## Do economists study voodoo or maths?

September 17, 2010

I work in the media. I’ve been a journalist for over 25 years and I am constantly stumbling over BAD MATHS in the MEDIA.

Some of the BIGGEST MATHS BLOOPERS involve economists. Do economists study maths or rely on voodoo? Or do they deliberately set out to mislead the public? You decide.

In the How big is a Trillion? post (above), I highlighted the order of magnitude of calculations involving national economies. In this MATHS BLOOPERS MADE BY ECONOMISTS post, I will introduce you to the concept of UNCERTAINTY and how it makes a non-sense of some economic calculations.

Any  measurement carries an uncertainty with it.

If you were measuring a length of wood you could write down the measurement as:

103 cm

103.0001 cm

105.000137 cm

Unless you are using an electron microscope you cannot measure a length of wood to one millionth of a cm.

Meanwhile, the amount of money you have in your wallet is an ESTIMATE. You may not know how much you have to the nearest cent. But you will most likely know round about how much you have. Economists use estimates in their calculations. But you will appreciate that estimates must have an uncertainty attached.

You will find  a very good explanation of UNCERTAINTY

Now let’s look at some recent calculations by our Department of TREASURY and FINANCE.

You might think that TREASURY involves public servants shovelling our taxes into Scrooge McDuck money vats or bureaucrats crowing ‘pieces of eight’ as they run their hands through Pirates-of-the-Caribbean chests of loot but that is not the case, although I do understand they have some lovely desks. TREASURY does all the fiddly calculations to do with the economy.

Recently during the elections in Australia, Treasury calculated that Political Party A (I’m not concerned about the politics here. Just the maths. You can check on the numbers @ \$11 Billion Black Hole), who claimed their budget savings estimates to be  \$11.5 billion were wrong. This may indeed be true, but you cannot correct bad maths with more bad maths.

TREASURY looked at the figures and came up with savings estimates for Political Party A of between \$0.9 to \$4.5 billion. Is this good maths? Let’s see.

Treasury’s calculations begin at, say, \$1 billion and go up to \$4.5 billion. That’s a range of 450%.

Estimating budgets is not an exact science. But to produce calculations with an uncertainty of 66% is RUBBISH MATHS!!!!!!! It would be like someone measuring your neck at 27 cm plus or minus 18 cm!!!!!!

Moreover, if the calculations are complicated then the uncertainty INCREASES at every step!!!!!!

Meanwhile, TREASURY are the folk who do all the calculations for our economy. God help us!!!!!

So think of a number between 1 and 10 now multiply it by a billion. You can get a job in Treasury.