I don’t get it. Why do people think that nominal figures at any given point in time mean anything? Actually I do get it – it’s called money illusion. And perhaps a dollop of the concept of “natural” prices (though that’s another thought for another day).
Case in point (excerpt; emphasis added):
…Since he’s toast any way you look at it, why not spend the remaining precious time maximizing contracts allocation to his cronies? Well, actually Najib is a genius primarily because he managed to increase the country’s debt to RM502 billion last year, the highest in history and reaching 54% of GDP. In short Najib doubled the debt in 4-year what Badawi managed to do in 8-year, an impressive milestone indeed. If that is not a sign of genius, I don’t know what is (*grin*). It’s critical to build his war chest, just in case he miraculously gets to keep his premiership. If somehow he managed that, his next battle in UMNO election needs billions of dollars to secure the presidency seat…
The graphic accompanying the piece shows the increase in government debt since 1990 – don’t bother checking, the numbers are all correct. The interpretation, however, is not.
Quite aside from the issue of the macro-stability function of government spending, using absolute nominal values as a measure isn’t terribly meaningful in any economic sense (though I’m sure some would say it makes political sense). Saying debt is at a historical high in absolute terms doesn’t convey any relevant information at all.
For one thing, it seems incredibly hard for people to grasp that RM1 in 1990 and RM1 in 2010 have very different purchasing power due to inflation, and aren’t directly comparable.
For another, many economic variables hit “historical highs” every year, which isn’t exactly indicative of whether you’re doing well or not. Otherwise, it would be quite appropriate to claim that since GDP hits a new historical high almost every single year, the government must be doing a good job:
The economy now is 8 times larger than it was in 1990, while government debt has only increased less than 6 times. But would anybody be prepared to claim that this shows good governance and good economic management? I didn’t think so, and they would be quite right. The business of government and managing the economy is a lot more complex than that, and subject to many varying forces, most of which are outside policy-makers control.
I could point out that the debt to GDP level was 79.5% in 1990 while currently its only 54%. Does that make Anwar a bad finance minister and Najib a good one? No again.
Just comparing absolute values across time is neither useful nor appropriate. Even relative and/or adjusted values need some care. Just making a comparison from one variable of one agent in the economy isn’t sufficient to make a judgement of the appropriateness of its current level, or dare I say it, the competency of its managers. Government borrowing and debt level are wholly intertwined with demand, supply and monetary conditions in the rest of the economy. Context matters.