Why comparonomic graphs are important and useful

The simple example of comparing our life to King Louis’s shows how bad constant dollar income is for understanding change over time. The standard economic analysis would show Louis was thousands of times wealthier in ‘real dollars’ but I doubt anyone would want to swap when they understand the reality of his life.

In just a few minutes, anyone with no knowledge of economics can create a model to describe how life compares. The comparonomic graph is more useful than standard economic tools for comparing long time periods where the types of goods and services fundamentally change. If we don’t accurately understand how things have changed in the past, we have little hope of understanding what we could do to make things better. Comparonomic graphs highlight three crucial messages:

•   Relative income is a feeble measure to compare how well off people are over time periods when the things available are dramatically different.

•   You can build a more useful, detailed and accurate understanding of how things change compared to professional economists who are using inappropriate tools. You don’t need a PhD in economics to be able to understand, build and communicate using comparonomic graphs.

•   A better understanding of how things have changed could be useful for understanding what’s going on in the world today.

When is comparonomics useful and when is it not?

I am not proposing throwing out conventional economic modelling because constant wages/income is appropriate for short-term measurements from quarter to quarter. The example above shows how hopeless constant dollars are as a comparison over the long term. I suspect that constant dollar comparisons will get worse where the rate of change of things is accelerating as appears to be happening with modern technologies.

A comparonomic graph would be useless comparing one quarter to another — every line would be flat. But for long-term analysis, it is much more insightful. My guess is that a comparonomic graph needs at least 10–20 years’ time difference to be useful.

For long time periods, comparonomic graphs are useful and standard economics models less useful. One factor that could be compelling is that the rate of change of goods and services available seems to be changing faster now than previously, so comparonomic graphs could be getting more useful for shorter time periods.

Rather than saying comparonomics is right and conventional economics is wrong, I’d prefer to say comparonomics seems a lot more useful than traditional economics for long-term time comparisons. Conventional analysis methods miss so many things that are important to us.

How to mathematise comparonomics

It could be argued that a comparonomic graph is not as accurate or useful as standard economics tools because there is no ‘science’, usually assumed to mean numbers that we can verify. Well, you can mathematise this analysis by doing the following things:

•   The importance of different parts of the economy can be measured by looking in aggregate at how much time and/or money we spend on different sectors of the economy.

•   The rate of improvement can be measured by looking at the length of time it takes for something we deem important to go from impossible to obtain to being available to everyone. To create an easy measurement for this, we can measure the time it takes for a product or service to go from only available to the 10% wealthiest to being accessible to 90% of the people. If it takes 100 years for plumbing to go from 10% of people to 90%, then it is a lower rate of growth than smartphones, taking only 10 years.

•   These numbers could be aggregated to calculate an overall figure for the value of goods and services from one period to another. This can determine what we call the Speed of Economic Progress (SEP), which is an alternative measure of economic growth comparable to GDP.

I have expanded how this could lead to a new form of economic growth theory in Appendix 1. I put this in an appendix as I don’t want to complicate the core narrative of this book. As discussed previously I am purposefully producing a high-level sketch of a broad picture rather than a detailed painting.

Figure 15 is a graph that shows the speed of economic progress is increasing faster now than ever before. The numbers in the chart are a rough analysis but indicate that, if anything, the rate at which new goods and services make it to the whole population is accelerating. Notice I didn’t say economic growth is accelerating as this has a precise alternative definition. The speed of economic progress considers the fact that the types of goods and services important to us change over time. The speed of economic progress is the relative speed with which everyone gets goods and services that used to be available to only the rich. The speed of economic progress certainly seems to be accelerating, and I would imagine most people would interpret this as a good thing.

Numbers don’t necessarily mean speed of economic progress is more scientific or more useful than a comparonomic graph. I could run an ‘objective’ mathematical version of the comparonomic model to show that we are 26.24 times wealthier than King Louis (the opposite result of what constant dollar analysis would show). Even though this may be more mathematical and ‘verifiable’, it is not necessarily an insightful model compared to a comparonomic graph where the assumptions and differences between sectors are open to see. The comparonomic graph is more accessible for anyone to participate and therefore easier to scrutinise, tweak, debate or accept. The assumptions and differences in rates of change are plain to see and not wrapped up in some falsely worshipped, mathematically precise number.

Imagine an alternative way of being introduced to comparonomics by reading an article that may have the title ‘New economic theory’ shows that we are 26.2 times richer than King Louis XVI’ (news titles with ‘economic theory’ are hardly common and will never win a clickbait contest). Your gut reaction to this new information could include thoughts of ‘This doesn’t seem right — King Louis had a couple of huge palaces and servants on tap. Most people I know are struggling. Sounds like some ivory tower theory of no use to me.’ I will get on to why we feel like we are struggling later but, hopefully, you can follow the logic of comparonomic graphs and agree that by most measures we are much better off than King Louis. Because there are no numbers in the comparonomic graph, it doesn’t make it any less useful or even any less scientific.

It is worth emphasising here how different the results are from conventional economics that show King Louis is vastly wealthier than us. The reality is that many aspects of his life were more horrific than how we treat a dog. This result is so different from the commonly accepted wisdom that there should be scepticism — make your own graph and see what you think. There is nothing inherently optimistic about the tool. Try comparing Zimbabwe to 30 years ago, and you can see there is nothing about the tool that is optimistic. I ask two simple questions:

•   What is important to you?

•   How do levels of goods and services compare?

The conclusions about the inadequacy of conventional economic tools are too significant to let experts debate over the next 20 years before they become commonly understood. Also, I cannot think of any other area of life where such a simple, clean analysis can show how limited currently accepted models are.

While comparonomic graphs are not difficult to understand, they are a much more open and sophisticated way of thinking about change.

Note - this is a modified version of a chapter in the book Comparonomics