I have been doing and are somewhat supportive of the no side of the debate (see #6). If you are on the yes side please take them as the examples they are meant to be. If you have your own examples please add them to the comments.
1. Get Context
It is very easy to be impressed by large figures. Is 24bn barrels of oil left in the North Sea a little or a lot? That is 24,000,000,000 barrels. Sounds huge. Perhaps, but 40bn barrels have already been extracted. So 24bn left from 64bn barrels in total. Or 37.5% left, or 62.5% already gone. Clearer?
That matters with money too. For most of us millions of pounds sounds like a lot of money, billions almost unimaginable. So the £6.5bn paid in taxes on North Sea oil to the UK in 2012-13 must be huge for Scotland? The Scottish government estimates Scottish GDP (the value of what the country produces) at between £130-£148bn. So the whole amount is 4.3-5% of GDP. Even though Scotland’s share is smaller, it is significant for the economy as a whole, but does it justify all the spending plans?
If you want to be economically literate you need to have a few facts to hand. Not precise figures, but knowing, for example, that Scottish GDP is about £140bn, USA GDP is $17tn or the UK economy is between £1.5tn & £2tn (see – I don’t need the exact figure) is really helpful. Go to the data source whenever you can. Some media sources can be reliable too (I generally trust the FT, but not always the Telegraph.) I’ve cited the Scottish Government pages and the BBC here, but there are others depending on what you are looking at.
2. Money has two sides
Many things about money can sound good or bad in isolation, but for most income there is an expenditure or a liability for an asset. Or vice versa. So for example the yes campaign is highlighting that Scotland produces higher taxes (by £800 per person according to the brochure I have). They do acknowledge spending is higher too. But how much? That they don’t say tells you to look at it.
In 2012-13 the Scottish current budget balance was £14.2bn in deficit. That’s 11.2% of GDP (context!) But oil revenues aren’t included – add those and we reduce the deficit to £8.6bn (5.9% of GDP). So Scotland is already spending those extra taxes and more. Incidentally the UK deficit was 5.8% of GDP. Now what that expenditure was matters (e.g. the rural parts of Scotland do need higher spending, Scotland has a different university tuition fee policy, but NHS spending growth less than the rest of the UK) so that may be good or bad. But any additional spending may require more borrowing or cuts elsewhere – basically future decisions will be tough and require trade-offs, just like you’d expect .
It is also perhaps worth mentioning that while there is talk of Scotland repudiating its share of UK debt over currency, the UK government current has assets broadly equal to that debt. Two sides.
3. The Future is Uncertain
When people talk about the future they often sound very certain. And they often quote numbers that justify what they are saying. Always look at these hard. Ask yourself what assumptions are required to be fulfilled? So the Scottish government has assumed in its projections for oil revenues that production will increase over the next few years. Now they could be right, but North Sea production has been in a steady decline since 1999. Is a sharp increase likely? For a more detailed discussion of this see the FT.
And there’s two sides to this too. If there is a fixed pool of oil, then increasing production now means less for later. It may not be zero sum, as getting money sooner is worth more than in the future, but it isn’t as positive as it might seem.
4. The Present is Uncertain Too!
I suspect this is going to horrify most people, but most economic statistics are estimates rather than precise measurements. GDP figures typically don’t get finalised until years later, but the estimates do get pretty close quite quickly.
Oil illustrates this really well. Reserves are regarded as recoverable, and hence counted, when prices & technology allow it to be done so profitably. As we indicated above, the consensus estimate is 24bn barrels. But last week we had one expert suggesting oil will run out sooner than predicted because they have been overestimated by 8bn barrels. Meanwhile another suggested improving technology will mean there is 2.5-3bn more than stated reserves suggest. A fall or rise in the oil price can affect the figure too. Truth is a point estimate is misleading – a range (or, better, confidence interval) is often a better way of expressing it. But the media doesn’t like that.
5. You are not Average
You already know this. Any time the average voter or person is mentioned you may want to ask if this applies to you. Of course, you may consider your personal position to be irrelevant and are happy to look at the broader picture. But noone is truly average.
The single biggest economic effect of independence may be on interest rates. It is likely that interest rates will go up in the event of independence – most estimates are around 1-1.5%. If you have a £100,000 mortgage that is £1000-£1,500 worse off. If you have £100,000 in savings that is £1000-£1,500 better off (less tax – not symmetric here). Compare that to any other figures quoted (context!)
The other example that many are aware of is inflation. The published figures are based on a basket of goods. Your lifestyle is different – e.g. whether you own, rent or have a mortgage matters a lot – and your personal rate of inflation could be quite different from the one you see quoted.
6. You are Biased
Objective information in the independence discussion has been hard to find at times, and this is true of many political discussions. But just because something is included in an article that you agree with or it seems to support your views doesn’t make it right. Behavioural economics has highlighted something called confirmation bias – the brain is lazy so it looks for things that match its beliefs and tries to ignore things that doesn’t. It can be hard to look at things critically in those circumstances, but it is worth the effort.
And I don’t exclude myself. Reread this and find my flaws.
7. Anecdote is not Evidence
The human brain is also much more inclined to relate to stories than statistics. Charities know that telling you about a single child in a disaster means more donations than telling you there is a million children in trouble. Beware of the anecdote – it may not reflect the wider truth. When you think about it much news only works because it is the exception, not the norm. Think ‘Dog Bites Man’ vs ‘Man Bites Dog’.
Check out this article from the Guardian on the NHS. The main thrust is that 6 hospitals have sharply increased their earnings from private care and it is an outrage. But further down it talks about the NHS as a whole (context!) and mentions that private income has fallen from 0.71% to 0.70% from 2010-11 to 2013-14. Eh? Alarm bells should be ringing already – no matter what your views it should be clear this article is missing something out. The anecdotal evidence of 6 hospitals is not giving you the whole picture.
A second example – this week someone suggested to me that Nick Robinson’s treatment of Alex Salmond proved that the BBC was biased (for the sake of balance many also think Nick Robinson’s comment was correct). I haven’t watched this, but it cannot prove the BBC were biased, even if Nick Robinson shouted racial abuse at him and punched him in the face. To prove it there has to be systematic evidence – show this has repeatedly happened and or that the other side has regularly received more favourable treatment. We need to have more than one example. If the yes campaigners view is right then this could be part of a bias case if we had more evidence. Or it could be an outlier. In itself it proves nothing.
Let’s be careful out there
So that’s my suggestions. Follow them and you’ll be better informed. Don’t and you can be suckered. But you may want to check that…