I’ve been getting a ton of questions about an article from the Independent about a guy named Bertie Smalls. Bertie was a british thief who died quite recently, who was famous for
testifying against his organized crime employers back in the 1970s. The question concerns one
claim in the article. Bertie was paid £10,000 for his part in a robbery in 1972. The article alleges that £10,000 in 1972 is equivalent to £200,000 today.
Lots of people think that that looks fishy, and have been sending me mail asking
if that makes any sense.
Full disclosure. I’m not an economist – I’ve never studied it, and I’m not particularly interested in it. So my methods of trying to figure this out may be completely nonsensical from an economist’s point of view.
I tried two ways of figuring out some kind of conversion factor between 1972-£ and 2008-£: one based on wage comparisons, and one based on gold prices. Neither is necessarily a good measure, but they’re both arguably basic measures of the value of a currency, and they’re both fairly things where it’s easy to get historic statistics. Then I tried looking up some other ways of computing the conversion, which are commonly used by economists.
For wages, I’ve used average minimum wages for agricultural work in the UK. In
1972, the average minumum wage was £58 for 40 hours work. Today, the statutory minimum wage in the UK is £214 for 40 hours. By that comparison, the
a 1972 pound is worth about 3.7 2008 pounds, so by this measure, 10,000 1972 pounds are worth about 37,000 2008 pounds.
Another way of computing it is to look at the price of a valuable commodity. Using gold, you get a different ratio. Using historical gold prices, you find that 10,000 pounds in 1972 is worth about 140,000 pounds today.
For what economists consider to be valid comparisons, I found a nice site that does
computations of these figures using consumer price indices, gross domestic product, and per-capita GDP. It’s only updated with data through the end of 2006, so it’s off slightly, but it’s good enough for this discussion. The price index comparison says 10,000 1972 pounds are equivalent to about 90,000 2006 pounds; per-capita GDP says it’s worth about 180,000 2006 pounds; by average wage, it’s worth about 150,000 2006 pounds; by raw GDP, it’s worth
about 200,000 2006 pounds.
So – the article is clearly using the GDP measure. I don’t think that’s a particularly good one; comparing raw GDP doesn’t adjust for changes in population, which definitely has a skewing effect to increase the ratio. My choice would be price index comparison, which
is basically the cumulative effect of inflation. But GDP is a reasonable choice. So the
article isn’t completely unreasonable. They chose the method of computing the figure which produced the largest ratio of current value with 1972 value – clearly they wanted to make the figure look as impressive as they reasonably could – but they did use a figure that is,
arguable, a valid measure of relative values.