A Good Blogpost by Someone Else

...as a substitute for any original posting by me. I'm not the biggest fan of Harrys Place, but this post on the 1970's is a must read. I was only alive for a few short months of that decade so don't recall much but I've heard the horror stories.

It's interesting to read a few counterarguments such as this.

But in reality much of this was media hysteria. Union denials that they were preventing vital operations were ignored and met by ‘headlines such as: WHAT RIGHT HAVE THEY GOT TO PLAY GOD WITH MY LIFE?’ whilst Liverpool’ s chief medical officer Duncan Bolton wrote later that headlines in the Sun and Telegraph such as ‘Bodies May Be Buried at Sea’were in response to him actually saying that would be the possible solution – if the had dispute stretched on for months and months. (in fact there were more unburied bodies in Liverpool during a 1987 strike than in the strike of 1979, which, as few people now remember, was called off within days.)

and this...

Derek Jameson, then editor of the staunchly Conservative Daily Express, recalled in his memoirs:

“We pulled every trick in the book We made it look like it was universal and eternal when it was in reality scattered, here and there, and no great problem’

It's good to know that the reality of the 1970s is a good deal different to that we often hear portrayed by the right.

Comparative Advantage and Finance

Tonight folks, I'm going to blog on the subject of comparative advantage, specifically, comparative advantage when considered at the national level. The idea is simple enough, it's that countries will end up producing the goods (or services) that they best suited to producing.

The comparative advantage argument is often invoked in defending the UK's finance industry with the suggestion that we have a comparative advantage in finance. This argument is, in my opinion, flawed.

When talking about comparative advantage I think it's necessary to make the distinction between what I'd call natural and artificial comparative advantages. A country can be considered to have a natural comparative advantage if that advantage arises from permanent natural factors. For example, a country with the right climate for growing grapes can be considered to have a comparative advantage in the production of wine.

An artifical comparative advantage is a bit different, it arises from factors that are not permanent and could be altered through policy decisions. An example of this could be a nations advantage in car production due to a well educated workforce. Another nation could achieve a similar advantage through policies aimed at encouraging education in mechanical engineering. In a developed economy almost all comparative advantage is artificial, this is because the areas where a nation might have a natural advantage, specifically agriculture and the production of raw materials are highly efficient and employ a small proportion of the workforce.

The upshot of all this is that with the exception of a few specific industries, there are no real limitations to what industries a nation can specialise in, and furthermore that specialisation is often shaped by the political decisions of governments. The UK's finance industry is a case in point, it developed as a result of the many measures introduced by the Thatcher government.

The problem I have with those who say we should not (over) regulate our finance industry is that they seem to be reading some kind of natural factor into our entirely artificial comparative advantage. To illustrate this, here's Anatole Kaletsky.

This is because Britain clearly has what economists call a comparative advantage in financial services; companies and workers based in Britain can generally earn more in this business than in most other industries. And the more Britain specialises in its areas of comparative advantage, the higher will its living standards rise.

If we were stuck in the situation where there was little choice over what comparative advantages we had, this argument would be valid. Since we actually have a bewlidering array of choices in front of us there is no particular reason why we should continue to specialise in one area over and above all others.

Graphology, plus a Wonderful quote..

An interesting graph on US unemployment, courtesy of Economist's View. One commenter also unearthed this little gem from FDR:

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.

The HobNob Mob, a criticism of Nick Cohen

Reading Nick Cohen's column today set off a an awful lot of conflicting arguments around my head, I'm still uncertain exactly what to make of the whole argument about Twitter outrage and free speech, but my considered reaction at this point is that the arguments he put forward were pretty damn weak.

I'd accept that there is room for debate about how the kind of instant online outrage that we've seen on Twitter could possibly threaten free speech, I'm not sure the whole Jan Moir incident indicates that we're anywhere near that point at this moment in time. What Cohen seems to be offering seems like little more than a rehashed version of the argument as to how organised campaigns can subvert genuine opinion on a subject.

Cohen uses two examples, the Jonathan Ross/Russell Brand incident and the more recent Janet Moir article on the death of Stephen Gateley. In the first example, Brand was forced to quit and Ross was (I believe) suspended without pay. In the second example advertising was removed from the online article and Moir was forced to write an apology. Neither example seems to me about free speech. Neither Jonathan Ross, Russell Brand or Jan Moir has been denied freedom of speech, they have simply been held to account for the actions they have taken in positions of responsibility.

I happen to think it's great that this has come about, take for example this bit of his article:

I have known for years that the Daily Mail hired homophobes as columnists – no, really, I have – but others were shocked beyond measure by the discovery that Jan Moir could use the death of Stephen Gately as a reason to sneer at gay marriages.

What the hell was Nick thinking when he wrote this? Is it somehow OK? Should we, the masses simply lie down and accept that one of the country's major newspapers quite happily lends a platform to homophobes? I don't think it's OK and I happen to think it's a damn good thing that we can hold the Daily mMil to account for the views it prints far more effectively than ever before.

Another point I find silly is this argument:

Whether you are the owner of a tiny blog or the editor of a national newspaper, if someone points out an incorrect fact, you correct it; if someone challenges an argument, you argue back; and if someone says that you must think what they think, you ignore them.

Nick uses the very narrow "you must think what they think", but I have to ask what's wrong with telling people how to think? As a politician, I'm always going round telling people what to think. It's a damn good thing too, I happen to like the fact that people no longer think "women shouldn't have the vote" or "homosexuals should be sent to prison" and I'm quite glad that the voices that spoke out against these things were not ignored.

There's a vague point in the thrust of Nick's arguments, but for the most part it seems to be little more than a whine about the fact that journalists will have to live with a little more accountability.

Guido the Banking Lobbyist

An unfortunate consquence of being a political activist is that I have to indulge Paul Staines' ego by actually reading his blog. What I read today made me angry.

UPDATE : Labour's Lord Myners, who really ought to know better, is now (Thick of It style) pushing a rival plan this morning. Forcing investment banks to reduce their fees for capital raising. He seems to want to further erode bank profits. How are the banks expected to rebuild their balance sheets?

Does Guido actually understand how investment banking works? Investment banks shouldn't need to rebuild their balance sheets because they don't provide the money themselves, they act as facilitators matching those with cash to those who want it and take fat fees for this job.

Now, it's true that in these times the traditional "investment bank as an agency" model is a rarity with most banks being a larger banking conglomerate. However, it should be still be noted that the purpose of the investment bank is to find capital to fund it's customers, if it is charging excessive fees in order to shore up it's parent bank's balance sheet that smacks of an absolutely massive conflict of interest.

From what we can read into Guido's post, it seems clear that he either does not understand what in investment banking is or he is not worried about this conflict of interest. If it's the latter then he's being little more than a political lobbyist demanding that that the banking gravy train continues unabashed.

Tories Translated

Mervyn King's speech has started off something of a spat the Gordon Brown and Alistair Darling. The whole "small banks" idea is subject for a more considered post, for now though I feel a translation of the Conservative position is in order:

Mr Osborne said Mr King's speech was "powerful and persuasive", although a future Conservative government would only break up banks into retail and "casino" operations in the unlikely event that all other major countries did the same.

What it should read is:

Mr Osborne liked Mr King's speech because he had a go at the government, although a future Conservative government has absolutely no intention of breaking up banks into retail and "casino" operations.

Hope that clears things up.

In Support of the Postal Strike

I'd just to say briefly that I fully support the strike actions of the postal workers today and tomorrow for one very simple reason. I don't want to see a world where reasonable working conditionas, job security and a safe retirement are considered an unreasonable thing to ask for.

Err.. No Tim

Tim Worstall's getting on his high horse about the FSA’s Mortgage Market Review and it's call for the end of self-cert mortgages (or liar loans). It's quite amusing.

But to ban them? To say “no, you may not lend your money as you wish”?

I didn't think it was the bank's money myself, I thought it was our money but that's another argument. Why on earth are self cert mortgages a must, what on earth is wrong with regulating to insist on proof of income? If you can't prove your income, rent, it's what most people do if they find themselves unable to get a mortgage.

Self-cert mortgages are not a niche product, they're a very common one here's Stephanie Flanders:

Thus the FSA's decision to single out self-certified mortgages for abolition - and all other products which do not require proof of income. These accounted for a shocking 49% of mortgages in 2007, a large number from specialist lenders

And next from the report itself:

No other country that we assessed for comparative purposes featured a similarly significant NIV (non-income verified) market segment, with the exception of the USA and Ireland, both of which have experienced a boom in mortgage credit and house prices followed by a severe reduction in both

So, we have a pretty good indication that this was a common practice and that the end results were disasterous. It's not hard to see why either, financial innovations meant that lenders could move most of the risk off their balance sheets and on to another party. Lenders were no longer incentivised to examine the risk, the whole system was dysfunctional. It's not a move that's a tad silly, it's entirely sensible.