“The size of the global economy has grown from $30tn in 2000 to $69tn today.”
– Liam Fox, MP for North Somerset, writing in the Daily Telegraph, 4 October, 2012.
The former defence secretary Liam Fox thinks the “toxicity” of Labour’s economics has left the UK where it is now.
That’s why, he claims, despite the size of the global economy more than doubling to $69tn today, “we have not noticed…in the west. Why? Because we are over-borrowed, over-taxed and over-regulated”.
The economy doubling in size in 12 years. Really? As Paul Wilmott, one of the world’s leading financial mathematicians, told us: “I don’t know about your life, but mine isn’t vastly different from that in 2000, except for the distraction of apps.
“You’d think with such a doubling that we’d at least be vacationing on the moon and having total-body transplants.”
FactCheck takes a look.
According to the International Monetary Fund, in nominal US dollars, the value of the global economy was $32.3tn in 2000. Last year, it was $69.7tn. So Dr Fox is about right, on that scale.
By that token, the global economy has doubled, or thereabouts, every 10 years for the last 30 years or so. In 1990 it was $22.2tn, and in 1980, the world’s GDP was $10.7tn.
Thing is, Dr Fox has curiously chosen to speak in terms of nominal US dollars, otherwise known as “current prices”. It is unusual – economists more commonly refer to inflation-adjusted figures, so if we see headlines that GDP has grown by, for example, 0.2 per cent, the figures have been adjusted to take inflation into account.
When we do take the adjusted figures, the world’s economy hasn’t doubled – it’s only gone up by about 55 per cent. Which might explain why we’re not holidaying on the moon.
And if we go by Dr Fox’s slightly strange sums, UK growth doesn’t appear to be that bad: between 2000 and 2012, it looks as though it’s grown by 65 per cent, from $1.48tn to $2.45tn, taking the value of the British pound at 2008 prices.
That, however, would be misleading, and he’d be right to pick the opposition up on it, were they to claim that that’s what they’d made the British economy grow by.
In real terms, it’s only increased by about 20 per cent in that time.
Dr Fox is right when he says the world’s economy has more than doubled to $69tn, but only when talking in non-adjusted terms.
It’s an unusual way of doing the sums, and doesn’t reflect the reality. FactCheck can’t work out whether that’s by design or by accident. The world’s economy has grown considerably anyway, by 55 per cent in real terms, and clearly, the UK’s economy isn’t going to be as strong. That’s because countries in the far east and Asia are going through their equivalent of the industrial revolution. So why use figures which are a bit strange?
As Jonathan Portes, the director of the National Institute for Social and Economic Research, told us: “Nobody who knows anything about economics and statistics would present figures in a form that Dr Fox has presented in his article, and it’s misleading to do so.”
Dr Fox may hunting for a return to the frontbenches, according to reports. Hopefully not as chancellor.
By Fariha Karim