Tuesday, December 15, 2009

Gold Related Silliness

Guido reckons we should all start buying gold in order to hedge against the coming inflationary apocalypse, the whole idea seems a bit silly to me.

An above expected rise in inflation (from 1.5% to 1.9%) is not exactly grounds to start panicking. Japan despite employing quantitative easing for a very long period of time never experienced inflation, it's still struggling with deflation.

Even if we were to see inflation, how much would we see and is it really wise to hedge with gold? An unlikely nightmare scenario of two years at 20% inflation would give us around a 30% drop in the real value of the pound, is it really wise to hedge against a 30% loss in an asset with whose price has nearly tripled since 2005.

As far as I can see there's been a rush to gold going on for some time now, much of it brought on by fears of inflation. Just how long can this gold bubble be sustained? And what if the predicted inflation doesn't come? Personally, I really don't trust in the price of gold remaining as I has it is forever.

I wouldn't be surprised if we see a little more inflation in the next few years, I think you'd be mad to want to guard against it by buying gold though.




Should Labour facilitate a progressive reengagement by implementing a philosophy of pragmatic rediscovery?

The title of this post, in case you're wondering is based on my idea for a Fabian essay title generator. I've chosen it in celebration of this Guardian piece by Tessa Jowell on adapting the mutual model for public services. I'm not necessarily against it, it's just that the whole idea seems to have been taken from some kind of politician's guide to gimmicky policy announcements.

It's a simple enough process..

Stage 1 is to take an idea that is universally acceptable to everyone (like co-ops, mutuals, the voluntary sector,local democracy or Google for example).

Stage 2 involves the publishing of an article about said idea filled with management speak by a major government figure in a major newspaper. This article will explain how this new idea can be used to form a model that will transform public services.
Indeed, can we really expect citizens to take on greater responsibility for their own health, learning, and environmental impact, if public services fail to give them the right to shape the ways in which they deliver them? We can. By bringing users, employees, and others together as mutual members of the provider organisation we can successfully get to grips with the supply side of public service.
..let us give brief thanks that the article did not contain the word "stakeholders"..

The Final Stage is for the same politician to deliver a lecture. This lecure must have a title in the form of a question and ideally contain words such as: agenda, reform, progressive, pragmatic and so on.
Rt Hon Tessa Jowell MP is delivering the Progress lecture, The Mutual Moment: How Progressives Can Capture the Ownership Agenda
And so it is complete..

Monday, December 14, 2009

I'm not Sure I Buy This

Now it's no secret that I don't like the finance industry. I happen to think that bankers are overpaid for what they do. I also don't appreciate their actions in bringing about the financial crisis and their action in pumping the housing market up to ridiculous proportions.

That said, I really can't endorse the figures that have come this latest report from the New Economics Foundation. Apparently:
The report said tax accountants were the most destructive, laying waste to £47 of value for every £1 they created. Elite City bankers (earning £1m plus bonuses) destroy £7 of value for every £1 they create and advertising executives wreck £11 of value for every £1 they are paid.

On the other hand, the report judged that waste-recycling workers generated £12 for every £1 spent on their wages. Childcare workers create between £7 and £9.50 of value for every £1 of pay and hospital cleaners create more than £10 in value for every £1 they receive in pay.
As I said, I think bankers are overpaid, but the numbers in this report are just absurd. I find it hard to believe the conclusion that bankers make no contribution towards the economy.

A more detailed look at the methodology they used doesn't help. For bankers the calculation largely seems to be based around the cost of the financial crisis over the next 10 years, which doesn't strike me as a particularly good method (why not consider year's prior to the crisis for example).

The report basically amounts to doing a little bit of maths in a very selective fashion and using it to justify a set of political conclusions. I don't approve of that kind of behaviour when it's used by the Taxpayers Alliance so I feel it would be wrong of me not to criticise a left wing think tank for taking the same attitude to their research.

Tuesday, December 08, 2009

Government IT Spending

I'm really not sure about this whole annoncement on scaling back the NHS IT programme. The standard of reporting It's been my experience that in order to express a meaningful opinion on the usefulness of an IT project you need a) some understanding of the business processes that the IT system is supposed to facilitate and b) some kind of basic technical knowledge.

A large number of the politicians don't seem to have educated themselves appropriately. Whit is generally referred to as the NHS IT system is a whole bundle of different IT projects designed to achieve a different ends, so when Andrew Lansley says that the Tories will ditch the "enormous centralised IT system" and instead give hospitals "the opportunity to buy IT systems" he is issuing nothing more than a worthless soundbite.

It's also interesting to see that the Tories grasp of figures is equally poor:
The Tories said the government had spent £100bn on IT since 1997 and contracts
worth another £70bn were due to be renewed or commissioned over the next two
years. They said a Conservative government would put those projects on hold

If you add up the total government spending between now and 1997 you end up at £5.66 trillion, spending on IT works out at about 1.7% of that, not exactly excessive.

Monday, November 30, 2009

Congratulations to John Cook

Just a quick post to say congratulations to John Cook, our new candidate for Norwich North. I've met John and his lovely wife on several occasions and would have to say that he really is a geninely nice bloke. I'll also say that despite nitpicking by some Tories, he is a genuniely local candidate with solid roots here in Norwich (personally I don't think it's worth getting too judgemental over these things, but a local connection is a good thing to have) .

I've no doubt that he'll be a brilliant candidate and a fantastic MP once we've taken Norwich North back at the general election.

Monday, November 23, 2009

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.

Saturday, November 21, 2009

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.

Sunday, November 01, 2009

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.

Tuesday, October 27, 2009

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.

Friday, October 23, 2009

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.

Thursday, October 22, 2009

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.

Monday, October 19, 2009

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.

Saturday, October 17, 2009

A More Complete Hannan Critique

PragueTory has suggested that my initial critique of Dan Hannan lacked depth, so allow me to offer a more extensive argument against the "state intervention caused the crisis" idea.

Interest rates were left too low...
At the time interest rates were low, the Bank of England was in a serious bind. On one hand, British manufacturing was struggling and crying out for cheap credit, on the other hand we had a slowly growing housing bubble.
Assuming that the BoE did not exercise any kind of policy influence over the banks and that interest rates were set at a market rate decided by the banks themselves and that this rate would have been higher what we are likely to have seen is a lower housing boom but also higher unemployment due to the adverse effect of expensive credit on manufacturing.

The relationship between interest rates and credit is more complex than simply lower = more credit, higher = less. As an example, the European Central bank had consistently lower interest rates than the UK, yet we witnessed nothing like the same kind of housing boom in Germany or France. Whatever the causes of the current financial crisis, it would be very hard to put it down to simple matter of interest rates. Interest rates alone just don't explain the problem. Further to this it has to be asked if Hannan somehow managed to miss endless discussion on the role of credit derivatives in causing this crisis.

Every Action taken by the Government has been either ineffective or made things worse..
It's hard to know exactky what he is referring to here, but let's go through a few:
  • Guaranteeing deposits at Northern Rock - Stopped the run on Northern Rock, I'd say that's a plus
  • Nationalising Northern Rock & Bradford and Bingley - Both seem to be doing alright under national ownership no savers at either bank have lost anything
  • Recapitalising the banks - Has kept the supply of credit flowing and ensured that a number of businesses have agreed new finance deals
  • Quantitative easing - Has not caused runaway inflation, has lowered gilt yields and has kept credit flowing
It's hard to see what the hell Dan Hannan's on about.

Tax Havens = Countries with more Competetive Tax Rates
Let's take the example of the Caymans, by Dan Hannans view the Caymans should be attracting international investment by the bucketload and have many many highly competetive businesses. Why then, if this country supposedly attracts so much foreign investment is the major industry of the islands tourism? Why are the country's exports worth only 0.12% of GDP if so many foreign firms want to invest here? Hannans argument here is bull.

Reform? Aren't things bad enough already
Is the man so blinkered by ideology that he can't see the need for changes to the way we regulate finance? The buildup to the crisis is marked by several clear steps where certain regulatory changes were made that allowed certain financial activities to take place. The need for reform is obvious.

Thursday, October 15, 2009

This Man is Insane



This is one of the most ignorant, ill informed speeches on the financial crisis I've ever heard. Why on earth do the Tories worship this man?

Tuesday, October 13, 2009

On the Nobel Prize for Economics

The Nobel Prize for economics is an interesting one, in a lot of cases it's been given to people who have got things very very wrong, such as the chaps who went on to form Long Term Capital management (which was a disaster). It's no wonder that there are some who would like to see the back of this particular prize.

This year though, I'm really pleased about the choices of Elinor Ostrom and Oliver Williamson. As far as Williamson goes, I'll admit to not actually read any of his work but he's often been cited in a good number of the economics books I've read so I know a little about his work. Ostrom on the other hand is a bit of a mystery to me although I find this post by Paul Romer quite reassuring. Also interesting is the opinion of Stephen Dubner at Freakonomics, who points out that Ostrom is a political scientist rather than an economist by trade and suggests that this might ruffle a few feathers.

What I like about both winners is that both have an institutional view of economics (indeed Oliver Williamson coined the term New Institutional Economics). This view takes a far closer look at the structures and institutions within our political economy and what behaviors they encourage through the various incentives they provide (including, but not limited to the market). Williamson puts it well here:

the problem of economic organization is properly posed not as markets or hierarchies but rather as markets and hierarchies.
There are several things that appeal to me about this economic viewpoint, though it doesn't reject the market entirely it rejects the primacy of the market. It realises both the limits and the benefits of the mechanisms of the market and accepts the need for governing structures where the market is not up to the job. Finally, it's a viewpoint that seems to understand the importance of politics, the need for political representation and the importantance of democracy in shaping our political economy.

Sunday, October 11, 2009

I'd just like to say..

That David Blanchflower is very very right.

And the multitude of ignorant Tory trolls posting below the article are very very wrong.

Saturday, October 10, 2009

Being "Honest" on Debt

I indulged in what could be called a mini rant the other night when one of my friends suggested that the "Tories may be evil, bit at least they're being honest about debt"

What set me off about this comment was that it was exactly what the Tories wanted people to think. The Tories have been talking up the issue of national debt, they have also frequently accused Britain of having the largest budget deficit going into the recession in full knowledge of the fact that many people don't know the difference between the words "deficit" and "debt".

The Tories rhetoric on debt ignores the point that in fact Britains national debt was the second lowest in the developed world going into the crisis, it further ignores the point that gilt yields are at record lows. Further to this it ignores a lot of the complex issues surrounding debt. When talking about the national debt it's worth considering several other important factors. As well as the national debt, you need to consider consumer debt and business debt, you also need to consider the value of assets.

The point of all this is that when the government spends money that money has to go somewhere. Every pound of government debt will go on a journey through the economy until it either A) goes abroad or B) ends up in someones savings*. The result of all this is that while the government picks up more debt, businesses and consumers will actually find themselves in a better position. We can already see this happening in the form of higher UK household savings.

The Tories simplistic posturing on debt ignores the many complex issues surrounding government debt and debt more generally. They are not being honest at all, they have misleadingly raised concerns over government debt and acted as if this is the central challenge facing our economy, this just isn't true.

Monday, October 05, 2009

Tax Cuts in the Interests of Tax Lawyers

I see George Osborne is offering new tax cut for new businesses started in the first two years of Tory government, these businesses will pay no employers national insurance for the first 10 employees.

If (and it's still an if folks) we do get a Tory government I see a raft of new businesses being started for the sole purpose claiming this little tax cut. This tax cut looks like it could be gamed to high heaven and I can almost see the tax lawyers rubbing their hands at the juicy fees they'll be claiming for advising on the creation of these new "tax efficiency" structures.

Sunday, October 04, 2009

In Support of Tim Ireland

In the last few days, I've been at the Labour Party conference and just have not found the time to blog at all. I'd like to write something about my conference experiences at some point, however, I'd like to kick things back off with a defense of Tim Ireland at Bloggerheads. I'll be backing it up to a letter to Charles Clarke (my MP).

So, first the background. A while back a few post appeared on the online internet community ummah.com of a suspicous nature, they looked as if they were intented to stir up trouble and to goad some of the contributors into expressing extremist viewpoints. Tim documents it here, but long story short, none of the contributors took the bait. However, a nasty story about the message board did make it into a story in the Sun about British Jews who were the target of Muslim Extremism.

At this point, let me just introduce Tony Woodley to just show precisely what I think of The Sun more generally:



The story was fabricated, the web postings that fueled this stories were made by Glen Jenvey, who was also responsible for passing the story to the Sun. The story was a complete fabrication. Further to this the individuals behind this were part of a network who had for a long time been feeding stories to the press of dubious quality (more here). This network also had an involvement with Patick Mercer MP (the former Conservative Shadow Homeland Security minister). All of this is exposed here in this story.

It was Tim's detailed investigative work and blogging that brought this story to light, and it's damn good that he did. He exposed that a major british newspaper and a leading politician were being led astray by these people. The idea that group of fabricators can get themselves into a postition where they could influence government policy is truly shocking.

Anyway, as a result of all this has taken a lot of flak, his repeated questioning has had him labelled a "stalker" (NOTE: People who repeatedly ask awkward questions about a person's use of political influence are called "Journalists"). He's also been the victim of some vicious internet rumours, taken a lot of abuse and even had people posting his home address online.

Now, it's hard to deal with the unkown rumour mongers, Patrick Mercer MP however is a different matter and can be held to account for his conduct in this matter so I'd like to finish off by adding my support for Tim and suggesting that people join in Tim's campaign on this subject.

Friday, October 02, 2009

Telling the Truth is not a Smear

This post from Iain Dale really brought on the red mist for me. What David Milliband said was not a smear, it was the truth. The Conservatives have joined a coalition of parties in europe that includes the Latvian "Fatherland and Freedom" party does hold an annual march parade for veterans of the Latvian SS and while it may be true that those marching did not participate in the atrocities,their membership of it should be a badge of shame, not a cause for celebration.

A political coalition is about shared values, there may be some disagreements over minor issues, but this is not one of those. Eric Pickles may have fought antisemetism in the past, but right now his party believes it shares common values with a party that celebrates one of the worst crimes in human history. Saying this is not a smear, it is simply stating a pure, simple fact.

Monday, August 24, 2009

Darling is Wrong...In every possible way

According to the Mail on Sunday, Alistair Darling is going to "talk sense into that man [Gordon Brown]" on the subject of public spending and the subject of Tory cuts, I think he is very very wrong. The debate about debt and spending is a complex one, but there is a very good case for not making cuts that revolves around the following arguments:

  • The macroeconomic effects of such a move, there's little evidence that a rise in private spending will replace the fall in public spending. The demand side consequences of this could drag us further into recession.
  • It's not known whether the fall in tax revenues is temporary or permanent, if tax revenues rebound then the current (large) deficit will not be so much of a problem.
  • The long term effects of debt are exaggerated and ignore the twin effects of inflation and growth on the real value of debt. Additionally, the cost of servicing debt is low and investors are still keen to buy government debt.

The case for cuts is all about fear of future debts, but personally I don't think it's one that Labour should accept. It relies heavily on what could be called called the common sense case, most people's experience of budgets comes from their household finances, this leads to a view that both debt and living beyond your means are a bad thing.

The Conservatives have pushed their "cuts are inevitable" line, because they know it has a common sense appeal, it sounds like a calm and level headed approach to the recession and has gained traction with the general public (even if the economics behind it are highly questionable).

What Darling has done is not only publicly disagree with his party leader, he has disagreed in such a way that it assists the Tory line of attack. Phrases such as "the voter's aren't stupid" and "talk sense" are just the kind of phrases that will help reinforce the Tories "cuts are inevitable" argument. An argument which is both highly questionable economically and will help justify policies with devastating social consequences.

Saturday, August 22, 2009

Government and Markets

Via Tom Harris.

If government decides it can intervene in the market to dictate wages, why shouldn’t it have a role in deciding other areas of corporate policy? And if it starts doing that, it might as well nationalise the-… Oh. Okay, I get it now…


I should say first that I disagree with a hell of a lot of what Tom says, but I'm not particularly singling him out here more than anyone else. This argument crops up a lot and Tom Harris is hardly alone in using it. From a personal point of view I think the whole government shouldn't intervene argument does doesn't add up.

The market is not a natural thing it is a construction of the state and it is political in it's nature. The forces that direct it are shaped quite heavily by the political preferences some imposed by the government, some so entrenched that no one would ever dare change them.

As an example, consider the examples of child labour and slavery. I doubt the most hardened libertarian in this country would advocate either, but it could be argued that the abolition of slavery was a "intervention by a narrow political interest in a vital area of property rights" it could similarly be argued that child labour was "the government interfering in the right of an individual to enter the labour market" the point of these two examples is that it demonstrates the ultimately political nature of the market, there are always political interests present.

Ultimately, I don't get the whole not interfering in markets argument, because ultimately it's what every government does to some degree. Taxation, education, infrastructure, there are plenty of ways in which the government does interfere when the market. For most it's not a matter of principle but a defence of their own "narrow political interest".

Tuesday, August 18, 2009

High Pay Arguments, Part 1, Top Execs

I've been reading some of the writing on this new high pay commission idea with interest. The main thing that strikes me about it is that there seem to be two quite distinct high paid groups who are quite clearly the target of this campaign. The first is top executives and the second is the high paid group of financial professionals who live in and around the City of London. I think these two groups need to be considered quite separately, so first I'll take a look at top execs.

With the executive class, I feel this is mainly an argument about corruption. Senior executives ultimately control the purse strings and (at least in the case of the largest FTSE companies) the money is not a huge amount in the grand sheme of things. Further to this, there is no real defined level as to what a senior executive should be paid, and no institution exercising any downward pressure. What I'll say further to this is that I don't feel that pay is necessarily tied to ability as Chris Dillow says, there are some smart execs, some stupid ones. I also don't think that this kind of pay is really determined by market forces since there is often very little actual competition (at least from what I've observed) for these roles.

What the argument really boils down to is a moral argument about whether it is right for executives to abuse their position for their own gain. Pay for top execs has risen pretty consistently year on year and well above average wages and (for the most part) at a rate well above that justified by the performance of their companies. Use of a position of authority for one's own gain is corruption, but this corruption is so endemic that there is no longer any outrage about it.

I think this is a situation that needs to be addressed because ultimately, abuse of power is wrong. In terms of solutions, I think we need a better system of holding these people to account. Shareholders are ultimately too diverse, and ultimately not interested in issues of morality. Instead, I would have to say that Chris' suggestion of greater worker empowerment is just about the best way do do it.

Monday, August 17, 2009

Taxpayers Alliance Leave an Open Goal

The Taxpayers Alliance have a post talking about how big government spending harms the economy, what really confuses me is why they've chosen to back this up by featuring a video with none other than Dan Mitchell from the Centre for Freedom and Prosperity. Needless to say, I think that the arguments he makes are pretty simplistic and make a whole lot of assumptions about the nature of markets and the key incentives for improvement in public services.

For now though, I think it's worth pointing out a few of Mr Mitchell's greatest hits, this paper on Iceland for example, that says:
Iceland’s flat tax has a high rate compared to flat taxes in other countries. Other reforms, particularly the low corporate rate and the 10 percent tax on capital income, are more dramatic. From a political perspective, however, the Iceland reform is remarkable. It is the first time a Western nation has decided to no longer impose discriminatory tax rates on more successful taxpayers. Tax reform and economic liberalization have helped Iceland prosper. It remains to be seen whether other industrial nations will learn from Iceland’s success.
Of course, nowadays some might have a different opinion of Iceland's economy, I found this rather poigniant (thank you Charlie):
"Self-made bondage is the strongest form of bondage. Thus wrote Sigfús Daðason, and thus is our situation today. The constitution was mortgaged without the nation being asked, and now we are to acknowledge the collateral and confess to the crime. We are confessing to a crime we did not commit. Let me quote Eva Joly: “This small country of 320,000 inhabitants is now reeling under the weight of billions of Euros of debt, which has absolutely nothing to do with the vast majority of its population and which Iceland cannot afford to pay.”

Yes, we are being enslaved. The Icesave agreement is stage one, the conditions of the International Monetary Fund stage two, and so it will continue until sometime in the future, when we receive an apology for the mistake that is being made … but by then it will be too late. They say we will become the Cuba of the North if we do not ratify this agreement. But shouldn’t we add: We will become the Haiti of the North if we do ratify it. They fulfilled all the IMF’s demands – and are now plagued by a famine. ... That is the reason we are here today – and we oppose this. All of us. We are being made to confess to a crime we did not commit. We are to shoulder the burdens of the global financial system, to become their underdogs.


Another article for the Cato Institute speaks in favour of tax competition and singles out Ireland, Estonia and Slovakia for praise:
All of these reforms have yielded big benefits -- particularly for the nations that have been the most aggressive tax cutters, notably Ireland, Estonia and Slovakia.
Nowadays, we all know that Ireland is having problems, the Slovakian economy looks set to contract by 4.7% this year and estonia looks set to suffer a 15% fall in GDP. It seems like the man has some kind of strange inverse midas touch, it seems as if any economy singled out for praise is now in serious economic trouble.

Why exactly, should we be taking lectures from the TPA on the best tax policy to pursue when they feature (in a section of their website rather ironically named "Economics 101" no less) the recommendations of a man who has been so consistently wrong?

Sunday, August 16, 2009

Countering a few Rightwing NHS arguments..

On my initial travels on Twitter, as well as on the blogosphere, I've encountered a few arguments being put forward by righties. The first is that we are stifling debate, that we are refusing to acknowledge differing opinions on healthcare and consider alternatives. The second is the argument being put forward by Guido, that Obama does not intend to implement an NHS style system and therfore does not support the NHS.

So, argument number one. My personal view is that the centrally funded NHS actually works pretty damn well, it's not exactly perfect, but few systems of this size ever are. There are alternatives, but there's little reason to believe that those systems can actually offer better results. Even if they could, there remain the questions of whether such a system could be applied in Britain and also the question of the cost of making such a large scale change. Certainly, the NHS could be improved by little tweaks here and there, but I simply feel that some kind of fundamental reform would just be change for change's sake.

On the argument about Obama, I think it's worth considering the just what a massive change implementing an NHS style system in America would be, both practically and politically. The NHS in the UK was created in a rare moment when the nation, having won a battle for it's very survival was gripped with a massive sense of solidarity. It was this sense of solidarity that allowed the creation of the NHS and it's a tribute to the Labour politicians who created it that they managed to seize this moment to create such a wonderful national institution.

Implementing an NHS the US would be far more problematic; what would happen to the administrative structures, set up to handle an insurance based system? What about all the people who currently work for healthcare insurers, what about their jobs? There are quite serious practical problems. On top of that there are also the political problems, consider for starters the level of political resistance that has already greeted President Obama's very modest healthcare proposals. The political will for such an ambitious project is not there, I think that's unfortunate, but understandable.

Guido is drawing the wrong conclusions from his ruling out of an NHS style system, it's nothing more than an admission of the fact that there are very sensible reasons not to go ahead with an NHS style system.

On a related note, I think this Open Letter by a British Pharmacist sets the perfect tone, heartfelt and passionate but not all arrogant.

I surrender..

Possibly due to the whole the whole we love the NHS thing, possibly due to the whole turning 30 thing, whatever the reason I am now on twitter (@citizenandreas if you were wondering)

Friday, August 14, 2009

We Built the Damn Bandwagon

It goes like this, the new president of the US is trying to push through healthcare reforms. Cue inevitable comparisons with other countries. Britain's NHS enters the mix and soon we get the Republican punditry saying some remarkably ignorant things about Stephen Hawking, add a little Sarah Palin and soon enough we have a recipe for a backlash.

The backlash comes, courtesy of Twitter and soon we get lots and lots of people are saying how much they love the NHS, how terrible they think Daniel Hannan is and such (a view I share wholeheartedly). Then, a few Labour party figures join in and all of a sudden some individuals start saying "Keep your Hands Off, Labour!" or "You're killing off people power!"

Why the hell shouldn't Labour be jumping on this particular bandwagon? We only created it in the first place and have commited ourselves to improving it. There are plenty of reasons to winge, but it would be nice if for once, people could take a look at the NHS and give Labour a little credit where it's due.

Thursday, August 13, 2009

Regulatory Capture

Moving on from my little bit of banker bashing, I thought I'd write something a little more serious on the subject of regulatory capture. The idea is that regulatory agency will become "captured" by special interests, pressure groups, lobyists etc. Further to this, it is argued that since the interests being regulated are usually the best organised and most able to arrange collective action, they are likely to gain the most sway over the regulatory agency.

Consider as an example a television regulator, a number of interest groups will have an interest in how it regulates television; viewers, advertisers, numerous special interests and of course the TV companies themselves. Of those groups, it is likely that the most coherent, well resourced group is the TV companies who all share a degree of common interest. This group is therefore likely to gain a good degree of sway over the regulator and the regulations it puts forward.

Deregulation, has in been proposed as an answer to this problem, if the state regulates less then there is less regulation to capture. Sounds nice in theory, but I think this particular argument seems to fall apart when you look at the finance industry.

The deregulation of finance has changed the face of the industry. One way it's done this is in the size of the industry, we've gone from a handful of financial products to volumes in their thousands. Another way deregulation has changed is in the level of financial innovation* in the industry, new markets, new tools to manage risk and new ways of speculating on assets. It's my view that actually, deregulation of finance has actually made the industry far more difficult to regulate due to the increased size and complexity.

In some ways, you could argue that the deregulation of finance was actually the ultimate form of regulatory capture. It seems that many of the people who make recommendations about how to proceed as far as regulating finance (in both the US and UK) are those with strong connections to the finance. Is it any wonder then that we have a set of financial regulations that allow financial businesses to make massive amounts of money.

Wrapping all this up, what I'll say is that following on from the Simon Johnson post I linked a few posts down, we need to seriously consider how we regulate our finance industry. We need to consider not just profitability, but also how well it directs money towards other businesses. We also need to ask whether the complexity of the industry, brought about by deregulation is necessary or whether we should at look at creating a simpler financial system.

* I'm a little uncomfortable with this term being used in finance, while I'd accept that some financial innovations (securitisation, credit cards) have been useful. I don't think they've improved our lives to the same degree as innovation in other industries.

A Few Random Links

Firstly, an international comparison of small business UK is kind of midtable, Greece is top, Luxembourg is lowest and the US is pretty low down the chart (well I found it interesting).

Secondly, it appears that a company in Florida has launched an "right wing internet trolls for hire business". As if there wasn't enough right wing bull on the net already.

Tuesday, August 11, 2009

A Few Minutes of Hate for Finance Sector

A quick read of my blog will quickly establish exactly what I happen to think banking classes are a wasteful bunch who've been spending our pensions on yachts, mansions and BMW M3s. I don't like them very much at all.

It's reassuring to know that I'm not not just it's not just mad lefties who feel that way though. Here's Simon Johnson (former IMF Chief Economist):

What has “financial innovation” brought us since the 1980s? One answer, of course, is “hedging strategies” that lower the cost of doing business for companies large and small. This is plausible, although not likely to be large relative to the economy - send me your favorite study on the cost of capital since 1990 (you choose the definition), and we can talk about whether this effect is significant, sustainable, or even sensible.

Because financial innovation has mostly facilitated a big increase in finance. If a sector grows, pays more wages, and rises as a share of GDP, surely this is a good thing? Not necessarily – if this is a rent-seeking sector.

Rent-seeking means effectively a tax extracted by one sector from the rest of the economy. We’re used to thinking of this as something that occurs through trade restrictions and the big breakthroughs in this area came from analysis of tariffs and quotas (Anne Krueger, Jagdish Bhagwati). If a tariff, for example, will make your life cushy, you will devote great resources to getting one established or increased – irrespective of the effects on the rest of the economy (call this strategy “let’s hammer the unprotected consumer”).

Finance is rent-seeking. The sector has devoted great resources to tilting all playing fields in its direction. Consumers are taken advantage of; consumer protection is vehemently opposed. And great risks are taken, with the downside handed off to the government (and the consumers again, as taxpayers). This downside protection allows an overexpansion of debt-financed finance – reaching the preposterous levels seen in mid-2008 and now re-emerging.

Finance in its modern American form is not productive. It is not conducive to further sustained economic growth. The GDP accruing from these activities is illusory – most of finance is simply a tax on what is done by more productive members of society and a diversion of talent away from genuinely productivity-enhancing activities.

Read the whole thing, it's rather good (and yes, I know he's talking about the US, but I reckon it applies equally over here).

Sunday, August 02, 2009

August Cometh...

And so, on one day later in this month, I reach the grand old age of 30.

Just thought I'd say, it being a milestone and all.

Thursday, July 30, 2009

A Criticism of the Taxpayer's Alliance's "Tax and Entepreneurship"

Since getting in to politics I've spent a fair bit of time reading policy reports of various sorts, some are long winded and tedious, some are quite insightful and offer up good ideas. The most recent one I've read though is the Taxpayers Alliance report "Tax and Entepreneurship" and I have to say that it's a work of utter drivel.

So, let's start with the main findings of the report on how the tax system affects entepreneurship:
  • It may reduce the amount of capital they can access from their own wealth or their family. In particular, existing research suggests that receiving an inheritance leads to higher levels of self-employment. Inheritance Tax, in particular, may reduce the extent that entrepreneurs can obtain finance without the risks that come with a bank loan.[their highlighting]

  • The tax system undermines the large rewards that justify the risks attached to starting a new business. Indeed, further to this they state that under the present system suffer a marginal tax rate of around 90%, introducing the 50% tax could increase this to 92% and even using Entepreneurs Relief they still face a marginal rate of 86%.
Harsh stuff, but let's examine these two ideas a little more closely.

Inheritance as a source of capital
The argument here is that starting a business requires some form of initial investement and that the lack of this initial investment is a hurdle to many intent on starting a business. There is a lot of literature to back this up including the one quoted by the report, "What makes an entepreneur?" by David Blanchflower and Andrew Oswald. Inheritance here is viewed as a way of providing this initial capital without the risk attached to a bank loan, inheritance tax reduces this and thus reduces the amount of starting capital.

There's a few obvious observations here, the first is that the effect of inheritance on self employment is still not especially substantial, for example, Table 3 on the Blanchflower & Oswald paper (page 34 on the PDF) shows that in 1981 a 23 year old male who had recieved no gift or inheritance but lived in the South East would have a 16.3% probability of being self employed, an individual in Scotland who had inherited £5,000 would only have an 11.7% probability of being self employed. Table 4 (page 36) shows that for older individuals (age 33) an inheritance makes only a small difference. The general conclusions from the paper seem to be that while inheritance does increase the likelihood of self employment, it is far from being a major factor. A second point here is that inheritance tax only affects a small number of estates (around 7% I think), very few new entepreneurs are likely to benefit from such a tax cut. In addition, for the a majority of entepreneurs, an investment of this kind of magnitude is often not necessary. Table 3 in Blanchflower & Oswald emphasises that relatively small inheritances (£5,000 in 1981(£) which is between £13,400 and £27,300 in todays money according to measuring worth).

The obvious conclusion here is that while an inheritance is likely to be a positive influence in terms of encouraging self employment, it tends to only have a small effect. In addition the kind of inheritances needed to encourage self employment are not especially large. The case for inheritance tax as a barrier to entepreneurship in this instance is not made.

Marginal Taxes
As far as the numbers go here, I can give you a short version or a long version.

The short version: The numbers in the report are completely meaningless.

The long version: The calculations in the report appear to have been taken from this blog post by Greg Mankiw (a Harvard Economics Professor). He devised a formula that went along the lines of:

(1-t1)( (1+r(1-t2)(1-t3))^T )(1-t4)

Explanation t1 is income tax, t2 is corporation tax, t3 is capital gains and t4 is inheritance tax, r is the rate of return and T is the number of years. The TPA use t1=0.40 t2=0.28 t3=0.18 and t4=0.40 a return of 10% and a time in years of 35 years. There are so many flaws with using a formula like this, so I'll point out some obvious ones. The first is that it completely ignores tax thresholds which are a pretty vital part of any calculation, the second is that capital gains don't fall under income tax so the income tax component of this completely irrelevant.

Further to this, the numbers that you get out of the formula depend entirely on the numbers you put into it, for example the 90% marginal tax rate that the TPA use depends entirely on their choice of 10% yearly growth of the business over a 35 year period. The resulting tax rate varies depending on whether I use a different time period, as shown below.





Or alternatively if I use a different annual growth figure.



The resulting marginal tax rate depends entirely on the figures plugged into the formula, the size of the figures is simply a consequence of the exponential growth that you get when you do compound interest calculations. And of course this completely ignoring the fact that most businesses are unlikely to grow in the exponential manner suggested. The whole calculation is of little relvance to most entepreneurs.

And In Conclusion...
There are a few other little gripes I've got with the contents of the report, but from what I've demonstrated above I think it's safe to conclude that. A) The benefits to entepreneurship from a reduction in inheritance tax are minimal at best B) The marginal tax rate figures derived in the report depend entirely on the figures plugged into the initial equation and are almost completely meaningless. What we have here is a report that draws conclusions based on incredibly shakey reasoning and really exists for no other reason than to attract positive press coverage for a bunch of policies that will benefit the well off.

Monday, July 27, 2009

I ATE'NT DEAD

Just been unable to find the time to blog, however I've noticed a piece of utter drivel from the Taxpayers Alliance that deserves to be ripped to shreds, so I think I might have a crack at that.

Just, not right now.

Sunday, July 19, 2009

Korea and Capitalism (Or if you prefer "Fraser Nelson is an Ignorant Tosspot")

I was reading a little piece by Fraser Nelson discussing James Purnell's leadership platform (please god no). What amused me was this little snippet:
6. But he's still stuck in that 1994 cul de sac of "Market Socialism". "It's not a phrase that is ever going to inspire a political movement but it does capture a lot of what I believe – that markets are a good means to spread power and create innovation but they can be yoked to leftwing goals and not to capitalism." This is a well-worn staging post on people's journey to conservatism. If he does enough research at Demos, he'll come to realise that "leftwing goals" -ie, fairness, poverty reduction, etc - can never be achieved by leftwing means. This is the great tragedy of leftism: all that energy expended by all those well-meaning people, all wasted. Such goals are best achieved by capitalism. Ask China. Or Korea.
I'm amazed that this kind of drivel is what passes as "Champagne for the Brain" among rightwingers. Capitalism has come in many flavours, Korea's for example involved quite heavy use of measures that many might think rather left wing. Take this little snippet from "Industrial Policy in Action - The Case of Korea", a chapter in this book:
As soon as it came to power the Park regime moved swiftly to prepare the institutional grounds for a political-economic agenda. One of the first moves was to nationalize all the banks and thereby gain control of the financial flows in the economy.
Need I say more?

Tuesday, July 14, 2009

Yet More Thoughts on Norwich North

I had a conversation yesterday with a colleague that went something like this:

Colleague: Bet you're really glad you're not the candidate, it looks like things are getting really vicious
Me: I take it you got a Lib Dem leaflet through the door
Colleague: Yep

I've got to say that from what I've seen of the leaflets, by far the most vicious and nasty campaigning has been that of the Lib Dems. In particular, they seem to be targeting the Greens with a hell of a lot focused on Rupert Read. I'm not surprised by that at all, when the Greens came riding into Norwich the first wards they conquered were the Lib Dem ones (I was living in Nelson ward when it first fell to the Greens).

Whatever I might think of the Tories and the Greens (and even for that matter UKIP, Craig Murray and the various others) I think it's safe to say that all have run clean (as much as is possible) campaigns. The Lib Dems on the other hand have been vicious, dirty and underhanded. Personally, I think they'll pay a high price for it.

Sunday, July 12, 2009

Pragmatists vs Ideologues

Who says this?

So what is it with the church and the political Left that it attracts people only too keen to judge others’ beliefs? I guess it comes from the fact that both Christianity (and any other religion) and socialism are based on faith — faith in God or, in socialism’s case, faith in the basic good of mankind, in moral absolutes and in economic concepts. Once those beliefs are codified and acknowledged as The Truth, it becomes easy to identify those who stray from the One True Path.

The political Right is blissfully unencumbered by such rule books, preferring a more pragmatic approach to politics.
It is of course, Tom Harris MP and I have to say I really don't get this whole battle of the pragmatic righties vs the intransigent ideological lefties. I'd have to say that further to this I find it rather depressing that a Labour MP seems to swallow this particular piece of rightwing mythology hook,line & sinker. Especially since it seems to me that the right have been equally guilty of putting ideology before practical concerns.

For example, I as a muddle headed, ideological leftie believe that the pricing signals of the market can be useful in the unconcious coordination of economic activity but believe that it is a thoroughly foolish to put believe that such unconcious pricing signals should be the primary determinants of how economic activity is coordinated. This view of how markets work seems, to me at least, a far more practical way of viewing the activities of the market than the right wing view which seems to ascribe the market almost supernatural wealth creating powers.

I would also argue that they have too much faith in the benefits of competition. For example, I would argue that the introduction of competetive tender in certain services such as hospital cleaning introduces a lack of flexibility and accountability to the service due to the arms length relationship between the contractee and the contractor. I would follow that up by pointing out that there is little scope for increased productivity through innovation in this field meaning that only scope for financial savings can be found through lowering the cost of labour. Essentially the only thing opening such services up to competition ever did was reduce the wages of some already very low paid workers, the benefits from competition in such a situation are minimal.

The point here is that the right is equally guilty of putting ideology before practical considerations, as left wingers we are often apalled by the political consequences of many rightwing policies. The counterargument usually presented by the right is that while the political consequences may be undesirable, the policy is still worthwhile because of the practical benefits (it saves money, promotes gowth, creates wealth etc). I do think that far too often we give these claims of pragmatism the benefit of the doubt, in truth we should be far more skeptical of these claims.

Friday, July 10, 2009

Uh Oh...

Not happy about this, not happy at all. Needless to say this somewhat dampens my previous enthusiasm.

UPDATE: Since I notice the Lib Dems are linking to this post, I want to make it clear that this post should be treated as an instant reaction to finding out about Chris's previous party affiliations. I will not be pleased if my remarks are quoted out of context. For the record I think that despite his past I still think he will make a far better MP than any of the other candidates.

Wednesday, July 08, 2009

Warning: This mortgage could seriously damage your wealth..

From here:

Alistair Darling will sketch out plans tomorrow for a health warning system for financial products as the government seeks to show that consumers will benefit from the Treasury's wide-ranging revamp of the banking industry.



Alistair, all I can ask is: WHAT THE HELL WERE YOU THINKING!!?



When faced with a gigantic problem of a nation with huge amounts of consumer debt, driven by excessive marketing of financial products you do not go for a solution that:


  1. Duplicates existing regulation - Most financial products already require quite the seller to make quite clear exactly what they are buying into.

  2. Will not be particularly effective - Is a government health warning really going to drive home the financial consequences of, say, taking out a mortgage.

  3. Reinforces the exisiting, patronising nanny state image of this government.

I'm not sure what to say except this is a really stupid idea.

Tuesday, July 07, 2009

More Thoughts on Norwich North

I've just come from a reception at Labour's campaign HQ in Norwich North and I have to say that I really was impressed. Hanging over Labour at the euro and council elections was this awful atmosphere of defeatism. In what I saw today there was none of that, instead, there was a newfound enthusiasm in the air.

Having now met our candidate, Chris Ostrowski and soaked up the incredible atmosphere of enthusiasm among the various campaigners, I've got a really good feeling about this election. I really do think that Labour stands a good chance of winning the election.

Sunday, July 05, 2009

Green New Deals

Tim Worstall reckons that a Green New Deal will make us all poorer, and cites this report on actions taken by the Spanish government to encourage renewables as justification for it. On the face of it it all looks pretty damning:

7. The study calculates that since 2000 Spain spent €571,138 to create
each“green job”, including subsidies of more than €1 million per wind industry
job.
8. The study calculates that the programs creating those jobs also resulted
in thedestruction of nearly 110,500 jobs elsewhere in the economy, or 2.2
jobsdestroyed for every “green job” created.


Harsh eh, on that kind of assertion I don't think that anyone would back the idea of a green new deal. It's not until you take a closer look at the paper and how it calculates the figures that you realise that all is not what it seems and in fact this particular assertion is little more than mickey mouse mathematics combines with a little unthinking neoclassical economics.

The report derives a figure for the cost of a green job using the following calculation:

cost of green job = (total subsidy / jobs created)

And comes up with a figure of €571,138, it then makes a comparison based on the average capital per worker between 1995 and 2005 coming up with a figure of around €259,143 it then does the maths of dividing the subsidy figure by the capital figure to argue that for every green job created an equivalant of 2.2 private sector jobs could have been created. It then does a similar comparison with the productivity per worker vs subsidy per worker and achieves similar numbers.

There are a number of counterarguments to this logic:

  • First, it has to be asked whether it should be expected that a job created in what is essentially an infant industry can be created at the same capital cost as a private sector job. A new industry is likely to have a higher cost due to the need to learn about the technology and the processes behind running an entirely new business. It is therefore not entirely unexpected that the cost of creating a green job was initially higher.
  • Second, the measurement used by the writers of the paper makes no asessment of the relative values of the jobs created. It could be argued that the highly skilled nature of the work in creating hydro-electric, photovoltaic and wind energy would mean that they require more capital than a worker in other sectors. Even if we accept the assumption of the authors that a job created in the green energy sector will mean jobs not created in the private sector (which I do not) it could be argued that the creation of jobs as Hydroelectric Technicians is worth more than the creation of twenty two jobs as, say, waiters.
  • Third, the argument that a job created in one sector means a job (or jobs) not created in another sector is in itself flawed since it relies on the assumption that the private sector is instantaneously able to respond to the additional availability of resource and create jobs in the appropriate field. This is not the case.
All in all, despite the shocking numbers quoted here, theres little reason to believe that the Spanish Green New Deal had anything like the shocking negative effect on jobs mentioned in the paper.

Tuesday, June 30, 2009

Thought's on Norwich North

It's been interesting watching event's unfold over Norwich North from my ringside seat, I thought I'd add a few things to what's been said already:

  • The first thing that I think should be made clear is that much of the supposed dithering occured as a result of unavoidable circumstances. When Ian Gibson was banned from standing again, the chair of the local party stepped down in solidarity with him. This move left the local party in a state of disarray hence the delay in the selection of a candidate.
  • I don't know very much about Chris Ostrowski, the new candidate (I wasn't at the hustings because I live in Norwich South), he was at UEA at around the same time I was, although I wasn't a Labour party member at that time and don't think I met him there. He's not a local party party member, but does have a connection with Norwich.
  • I've been out canvassing in Mile Cross and Heartsease, both are solidly Labour areas, indications seem to be that this is still the case although there is no doubt a fair bit of anger still out there.
  • Expenses does still seem to be a big talking point although very few are specifically angry at Ian Gibson, there were quite a few people angry at how he was treated.
  • The Tories are pouring huge amounts of money into this seat, I've seen a number of Chloe Smith (the Tory candidate) garden boards with her photo, around the place. Seems a little wasteful making a bunch of boards that will only be good for one or two elections. Another point to note is that from the latest poll it is the Greens, not the Tories who are making gains at Labour's expense.
  • And speaking of the Greens, they will also be a threat, they've made most of their gains in areas held by the Lib Dems although they have recently moved into more solidly Labour territory taking the wards of Sewell and Mile Cross in the recent council poll. I'm not sure at this point whether their candidate, Rupert Read will be an asset or a liability.

Of course, the big question is: Can Labour hold on? It's going to be close, but definitely possible. The Labour majority was around 5,500 which gives us a reasonable margin (although obviously this is a byelection), despite lingering anger over expenses there seems to be (fingers crossed) no great issue that would encourage a protest vote. At the end of the day, it really depends on whether we can run a good campaign?

Friday, June 26, 2009

And Speaking of Markets Going Wrong

This is really really scary.

The State and the Economy Part 2 of 94, When Markets go Wrong

Alright folks, time for my next thrilling installment of my series "The State and the Economy", last time, I discussed the concept of coordination and the idea of concious and unconcious coordination. What I'd like to concentrate on this time is the concept of unconcious coordination through the market and when it goes wrong.

At it's most basic level, market signals are about supply and demand, an increase in the price indicates an increased need for the good which acts as a signal that supplies should increase. What is often ignored about market signals is that they are tied to a particular time. Take for example a merchant ship travelling to a far off colony, say one that is six months away by ship. On arrival a merchant may learn of the high price of tools due to upcoming building work, by the time that merchant ship reaches home the market signal will be six months old, in addition it is likely that the market signal has been dispersed among a number of merchant's all of whom will attempt to supply these tools. One year later and the various merchant ships return to the colony, but find themselves out of pocket since there is now a vast surplus of tools.

There is the time delay between the price rise indicating an increased demand and the development of capacity to meet that demand often means an excessive development of production capacity which can lead to a coordination failure as too much resource is directed where it is not needed. There is often a serious cost to this kind of coordination failure since there is a cost involved in correcting the failure.

A huge problem with the arguments put forward by those who argue in favour of market forces is that they assume that there is virtually zero cost arising from these coordination failures. They assume that market forces will simply allow the economy to adapt and reallocate resources almost instantaneously. I would suggest that the adaption is not instantaneous and that as a result there would be an opportunity cost and would second ask whether the correction would ever actually result because the of the delay between a demand signal and the resources becoming coordinated appropriately in order to provide the required supply.

It's my belief that the benefits of markets to an economy are decidedly limited, while a market signal may indicate the need for an increased supply of a good, it gives very little information in terms of the acutal quantity needed. While it can certainly be argued that the pricing signals in markets perform a function I would seriously question the need for the market as an institution taking as dominant a role as it has in the modern economy.

Monday, June 22, 2009

25%!?

I've just heard a chap on BBC's PM discussing the pay of Stephen Hester, the man who's going to be taking the helm at RBS. His pay package is immense, so immense in fact that it's easy to see why there's a fair bit of outrage about it. What interested me is what he said in defense of the high pay in the city, in particular that the city provides 25% of the country's corporation tax revenue, the other statistic that I've heard about is that it makes up around 10% of the country's GDP.

As far as I can see, the purpose of the financial sector is moving money around to the places where it is put to it's best use (I admit that's a gross oversimplification). I have to ask why such a large proportion of the nation's commercial activity needs to be devoted to this cause. Surely, if this task was done efficiently then it would be done at very little cost. If it's not being done all that efficiently, I would have to ask why such gigantic renummeration packages are essential for such a bloated and inefficient industry.

If there was some major added value to all this activity, I could accept it, but as far as I can tell, there isn't. Many companies are closing or have closed their defined benefit pension schemes, the funds for those already exisiting schemes are often in deficit and the public sector schemes of a similar nature are under huge pressure from groups like the Taxpayers Alliance and are frequently labelled unsustainable.

So then, what I'd like to know is: When you look beyond the statistics relating to size and profitablity, what is the point of the city and why do these people deserve such astonomical amounts of pay?

Sunday, June 21, 2009

The State and the Economy, Part 1 of 94

Apologies for my recent blogging silence, I'm afraid I've been a little distracted of late and not found the time to blog, anyway, I'm back and I'd like to write about the role of the state in the economy. I've got two reasons for this; firstly, because it's often said that we lefties have statist bias (guilty as charged I'm afraid, but I'd like to put a little effort into explaining why) and second, because I've just read a great book by Ha-Joon Chang on the subject (apologies if it gets a bit geeky).

Anyway, I'd like to start by talking about coordination, the idea that in order to accomplish certain tasks, or produce certain goods a number of tasks of no obvious individual value need to be carried out in a coordinated fashion. The ultimate goal being to achieve a state where resources are coordinated in such a way that they are directed towards their most productive uses.

It's worth explaining at this point about the different ideas of unconcious and concious coordination. Take for example a dressmaker and a cloth factory. In a market system, coordination happens unconciously, the dress maker would contact the factory and ask to buy cloth, this additional demand would lead to an increase in the price of cloth which would signal to the factory that it should raise it's output. A system of concious coordination would see the factory ordered to increase it's output to match the demand's of the dressmaker.

Now, although in my example above a market driven system of unconcious coordination is likely to be the preferred system, it's worth pointing out that much of the activity of individual firms is in fact heavily planned and coordinated. As an example, take the first chapter in Adam Smith's Wealth of Nations. In this chapter, Smith talks about the division of labour used in the manufacture of a pin and explains that the process can be made more efficient if workers each perform a single task within the larger manufacturing process (making wire, cutting the pins, pointing them and adding the head).

The point here is that the firm is a clear example where conciously coordinated activity delivers a better outcome than unconciously coordinated activity. If it works at the level of the firm, we really need to ask ourselves whether the same applies at the level of the state.

In my view, the state should plays a key role in the economy by acting to prevent failures of coordination. A strong industrial policy is vital to this, the exact detail as well as the political justifications I'll cover in future posts.

Saturday, June 06, 2009

Not Good

The Norfolk County Council results are in, and to be frank, they are awful. A wipeout and nothing less. The makeup of the county council is now as follows.

Con 60 (+13), Lib Dem 13 (-1), Green 7 (+5), Labour 3 (-19), UKIP 1 (+1)

The Labour group is a shadow of it's former self, we've lost 19 seats leaving us with virtually no presence on the council. It's bad news all round, I suppose I can take some small comfort in the fact that my vote in Town Close held up.

Thursday, June 04, 2009

Iron Chipmunk!?

Sounds like the name of a bad heavy metal band to me. And what exactly is a "community empowerment agenda"?

On Treating Voters like Adults

Iain Dale reckons that OfCom regulations forbidding the discussion of politics on polling day are patronising and not "treating voters like adults" I'd have more sympathy for his viewpoint if a) the current political climate means that the change would quite clearly work to partisan advantage and b) he hadn't repeated a press release from UKIP that basically suggests that voters are too stupid to unfold a ballot paper in his previous post.

Get out and Vote Folks

Labour for preference (obviously), because I think the minimum wage, sure start, tax credits, improved hospital treatment and more money for education show that rumours of us abandoning our principles and having become little more than Tories in red rosettes have been greatly exaggerated.

If you really can't stomach us comrades, then maybe NO2EU or the Greens might be in order, failing that, the Liberal Democrats are quite nice. If a death star is your idea of a Keynsian demand side stimulus then your could put in a vote for the Tories, and if you for some strange reason like the idea of embracing all the worst aspects of the EU while getting rid of all the best then a vote for UKIP might be in order.

Whatever you do, don't vote BNP.

Wednesday, June 03, 2009

In support of Dr Ian Gibson MP

Ian Gibson isn't my MP, but geography means that the politics of Norwich North & South have a lot in common. I've met Ian on a number of occasions and he's a thoroughly decent bloke, and a committed MP.

I really don't think he deserves the same fate as Margaret Moran, David Chaytor and Elliot Morley, his case is different.

Chaytor and Morley claimed for mortgages they had paid off, Moran flipped homes in order to claim for work against her partner's house. In all these cases, expenses were claimed that should not have been.

In the case of Gibson, it is less clear cut. He bought a flat in London for use as a second home, a reasonable expense for an MP whose constituency is 120 miles from Westminster. His daughter also lived there, and when Ian moved closer to Westminster his daughter and boyfriend took over the mortgage, resulting in them getting a house at below the market price.

I don't think what he's done is especially wrong. Had Ian's daughter not lived there, the taxpayer would be no worse off. Consider the situation; you are an MP and you are allowed to have a second home in London, you are given a limit as to what you can claim but have no limit other than that. Is it so wrong to think "I'll get a two bedroom place, so I can have guests over occasionally" how about "My daughter's going to University in London next year, she could say at the flat"? Is putting your second home to good use really such a sin?

What Ian's done is nothing close to what the other suspended MP's have done and ultimately, the taxpayer is no worse off. Anyway, the gist of all this is that I think Ian's been treated unfairly and I'd encourage anyone who agreed to join this Facebook group.

Tuesday, June 02, 2009

Let the come, Red tape in hand

Nick at Capitalists@Work reckons it's (metaphorical) Franco-German lynch mob is heading for the city, personally I rather like a lot of what's being said about financial regulation by the EU. I have serious doubts about the benefits of our large financial sector and have a suspicion that the vast sums of money being made have come at our expense. A little more regulation is exactly what the city needs, so I'll be welcoming the foreign invaders with open arms.

Sunday, May 31, 2009

The Truth About the BNP

Just in case anyone thought the BNP's new, more respectable image was anything other than a facade to hide their more sinister views.




Hat tip: Sadie

Wednesday, May 27, 2009

An "Idiotarian" Viewpoint

Tim Worstall reckons us "idiotarian" lefties should be celebrating the rise in equality resulting from falling asset values.

The number of millionaires in the UK has more than halved since 2007 as house prices, share values and bonus payments have tumbled.

About 242,000 people now have assets of more than £1 million, down from 489,000 in 2007, according to estimates from the Centre for Economics and Business Research (CEBR). Millionaires have seen nearly a quarter of their wealth wiped out over the past two years.
Personally, if it wasn't for the accompanying unemployment I'd be over the moon at this kind of rise in equality.

To me, it's all about the idea of utility, the actual usefulness we derive from our posessions. Let's discount bonuses for a moment and look at the other two main causes of this decline in wealth; property and shares. The utility I derive from a house would be from it's many rooms, the garden, the fittings and the like. It's not as if rooms start disappearing as the market value drops. As for shares, I'd say the main utility here is the regular dividend payment, the yield may have dropped for the moment, but it's unlikely that these payments will remain permanently depressed.

So, although there are 247,000 people who are no longer millionaires, many will have lost little in terms of their quality of life. Further to this, for those of us who aren't millionaires it would appear that many of the trappings of the millionaire lifestyle are a little more affordable to the rest of us.

Equality Rocks!

Tuesday, May 26, 2009

Financial Innovation

Apologies for the lack of blogging of late, elections and the like have been weighing me down and slowly sapping my will to live. That and the fact that I've been reading many blogs that have been saying things that I'd like to say more effectively and insightfully.

On that note, here's James Kwak at Baseline Scenario (with support from Mike at RortyBomb) on the subject of financial innovation and why it isn't all that useful.

Can I get a flake with that mortgage?

Friday, May 22, 2009

Standard & Poors

I am quite at the actions of ratings agency Standard and Poor's. Yesterday they have put out a release saying that they are downgrading their UK outlook from nicked from the FT):

The rating could be lowered if we conclude that, following the election, the
next government’s fiscal consolidation plans are unlikely to put the U.K. debt
burden on a secure downward trajectory over the medium term… Conversely, the
outlook could be revised back to stable if comprehensive measures are
implemented to place the public finances on a sustainable footing, or if fiscal
outturns are more benign than we currently anticipate.
Which is essentially them saying that the government should cut public spending, and that's what really winds me up. The announcement does in my view blur the lines between the political in the professional. In this case I can't see how S&P can say with any accuracy that reducing the deficit at their faster rate will somehow leave the economy in better shape to pay off the national debt.

What worries me about all this is just how much the of the government's political priorities could end up being dictated by the needs of financial interests. It's not really a problem yet, but if Moodys and Fitch follow suit (which they appear not to have done) then it could force the government to reconsider it's spending plans and I have doubts as to whether this is in the best interests of the economy.

A Brief Defense of Anthony Steen

It has to be said of course, that his comments were incredibly arrogant and indicated that he is not just out of touch, but living on a completely different planet to the rest of the electorate. It should probably also be said that it is a PR disaster for David Cameron (although I don't mind that bit so much).

What I will say though is that it's more than a little unfair that some newspapers have chosen to show pictures of the Balmoral with captions along the lines of "this is a house that looks a bit like his" rather than display pictures of the actual house, which isn't quite as grandiose.

On a slightly related note, Hopi's LOL expenses post is ace.

Edit: Corrected title Anthony Steen, not actually being a Sir and everything

Thursday, May 21, 2009

A quickie: Iain Dale

Way back in the mists of time, during the whole Damian McBride affair, Iain Dale wrote anDaily Mail article (now no longer there) that implicated Tom Watson in the scandal, suggesting he was CC'ed in on the emails. This was not true, and so, Tom sued, and was successful.

Iain has now apologised in full on his blog, but is a little annoyed that a few left leaning bloggers are creating a fuss over what is a minor incident (see here). Personally, I'd say that given that us lefties had to endure 2 weeks worth of relentless attack from the mainstream media and the rightwing blogosphere that culminated in a Gordon Brown having to issue a public apology, all over the existence of a few smear stories that were NEVER GOING TO SEE THE LIGHT OF DAY. I think a few harsh words from a bunch of leftie bloggers is getting off rather lightly.

Monday, May 18, 2009

Strange Bedfellows

Having just got back from work, turns out I had a political leaflet through the door today, a shiny BNP one. Strangely though, as I opened it up to see it in all it's stock photo glory, I found inside it a couple of other leaflets from the Greens and UKIP.

Perhaps they should be having words with their distributors.

Sunday, May 17, 2009

A Protectionist is not a Facist

I'm no fan of the BNP, however, due to an unfortunate coincidence of political opinions one of the main policiy positions I take (on protectionism) ends up being lumped in with the BNP. As demonstrated very well by the Tories Nothing British site.

The BNP has a hard line socialist economic policy, more in common with a Communist or National Socialist party than that of one qualified to deal with the current economic crisis. It is well documented that wages rise in a free market, protectionism reduces income and increases unemployment yet the BNP say:

“[T]he BNP calls for the selective exclusion of foreign-made goods from British markets and the reduction of foreign imports. We will ensure that our manufactured goods are, wherever possible, produced in British factories, employing British workers.

“When this is done, unemployment in this country will be brought to an end, and secure, well-paid employment will flourish”


I find it very distasteful because it attempts to tar what are essentially a fairly neutral set of policies relating to the prices of imports and the development of industry with the evils of facism. The Nazi's crime was not the introduction of tarriffs on certain foreign manufactured goods, that should be obvious. What is also problematic are some of the statements the Tories make here, for example:

It is well documented that wages rise in a free market, protectionism reduces income and increases unemployment

It is not well documented at all, for example, from 1875-1913 where Britain maintaned a 0% tarriff rate, per capita economic growth was a mere 1%, way behind the USA, growing at 1.9% and imposing an average tarriff of around 40% on manufactured goods during the same time period. The Tories statement here has no basis in fact, there are numerous examples of protectionism being used to further the economic well being of a nation's citizens.

A Sensible Debate on Protectionsm
Protectionism as a policy has been largely excluded from recent debate, a lot of myths have been built up about it and it has been tarnished by it's attachment to unsavoury political elements, even my comrades in the Labour party will stare at me in disbelief when I start enthusing over protectionism. This is unfair because it fails to take into account the sheer scope of policies that could be considered "protectionism", there is often talk of what's called beggar thy neighbour protectionism, but not all protectionism is like this. While a 50% tarriff might destroy demand for a particular good a 5% tarriff might not, while subsidising the production of a good might undermine foreign competitors, subsidising the development of an improved product is likely to be less distorting. There is also the issue of how we treat international movement of capital.

I feel the need for this kind of debate is vital because of a dilemma that developed nations face, as countries develop they traditionally move up the value chain producing goods with a higher value added (moving from say, textiles to motor cars for example). As other nations hit the top of the value chain we have had more competition in this area of the economy, the UK has adapted to this by moving to a more service oriented economy, but I believe that there are serious questions to be asked about the sustainability of this move, particulary since we have been running a negative trade deficit since 1984 and I don't think this can be ignored.

Another problem with the shift in the economy is that it has left large sections of the population unable to find well paid work. Although unemployment has been low for the past decade, many of the jobs in the service industry are not as well paid as old manufacturing jobs, in addition there is still the worrying figure of 2.7 million (?) people claiming incapacity benefits. The question really has to be asked as to whether continuing to support unrestricted trade is the best route to a secure future for the country.