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Wednesday, 8 July 2009

Time for another graph

This is one picture that the government doesn't want you to see. The Prime Minister is apt to spout ststistics regarding GDP as though that was a good thing. The trouble is that GDP is only a good measure when it is fairly priced, and it is probably only a realistic measure of economic activity when applied to the private sector because arms length pricing (usually) applies. Certainly it is the private sector that ultimately pays for all the schools and hospitals and all the other baubles and trinkets doled out by the state.

So let's look at the size of UK private sector activity. We get a figure for that by taking the reported annual GDP and subtracting from that all government expenditure for the year. But in order to measure activity year on year on a meaningful basis we then adjust the economic figure according to an inflation index. I choose to use RPI, but some economists might argue for something else. We find that on this basis private sector activity actually peaked in 2003 and at the end 0f the year it will probably be lower than in 1997 (despite a higher population). So to compare year on year figures on a meaning ful basis we divide by the estimated mid year population, and find that not only is the UK private sector less productive per capita in real terms than it was in 1997, it is more than 30% less than it was 6 years ago.

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