You can’t talk about a billion pounds and think of a fifty pence piece. And that’s a problem because 50p is pretty much all it’s worth in the national budget. So give yourself a better grasp than most people by using three tricks.
Why does this matter?
Governing parties like to announce big numbers because the human brain is ill-equipped to understand them. A £5bn announcement for post-covid economic recovery feels big because daily life makes us value £2.50, and £5bn is huge in comparison. The problem is that our emotional sense that the number is “big” is almost always wrong. Worse still, it doesn’t differentiate for rare exceptions like the the $1tn dollar infrastructure plans in America that actually are big – even by US standards.
Take the new announcement of £375m to make the UK a world leader in science and innovation. If you understand the numbers, it’s obviously incompetently small-fry – like turning up at the Porsche dealership with a tenner. After all, £375m would fund just two months of top class university work. That’s not even multiple universities – it’s just one university. And the cash would be gone in sixty days.
But be honest with yourself and admit £375m still feels like a lot of money. Because of course it does. We don’t feel: “that’s not even half a modern football stadium”. We feel: “that’s a life-changing sum of unimaginable proportions”.
First things first, this is not just a problem with government. Money creates emotional disconnects all over the place. I know a lad who just got his first job. He’s earning £100 a day. That sounds pretty good doesn’t it? OK, it’s only £82 quid after tax but there’s a lot worse than that five days a week. His grandad would have been rich on such money.
Trouble is, that’s also a pittance. After all, the average home (not even a house) in traditionally working class east London is now £543,000. So, if he can save up £100,000 (a thousand days of wages), he can buy a flat using a mortgage of £23,124 per year, or £89 per working day.
That means he needs a pay-rise of 7% after tax, £100,000 in the bank, and to then live without spending any money at all – to achieve a life most of his older neighbours achieved on a lot lot less than £100 a day. And yet £100 a day still “feels” like it’s probably pretty good.
That disconnect comes because numbers change. £100 a day is more than most directors earned in the 1970s. It isn’t now.
But what about abstract government announcements? How do we get our emotional heads around the meaning of numbers we probably can’t type into a calculator without double counting the zeros?
Well, there are three tools we can use to train ourselves to use. They won’t prevent the instinctive emotional feeling of “big” but they can help us overcome that emotional response and realise it’s wrong. And I’ve already done all three in this article.
Connect to the real world
The first trick is to ask “what would that buy my family?”
If you want to understand how poor the younger generations of the UK are compared to older generations, you only need to remind yourself of what they can’t afford. Most older people could afford a home in their 20s and 30s, and most people that age now can’t.
So do similar with government announcements and think about your family. A billion quid would buy you quite a lot. But a billion quid is 0.05% of the UK economy.
The average household income is £29,000 per year, so a billion pounds to the UK is like £14.50p to your family – which will buy a round of McDonald’s today. Don’t turn your nose up at free french fries, but don’t think you’re getting a sports car either.
This was the tool I used in the title.
Next, Google the sector
The next tool is to just see how big the sector involved is. If the government announces £10m for football, look up how much money football has to get an idea of what £10m is worth.
That’s what I did above with the university. I saw £375m, felt like it was a lot of money, then looked up the most famous of UK universities with a big science/tech programme (Cambridge).
That inspired this article because even by my naturally sceptical standards, two months of a single university’s budget was a shockingly small-fry.
Finally, remember truly “big” when you find it
The reference to American infrastructure plans was no accident. Just the first tranche is $1tn and a further $3-6trn is being drawn up.
Even scaled down proportionally to the much smaller UK, that’s like spending as much as £700bn – putting the UK’s original “Covid Marshal Plan” of £5bn into quite some contrast. So comparing things to real “bigs” can really help.
And to return that to the real world, the American economic boost is equivalent to giving you ten grand, not a big Mac.