Misleading cost comparisons

Thatcher funeral cost: poor journalism, poor argument
Whenever people oppose any item of state expenditure, they tend to make their point by comparing that expenditure to supposed alternatives. This week has seen many such comparisons due to £10m cost to the taxpayer of Margaret Thatcher's funeral.

Economists always urge using the idea of 'opportunity cost' - the options you have foregone - when assessing any expenditure. This highlights what you are implicitly choosing not to have when you spend resources on something.  Nonetheless, the way journalists carry out such analysis is almost always infuriatingly misleading and adds little to public policy debate.

Take this piece in The Guardian, which claims that the £10m to be spent on Margaret Thatcher's funeral could pay for, amongst other things, "322 nurses". The way they have calculated this figure is to divide £10m by a nurse's annual salary.  In other words, you would be able to employ 322 nurses for one year, and then make them all redundant.  They qualify other items of their list with time periods ("annual" water bills, "two years" of aid to Iraq, "10 days" of arts spending), but not the nurses, fire officers, or paramedics. This is probably because the image of hordes of potential extra service workers is too appealing to water down with qualifications.

Far better would be to take the Net Present Cost of employing one more nurse in the NHS from now on.  Assuming a two percent real interest rate, and using their salary figure, the Net Present Cost of employing one more NHS nurse from now on is £1.6m.  In other words, the opportunity cost of Thatcher's funeral cost is just over 6 nurses, rather than 322.

The reality is - whatever your view on Thatcher - a £10m one off capital expenditure is to the taxpayer essentially nothing. This is aptly illustrated by their jobseekers' allowance comparison.  They inform us we can pay for the long period of one week of unemployment benefits for less than a ninth of all claimants. Except we can't - they've used the lower 16-24 rate rather than the normal rate without telling us. Could it be that their 'Data Blog' - where 'facts are sacred' - is trying to push a certain view?  

Update: The Guardian has now changed the first three headlines to include the "for a year" qualification.