Relative measures can be absolutely wrong

AS A clever-clogs analyst a long time ago, I remember ripping a friend’s new business venture apart. Why would you touch such a horrible industry? The profit margins are barely into double figures! But when revenues passed eight digits, his earnings were a million pounds per year. He realised before I did that money is absolute, whereas my financial models were full of percentages and ratios.

Relativism is not only a cultural problem. It is also rife in finance – as my friend demonstrated – as well as economics and politics. We are constantly bombarded with comparisons which make no sense at all.

Take the news that the UK plans to increase its defence budget to 2.5 per cent of gross domestic product (GDP) by the end of the decade. What on earth does military spending have to do with the final value of goods and services produced in a country in one year?