Wednesday, December 31, 2008

A Time to Revive the Worgl Experiment?

The phrases "brilliant idea" and "Simon Jenkins" don't normally tend to associate in sentences, in this case however: Simon Jenkins idea is brilliant. And has some pretty good historical and economic arguments on it's side.

In 1932 during the great depression, the mayor of the German town of Worgl had an idea to revive the fortunes of his town's flagging economy. He printed his own currency, equivalent to the Austian schilling in value and demanded that businesses in the town accept it as legal tender. The currency had a time based depreciation so that it would depreciate by 1% in value each month, this was designed to speed up the circulation of the currency. It's generally considered that currency played a massive role in reviving the economy.

The reason I'm bringing this up is that the speed of circulation of money is important in a functioning economy, our wages depend on a steady supply of customers willing to buy what we have to sell. Keynes argued that an economic stimulus would have a multiplier effect based on something called marginal propensity to consume (the proportion of income that is spent), for example lets assume the government gives away £1,000 and the marginal propensity to consume is 80%:

  • Of that £1,000, 80% is spent so that means that £800 is spent
  • Those who recieve the £800 of spending go on to spend 80% of it meaning that a £640 is spent.
  • Those who recieve the £640 of spending go on to spend 80% of it meaning that a £512 is spent.
  • And so on...
When you crunch the maths, if you assume 80% of any money recived is spent a £1,000 cash injection equates to a £5,000 of spending in the wider economy and £1,000 in various peoples savings accounts. Obviously that's all very good, the problem is that many economists think that this multiplier effect won't occur because any cash injection will be saved.

By taking it's lead from the Worgl Experiment and issuing a series of vouchers that could be accepted as legal tender up until a certain date when they will be redeemable for money by a retailer, the government could make a cash injection could be made into the economy that will be guaranteed to generate a stimulus with a multiplier effect and hopefully revive the fortunes of the flagging economy.

Tuesday, December 23, 2008

Misunderstaning Ha-Joon Chang

I am a very much admirer of the work of Korean economist Ha-Joon Chang, he is considered just about the best critic of globalisation out there, for anyone interested in his work, he has blogged occasionally on CiF and also contributes to the FT's economist's forum.

It does appear that my enthusiasm for his ideas has gathered a bit of attention, a few days ago, I linked to a Prospect article he wrote a while back criticising current attitudes to protectionism. This article appears to have come in for some criticism (Thanks to Nick for pointing this out).

I think a lot of people have misunderstood his work and the nature of his views, he doesn't suggest that countries should adopt protectionist/activist policies as a route to wealth, he simply argues that protectionist policy tools should not be explicitly ruled out as an option. He also believes that policies such as trade liberalisation are not always win win situations and that the greater opportunities that it might provide could be offset by the damage it might do to jobs and businesses.

Another point I feel should be made is that his views do go far beyond just views on trade, here are a few:

  • He is skeptical about the benefits of unrestricted foreign exchange and unrestricted access to capital markets, he suggests that the liberalisation of Korea's capital markets permitted the developments that led to the Asian Financial Crisis.
  • He is also highly skeptical about foreign investments, he believes that governments should be careful about the kind of foreign investment they encourage making sure that investment is mutually beneficial rather than just being of benefit to the investor. In particular he believes that greenfield investment (investment that creates an entirely new business) is to be preferred over brownfield investment (where a foreign investor buys an existing business).
  • He has reservations about the privatisation of state enterprises, since often the state can get a very bad deal on the matter, privatisation deals can also be highly corrupt even in advanced nations (for example QinetiQ and CDC)
  • He believes that current international intellectual property rights are too strong and have held back business in the developing world as a result
The important lesson to be drawn from his work is that government intervention in the economy should not be discouraged in the kind of absolute way that it has been in recent times and that good pragmatic use of economic policy tools can in fact be beneficial. And that liberalisation policies should be pursued slowly and carefully with a clear view to the benefits and pitfalls. In terms of more advanced economies, I think that the lessons are that governments should not shy away from regulation and should not be afraid to take control of a few more of the levers of economic policy. Given recent events that seems, like a sensible plan.

Monday, December 22, 2008

Not to toot my own horn but....

On Labourhome when talking about the financial setup and the need for change in the post credit crunch world, I said:

"When it comes to control of the expansion of credit we really have to ask whether interest rates are a sufficient measure to control this. They are a blunt instrument and there are often cases where the requirements for consumer credit do not match the requirements for business credit so some kind of additional control mechanism would be useful."

As it turns out, I'm in pretty good company, Sir John Gieve the Bank of Englands deputy governor said:

"Maybe we need to develop something which bridges that gap and directly addresses the financial cycle and prevents the financial cycle and the credit cycle getting out of hand ... I think we need to complement interest rates, which are a blunt instrument - you set one interest rate for the whole economy - with something which is more financial-sector specific."

Wednesday, December 17, 2008

A*'s for Everyone Except the Taxpayers Alliance

We must all do our bit to fight the distortion and propaganda as well as the plain stupidity of the Taxpayers Alliance. Tonight, I'm doing my bit by taking a look at Ben Farrugia's criticisms of the Interim Review of the Primary Curriculum.

Notwithstanding the fact he doesn't acknowledge that this is an interim report and is still open to consultation (will the TPA submit anything?), Ben appears to believe that the changes to the curriculum will entrench the problems in schools rather than solve them. In particular he talks about the recommended thematic approach which ends the subject oriented approach (Maths, Geography, History etc) and replaces it with six broader themes.

  • Understanding English, communication and languages
  • Mathematical understanding
  • Scientific and technological understanding
  • Human, social and environmental understanding
  • Understanding physical health and well-being
  • Understanding the arts and design

From what I can tell the intention is that curriculum will be redesigned for Key Stages 1 & 2 for (ages 5-7 and 7-11 respectively. Ben delivers the following criticism:

If these six themes (or areas of "understanding") were proposed as a new
framework for a GCSE level curriculum - in a country with excellent standards of
educational attainment in reading, writing and maths - they might seem
progressive, maybe even sensible.

As it is, for 8 year olds in a country beset by poor levels of basic
educational attainment, the suggestions are terrifying. The report (like
Government policy on education in general) simply misses the point. What good is
Google if you can't read? How can Gordon Brown hope to build the sense of
Britishness he talks of when history is to be marginalised? When discussing
"one's personal impact on the environment" doesn't it help to know where
Bangladesh actually is?

Which might be a valid point if he actually understood what the review was about. The report mentions on several occasions that too many previous reviews have been bogged down by excessive debate over the contents of specific subjects. It also acknowledges a need to reduce the amount of content in the curriculum.

1.13. One reason for this is that previous curriculum reviews have tended to
focusalmost exclusively on what might be added to, or removed from, each
subject’sprogramme of study; thus debate over subject content is often a contest
of strongviews about what children should learn, particularly in subjects such
as history, andthe share of curriculum time that should be given to each

1.14. Most respondents to the Review accept that in order to have a
statutory National Curriculum there must be some degree of prescription over what the common entitlement should contain. However, three clear expectations of this Review have been voiced by respondents. First, that it will reduce prescription. Secondly, it will halt the trend of adding new content to the curriculum, no matter how worthy thecase may be, unless it can be shown what should make way for it. Thirdly, that it willmake curriculum planning more straightforward and manageable.

Indeed, how about these two:

1.15. Meeting those expectations will require more than tinkering around
withthe burgeoning amount of teaching content. The demands of society on
primaryschools have risen and continue to rise but If we are to establish a
‘world-class’, highquality curriculum we must resist a ‘never mind the quality
feel the width’ mentality,and face the reality of prescribing less, so that
teachers can better teach and, aboveall, so that children can better learn.

1.18. Regardless of the freedom teachers actually have to exercise
professional judgment about how they teach, many believe that the Government, the QCA, Ofsted, and the National Strategies, or a combination of all four,
effectively restrictthat freedom. In other words, it is the total demand on the
school that is at issue rather than the National Curriculum alone.

What this indicates to me is that this review actually realises that there is a need to focus on quality not quantity and not bog the curriculum down with pointless additional content. The TPA appear to have read the new subject headings and just made assumptions based on their own politcal viewpoint. The have then proceeded to engage their propoganda machine and blasted forth that ill informed viewpoint.

The idea that a change in headings in headings will send the curriculum up some politically correct primrose path is absurd. Recommendation 5 indicates the actual intention here:

Recommendation 5: The Qualifications and Curriculum Authority (QCA) should work with relevant leading authorities, such as, subject organisations, the
Royal Society, heads and teachers to validate essential knowledge, skills,
understanding and attitudes in each of the proposed six areas of learning, and
organise them intomanageable programmes of learning.

So, the actual content will be decided by the QCA working in conjunction with expert groups, heads and teachers. This seems like quite a sensible approach, which begs the question: Why are they kicking up a fuss? I believe this little (remarkably contradictory) snippet explains it.

But this is politics, not educational reform. As long as politicians of all
stripes have a hand in education they are going to play politics with it.
Misguided proposals such as those put forward by Sir Rose will become law.
Children's education will be jeoporidised.

The Taxpayers Alliance is in fact absolutely committed to playing politics with education in that it want's to stop our taxes paying for it and it's criticisms are simply the application of it's vulgar libertarian views. Education matters to everyone and it's thefore crucial that it's fate is decided by the politicians we have elected and not a bunch of anti tax loonies.

Monday, December 15, 2008

A Word to Patronizing Right Wingers

If you must lampoon left wing ideas, try to find arguments that aren't contradicted by obvious historical examples.

I refer to this post by Tim Worstall on the Adam Smith institute blog, suggesting that it would be a bad idea to fund green industry, we should instead just buy all our green technology from Germany.

This is exactly the same argument that was presented to a foolish developing country by the name of Japan that had tried to develop a car industry. They said that they should import superior cars made by foreign manufacturers such as General Motors.

Fast forward 50 odd years and foolish developing country has produced the worlds first production hydrogen fuel cell car while those superior foreign manufacturers are being bailed out by their government.

A Criticism of NO2ID's "Take Jane"

For those who haven't seen it, it is a very moving video featuring a young woman who lives in fear that her violent ex-husband will catch up to her and take away her daughter Jane. The husband has in the past managed to track her down by bribing an official for information on the national identity register.

There is a legitimate criticism here, there is no real official process for changing your name in this country, you can change it by deed poll but you can simply choose a new name and start using it. The introduction of the national identity register will change all that since because it will actually store name changes against a record. The consequence for this is that you could look up someone by their old name and address and track back to their new address.

There is also the potential danger of the identity reference number (IRN) this is likely to be shared among government agencies and private sector companies. This could then potentially mean that name changes could be available to a large number of civil servants and private sector employees.

For example say Janet's IRN was 123456, for whatever reason she changes her name to Jennifer. She closes her bank account as Janet and opens a new one as Jennifer however when she opens it her IRN is checked and stored against her bank account records. A potential thief could use the 123456 number to track down Janet's new name and details.

Although this is potentially a problem, it is possible to implement the national identity register in such a way that these problems can be prevented. The key is to minimize the number of people who have access to the data pertaining to the name history and taking steps to tackle the problem of an IRN being publicly known.

The first can be done quite easily, nearly all Civil Servants have no reason to access name history since the ID card itself can be used to obtain the identity, the key is to restrict this access to only the staff who maintain the register (maintaining the register itself is unlikely to be staff intensive) and those with the job of changing names.

The second could be done by making it possible to change the IRN, this would potentially allow a person to cut all ties with a previous identity in all systems except the main national identity register. This would nullify the danger of an external system being used to look up someones details.

The point of these measures is that they minimize the number of staff with access to the potentially dangerous data, if every civil servant could look up name changes it would indeed be dangerous since it would present a wealth of potential people to bribe, if this was extended to the private sector it would expand the potential for leaks even further. No2ID have identified a potential danger with a national identity register, although in this case it is one that can be prevented with the right measures and is therfore not sufficient to justify abandoning the national identity register.

Friday, December 12, 2008

How to Live in the 21st Century

Compass' have this fantastic "How to Live in the 21st Century" website for submitting new policy ideas, I've made my own contribution here although it was rather full of typo's and missing a title when I submitted it.

I'm arguing for the reintroduction of a form of Exchange Control based on a tripwire and speedbump approach. The idea is that if a chosen condition occurs such as a drop in the currency of more than a certain amount (a tripwire) a policy is enacted to put the brakes on movement in the currency (a speedbump). For example if the value of the pound dropped below €1.05, an exit tax of 5% could be applied on any attempt to exchange the pound. This is just one example, there is plenty of flexibility within this kind of approach, for example a tripwire could be triggered by an excessive volume of foreign exchange and a speedbump could be any number of restrictive measures.

A big problem fo economies is that in boom times large quantities of foreign investment can rapidly flow into a country and when panic stikes it exits very rapidly. In a time of panic it can force investors to weigh the certain loss from withdrawing investment against the possibility of loss from upcoming economic problems. It should also guard against the problem of excessive interbank lending across international borders.

Quite frankly, I'm expecting to be lambasted as completely bonkers by some and be called dull and technocratic by the rest, but who knows?

Monday, December 08, 2008

The Active State vs Protectionism

Work has generally kept me from doing too much writing, but I thought I'd write something about the Progress conference and what I felt was a fairly major contradiction: most of the government figures there had an acceptance of the need for a more active state, although at the same time they rejected the idea of protectionism (specifically mentioned in James Purnell's speech). I've always held that they are one and the same thing, and personally see no problem with protectionism provided it is applied in such a way to respect the economies of other nations.

Protectionism, as I see it involves interfering in your country's industrial and trade policies through the imposition of tarriffs, subsidies, exchange controls and a host of other measures with a view to giving advantage to specific industries.

An "activist state"? As far as I can tell it is exactly the same thing, we are told that Peter Mandelson has a list of firms he believes should be saved by government intervention if necessary. He is also working on a green industrial strategy, one that could be quite seriously interventionist.

Whether you call it "protectionism" or "the activist state" I very much like the idea of all of this. The missing piece in the current welfare puzzle is the need for decent jobs, a big problem with the economy at the moment is the weakness of British exports. A policy of strategic intervention and investment in certain industries could potentially kill 2 birds with one stone.

PS: To those unsure about protectionism, take a read of this

Monday, December 01, 2008

Thoughts from the Progress Conference

Last Saturday I attended the Progress conference, it's an interesting one for me since my instincts tend to be a good deal to the left of Progress for most things. All in all though it was quite an interesting conference. Over the next couple of weeks I'll try to write some posts on the subjects covered.
A few initial thoughts:
  • Gordon's appearance was a pleasant surprise, his speech was it has to be said not the most astounding but the question and answer session was very much appreciated.
  • James Purnell suggested that a key part of New Labour was about ends and means, he suggested that the means be pragmatic and not be limited by ideology. A decent enough idea, but in my opinion open to more than a little criticism.
  • There seems to me to be a contradiction in the ideas of a "Rejection of Protectionism" and an "Activist State" both mentioned in Purnell's speech.
  • In the dicussion on immigration, I was immensely impressed by Fiona McTaggart MP, she has a very no nonsense attitude and also seems to have a preference for policies that work. She was also the only person on the panel to bring up the consequences of migration to the originating country.
  • I was once again impressed by David Lammy MP, I have heard him speak now on two occasions and he has come across both times as intelligent, passionate and articulate. I do believe that he is the closest thing we have to a British Obama.
  • From what was said Ed Milliband and Peter Mandelson have some kind of very impressive green industrial strategy in the pipeline, I do hope that it lives up to expectations.
  • I was unimpressed by the attitude towards the left expressed by Hazel Blears, particularly Compass. At a time where the Labour party is altogether feeling more unified and comfortable with itself I felt that this kind of attitude was uncalled for I get the impression that I wasn't alone in this opinion.
  • Some of the discussion also seemed a little too fluffy for my liking, I like both the ideas of greater community empowerment and co-operatives but find discussion on the subject a little pointless if it contains no clear idea as to how to encourage them.

Altogether New Labour seems to be pulling in a lot of different directions. Some (such as Hazel Blears) seem to sticking to New Labour circa 1997, others (such as David Lammy, Peter Mandelson, Charles Clarke and Ed Milliband) appear to be looking towards a genuine evolution in New Labour. An evolution where the state will take a far more active role. In my view, this can only be a good thing.