Andreas' Blog...

A Poll I would like to see

2011-12-08T13:25:00.002Z

Inspired by Lord Ashcroft's polling in Feltham and Heston, would be a poll comparing Boris Johnson, Ken Livingstone and AN Other Labour Candidate.

The reason for this being a fair amount of the internal Labour party arguments about Ken's popularity. The poll above confirms that Labour are ahead of the Tories, and that Ken is behind Boris, what we don't know is whether this is because Boris is more popular than the Tories or Ken is less popular than Labour. The view that appeals to my politics is that Boris, as a larger than life figure enjoys a large popular vote that extends to those who would normally support Labour, Ken's appeal has faded, but he is not really less popular than Labour.

Like I say, only my personal opinion here but it would be good to sort this one out once and for all.

On QE, Pyramids and the Like

2011-10-06T21:01:00.000Z

If you follow me on twitter, you'll probably guess that my reaction to the new QE announcement is a positive one, athough obviously, I'm a little disappointed that none of the freshly minted QE money will be used to finance the building of a pyramid.

Of course, I don't actually think we should build a pyramid, in reality there are plenty of alternatives that we could choose in preference to pyramid building. The point I'm trying to make is that if we're going to create new money into the economy, we really ought to get that money generating economic activity, preferrably among people who are currently not engaged in economic activity. This to me, seems a far better way of doing things than buying government debt off banks in the hope that it might be enough to get them lending again

I think we should go this way for two reasons, the first is that like Chris Dillow, I think we have a shortage of investment of opportunities; the second is that I believe we are suffering from a balance sheet recession, households and businesses are already struggling with large quantities of debt, are there many individuals and businesses out there willing to take on more debt? It's for these two reasons that I have doubts about QE, even if it helps with bank lending I can't see there being many takers for this new debt.

I support QE because I believe that a not very effective stimulus is better than no stimulus at all, but I have my reservations.

The Mysterious Ideas of Hard Keynsianism

2011-09-14T13:11:00.000Z

I'm reading a lot these days about the ideas of this think called "hard" or "real" Keynsianism, the idea that we should run a surplus when the economy is in good shape. As well as finding a home on political websites like Labour list, it's also been mentioned by economists I incredible amounts of respect for like John Quiggin and Paul Krugman(1). I've also seen arguments from right wing types suggesting that Keynes said surpluses should be run during the good years. The problem I've got with this is that I can't find anything in the General Theory(2) that supports this.

It's obvious that Keynes thought that in time's of high unemployment, we can find plenty of passages to support this viewpoint in the general theory, the idea of running surpluses in good times I'm not so sure about. One fact that leaps out at me when reading the General Theory is the contempt he holds for the principle's of what he calls "sound" finance. We have this snippet from Chapter 8 where he laments excessive requirements for sinking funds (suppose you could call them reserves) for building maintenance and it's affect on employment.

Or again, in Great Britain at the present time (1935) the substantial amount of house-building and of other new investments since the war has led to an amount of sinking funds being set up much in excess of any present requirements for expenditure on repairs and renewals, a tendency which has been accentuated, where the investment has been made by local authorities and public boards, by the principles of "sound" finance which often require sinking funds sufficient to write off the initial cost some time before replacement will actually fall due; with the result that even if private individuals were ready to spend the whole of their net incomes it would be a severe task to restore full employment in the face of this heavy volume of statutory provision by public and semi-public authorities, entirely associated from any corresponding new investment.

Another good example of this is Chapter 10, one of the places where he talks about digging holes. The point he makes here is that in situations where there is unemployment you may as well pay people to dig holes, indeed he suggests that humankind had already unwittingly discovered this practice with the form of hole digging known as gold mining.

The analogy between this expedient and the goldmines of the real world is complete. At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline. Thus gold-mines are of the greatest value and importance to civilisation. just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities has played its part in progress-failing something better. To mention a detail, the tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery, because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which is payable.

He then proceeds to point out the absurdity of the principles of sound finance by suggesting that hole digging in the form of gold mining is a superior investment to building houses on this basis.

In addition to the probable effect of increased supplies of gold on the rate of interest, gold-mining is for two reasons a highly practical form of investment, if we are precluded from increasing employment by means which at the same time increase our stock of useful wealth. In the first place, owing to the gambling attractions which it offers it is carried on without too close a regard to the ruling rate of interest. In the second place the result, namely, the increased stock of gold, does not, as in other cases, have the effect of diminishing its marginal utility. Since the value of a house depends on its utility, every house which is built serves to diminish the prospective rents obtainable from further house-building and therefore lessens the attraction of further similar investment unless the rate of interest is falling part passu. But the fruits of gold-mining do not suffer from this disadvantage, and a check can only come through a rise of the wage-unit in terms of gold, which is not likely to occur unless and until employment is substantially better. Moreover, there is no subsequent reverse effect on account of provision for user and supplementary costs, as in the case of less durable forms of wealth.

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely, pyramid-building as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York. Thus we are so sensible, have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the "financial" burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as an inevitable result of applying to the conduct of the State the maxims which are best calculated to "enrich" an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time

Now to me, the idea of saving in the good years to prepare for inevitable downturns seems to be me very similar to those ideas of "sound" finance. I have a hard time believing people who advocate a practice similar to that Keynes was so passionately critical of suggesting that their interpretation is "Hard" or "Real" Keynsianism.

Now, I will have to add a bit of a caveat here in that I don't think Keynes thought it was acceptable for governments to continually run deficits. I'm sure he recognised the obvious dangers of accumulating excessive levels of debt obligations, I'm also sure he recognised the role fiscal policy played in price stability. Given those two assertions I think it's fair to say that he advocated keeping national debt stable and budgets roughly balanced over the medium term. I don't object to this, what I object to is the fact that a lot of people seem to have read between the lines on the subject of balanced budgets and come up with a set of hard and fast rules and then had the cheek to call it "Real" Keynsianism.

The specific problem I have with this kind of policy is that it seems to assume certain properties of economic cycles that don't really exist. People act as if recessions are regular and inevitable events rather than occasional freak events with vastly different causes. The List of Recessions in the UK notes recessions in 1919, 1930, 1973, 1980, 1990 and 2008 and each one has a unique cause(3) (. If we were to run surpluses in the "good" (non bad?) years we have to ask ourselves just how long we would have to maintain this surplus, we have to ask ourselves why we are withdrawing demand from the economy and why we are putting off the building of houses, schools and hospitals for no other reason than to prepare for an imaginary downturn that may or may not happen.

Overall then, I'm not really sold on this whole Hard/Real Keynsianism idea. I think that unfortunately it's an idea that's cropped up because of the current obsession with fiscal policy in political debate rather than as a product of solid economic reasoning. I think it's important to remember that Keyne's main concern was always that of unempoyment.

1. Krugman is quite nuanced in what he advocates, so I'm not sure whether my accusations s
2. I should admit that I may be missing something here, I've not really read much of Keynes' other work.
3. Finance seems to crop up an awful lot in recession causes, funny that? You might think that a better way of dealing with the problem of downturns and the deficits they produce might be to regulate this activity more strongly.

The Paterson Curve

2011-09-07T13:01:00.000Z

Move over Laffer curve, there's a new graph shaped taxation related narrative device in town. Given that people are writing letters to the FT about the 50% tax rate I thought I'd attempt to come up with a way of saying why it's ok to tax the rich provided we don't tax them too excessively. So people, witness The Paterson Curve!

Obviously our great wealth creators need decent rewards so that they go and do their thang, but I figure that there must be a some upper limit where it doesn't matter how big the rewards are, there's just no more productivity forthcoming. Will the prospect of über richness really be much of a carrot to the merely super rich? As a result I've decided to stick that reasoning into a nice little curvy graph.

And so, because by my reckoning, we're at a point on the Paterson Curve where there's little extra to be gained from increasing levels of reward, I reckon it's perfectly OK for us to keep the 50% rate.

The Ever Consistent Taxpayers Alliance

2011-04-13T13:02:00.000Z

The TPA on the spiraling cost of obesity:

Matthew Sinclair, of the TaxPayers' Alliance, said last night: ' Cancer patients are missing out on vital drugs because of cost.

'There has to be more individual responsibility over obesity.'

The TPA on the Rotherham Institute for Obesity, an NHS center specialising in (amongst other things) helping people take responsibility for their own weight:

Charlotte Linacre from the TaxPayers’ Alliance said: “This initiative has done a fat lot of good and been a massive drain of taxpayers’ hard earned cash.

The Big Society Credit Card

2011-03-31T12:38:00.000Z

If you haven't yet read Duncan's False Economy piece about how Osborne's plan have a read, it really is very good. Here's a snippet:

Back in June last year, before Osborne’s policy changes, the OBR forecast (pdf) that public sector net debt (government debt) would be £1,294bn in 2013/14. After two budgets and a spending review they have revised that (pdf) to £1,251bn – a reduction of only £43bn.

Change in debt by 2013 under Osborne's plansHere we can clearly see the impact of Osborne’s changes over the next three years: public debt down by £43bn BUT private household debt up by £245bn – five times as much

So, we'll still be picking up debt it's just that instead of it being the government's debt, it'll all be our own private debt. I herby call dibs on the term Big Society Credit Card.

Problems and Solutions on the Deficit

2011-03-22T14:07:00.001Z

Unless you've been living in a cave for the last few years you'll undoubtedly know that the country currently has a rather large deficit. What I'd like to do with this post is spell out the dangers and the arguments on how to deal with the situation. It's intended as a response to the gentlemanly @Parlez_me_nTory as to why us lefty economist* types don't want to see the deficit cut to rapidly.

The Dangers of the Deficit
The first danger is the obvious one, by taking on a greater stock of debt we are commiting ourselves to larger interest payments. This means tax money going on interest rather than schools and hospitals and such.

The second danger relates to the bond markets, for the government to borrow there need to be investors willing to put up the cash. These investors will only do so if they believe that government debt provides good value for money. Traditionally the strength of government debt has been that it is very safe, if lenders start to believe it isn't, they'll start by demanding a higher interest rate and in extreme circumstances they may outright refuse to lend.

Structural and Cyclical Deficits
A lot of discussion at the moment has centred around the ideas of structural and cyclical deficits. To explain this we need to look at what traditionally happens in a recession, that is that tax revenues tend to drop at a far greater rate than the loss of output from a recession. GDP might drop by 2% but taxes are likely to drop by far more. Equally, when the economy recovers, taxes tend to rise quite quickly.

To show this, check out the change in spending versus the deficit in the 1990s where the deficit dropped despite increased spending.

The point of this is that it's often the case that an awful lot of the deficit will take care of itself, this is what we call the cyclical deficit. The other part of it is the structural deficit. This bit of the deficit is basically the bit that would sill be there once the economy was back up to speed. There's currently a considerable amount of debate about just how much of or current deficit is structural.

The National Debt and Growth
As a final bit of background, we also need to consider the role of the national debt in all this. In the past 63 years there have, the government has only run a surplus in 14 of them (6 Tory, 8 Labour). Despite this, the trend for the national debt (until recently) has very much been a downward one.

This is of course because this graph judges debt as a percentage of GDP. The reason we use this measure is that GDP can be seen as a reasonably decent approximation of our national income, it makes sense to judge our debts according to our ability to pay. The reason Labour politicians like to make the case for growth is that if we have a vibrant economy, the debts no longer matter as much.

The Case for Deficit Reduction
The case for deficit reuduction is simple enough, it's basically that we are buliding up a level of debt that will at some point become unsustainable and also that if we don't show a willingness to deal with the problem our creditors will no longer lend to us (because they don't think they'll get it back). At this point we face a situation where there simply won't be anY money to pay government employees.

The Case Against
The case against deficit reduction is based around the idea that a public sector worker is also a private sector customer who is spending their money with various private sector shops and businesses. This means that a reduction in public spending will have an impact on the revenues of private sector businesses.

We can generally assume that the private sector will slowly expand creating new jobs which will leed to a virtuous cycle of spending an growth. If cuts our made too rapidly, there is a risk of halting private sector growth which could lead us towards the dreaded double dip recession. It's further argued that even if we don't see a double dip, we will see slow growth meaning that although we may have less debt, that debt will be more of a burden on account of the poor growth.

*Just to be clear, I'd classify myself more as in interested amateur rather than a proper left economist.

On Merging Income Tax and NI

2011-03-21T21:45:00.000Z

It appears that a good few Tory friendly papers and organisations are being briefed that George Osborne intends to eliminate Employees National Insurance and merge it with income tax. From an entirely practical point of view this strikes me as a good move, politically I think it's a masterstroke.

From a practical point of view there is no real reason why we need to have two separate income taxes operating with different sets of rules. There's no real difference between how the revenues from the different taxes are spent, it all goes into the same pool. What we ultimately get from all this is an easier to administrate taxation system, which is good for both the HMRC and employers more generally. A problem that would need to be worked out is that this kind of change could hurt pensioners who might end up with a higher tax bill (since they don't pay NI), but this would not be a hugely difficult thing to implement.

Politically though it's more interesting, because George Osborne has found Labour's achilles heel. In 13 years Labour steered well clear of income tax, the basic rate only ever went down, the higer rate wasn't changed. When Labour needed to raise the equivelant of a penny on income tax, it did it through raising NI, not income tax. The only time Labour ever increased income tax it went horribly wrong (the 10p tax scandal a few years back). It's an unfortunate truth that Labour is scared to death of being seen as a tax and spend party.

By merging income tax and national insurance Labour no longer have the easy option of raising national insurance, it has to commit to raising income tax. For a Labour party still scarred by it's election loss in 1992, this is a frightening prospect. That said though, from a personal point of view, I'm not quite so worried. If we really needed to pull the wool over the taxpayers eyes to implement our policies, we've already lost the argument. The Labour party will need to get better at making the case for higher taxation, but I don't necessarily see this as a bad thing.

On Arguments about Interest Rates

2011-03-21T14:05:00.001Z

There's an argument that I've heard quite often recently that a major factor in the recent financial crisis was loose monetary policy and low interest rates. This argument is particularly popular among conservative lunatic fringe. Witness Allister Heath (Chair of TPA Tax Comission, daddy is a TPA director) here or Dan Hannan over here as an example of this kind of thinking, there's more in the form of Derek Scott at the Telegraph.

Thing is, I'm not sure that this is entirely resembles what actually happened. A quick comparison of recent and historical interest rates reveals that bank interest rates were not really well below any kind of historical average. Another key point to make is that around 2006/07 mortgages could easliy be obtained at well below the bank base rate.

To foist the blame onto the base rate ignores other important factors. We have for a long time had a financial system that has allowed money to flow freely across borders. This has meant that our banks are free to borrow on the international money markets.

This change has reduced the effectiveness of the bank base rate. While it's true that many mortgages do track the base rate so a rise will squeeze spending among those consumers with tracker mortgages. The effect on the supply of consumer credit will be reduced because banks can seek an alternative to borrowing from the Bank of England at the base rate.

The point I think it's worth making here is that you can't really put the blame on interest rates set by the Bank of England while ignoring the developments that occured in the financial markets.

A Brief Thought on this Month's Budget Surplus

2011-02-23T13:59:00.000Z

A lot of Tories and right leaning media types seem to be rather happy about the higher than expected revenue for January this year. I really don't think it deserves such celebration.

It's worth pointing out that the higher revenue was due to higher income tax, and a fair bit of that was from self assesment returns due at the end of that month. It's then worth pointing out that these returns would have been for the tax year running from April 2009 to the end of March 2010 (when Labour were still in power).

So not necessarily something that the coaltion can take all the credit for.

On Youth Unemployment and the Minimum Wage

2011-02-17T14:12:00.001Z

Today's youth unemployment statistics are worrying, no doubt about that. Tim Worstall is pointing the finger of blame for squarely at the door of the minimum wage, I thought I'd take a look at the historic data and see what it shows.

The data in question can be found here (Specifically, Table 9, Datasets: YBVQ,YBVR,YBVS)

It's a bit of a short cut because the data is only for 18-24 year olds, so doesn't include 16 and 17 year olds, but I think it's close enough. In addition to the data for youth unemployment I've also included the data for the minimum wage and adjusted for average earnings. We can only go back as far as 1993, but this is a reasonably good time period since A) We were recovering from a recession and B) We didn't have a minimum wage.

So, here's a graph of the results:

So what conclusions can we reach from the dat, well since we can't see the 80's we unfortunately can't really prove anything on my preferred "it was Thatcher, Neoliberalism and Globalisation" line of reasoning. We can however see that there's not a huge amount of difference between the non minimum wage nineties and the minimum waged noughties, the latest figure is a little higher than the 90's figure but this could be put down to the greater severity of the recession and the current set of cuts.

There is one potential bit of support for the anti minimum wage argument in all this data, that is the rise in youth unemployment after 2004, this rise occured against a background of above average increases in the minimum wage despite the otherwise benign economic conditions. Unfortunately there's anther huge variable that throws a gigantic spanner in the works and that's that 2004 was the year that ten new eastern european nations joined the EU. While it's an acceptable argument that the minimum wage might have put employers of hiring, it's also quite reasonable to argue that employers hired foreign workers in preference to unskilled domestic workers.

All we can really say from the data is that if the minimum wgae had an affect on youth unemployment, the effect was not particularly signifigant. While the data may in parts indicate a relationship, it could easily be explained by other factors. All in all, I personally don't think the minimal benefits we'd see are worth the massive social costs.

All About Industrial Policy:,Part 3 - Notes on Unemployment

2011-02-03T13:52:00.001Z

The inspiration for this post all began with an argument I had with Tim Worstall over at Duncan's place over unemployment. I suggested that there was a relationship between trade policy and unemployment, Tim's rather scathing response was:

Eh? Trade causes unemployment does it? Well, that puts the kibosh on Keynesian economics then, doesn’t it: what with the insistence that employment is determined by aggregate demand.

Which to be honest, I thought rather missed the point. As a general rule, an increase in aggregate demand leads to a drop in unemployment, it is clear though that this rule doesn't describe the whole picture, that dealing with unemployment is more than just a case of fiddling with the right macroeconomic variables. To drive home this point, in 2007 at the height of an economic boom with demand by the bucketload, youth unemployment was 14.4%, it's clear that we need to look deeper to find the cause of unemployment.

At a basic level we can say that unemployment occurs when there is no demand for the available supply of Labour. This might be because there is no demand at all for labour, although it is often more likely that that the supply and demand are not compatible. Although there is a demand for labour, it is likely to be a demand for labour with specific skills not possesed by the available labour.

An obvious question at this point is: Why are jobs not being created that can make use of the available labour supply? To do this, we need to look at the process of job creation. One of the best descriptions of this process is the idea of Creative Destruction from the Austrian Economist, Joseph Schumpeter. Essentially, entepreneurs within a market economy will constantly be looking to put resources to their best use and even when jobs are lost, entepreneurs will find new uses for this newly available labour. I believe that this process as a whole goes on, but I think it's far from perfect.

Where we see unemployment, I believe that largely it is because the creative/destructive process within the economy has been unable to find a use for the available labour. It's at this point that we can bring the issue of trade. The starting point here is to imagine a world where wages are roughly equal, in this situation entrepreneurs have a huge range of options open to them. Once we start to add in competitor nations with lower wages to this world, many of the potential avenues of opportunity in the higher waged countries will dry up since as they will be unable to compete with lower priced competitors.

The point here is that the rise of foreign competition means that domestic entepreneurs have a harder time of things (they also have some advantages, but I'll cover these in a later post), making the process of job creation becomes more difficult. In a market economy, we have to accept the fact that jobs will be destroyed, what's important is that we look after those who lose their jobs, ideally by creating an environment where it's easy for them to find new jobs.

One reason I'm a fan of industrial policy is that it is clear that there are areas of the country and segments of the population for whom the job creation process as it stands is not working particularly well, jobs have been destroyed but not enough new jobs have been created. I'd like to see the government take a more active role in improving the situation.

On Today's GDP Figures

2011-01-25T14:01:00.001Z

I was quite shocked at todays economic growth statistics, I was personally suspecting something to towards the lower end of what was forcasted, maybe 0.2-0.3% growth, a 0.5% drop was a shocking number.

More worrying is the cause of this drop, some of it may be down to the snow, but I'd have thought that would have been factored into the independent estimates. In addition, the government's programme of cuts hasn't really started to bite just yet.

There remains the possibility that todays figure is an anomaly, the result of incomplete data or a mistake in the calculations but otherwise it would seem that the drop is driven almost entirely by a collapse in confidence. I find this very worrying.

I've always thought that the current economic recovery was uncertain, mainly on account of the large levels of consumer debt. If the recovery is so uncertain that it can be knocked of course by nothing more than the expectation of cuts we have serious reasons to be afraid.

All About Industrial Policy, Part 2 - A Few Notes on Balance of Trade

2011-01-05T14:13:00.002Z

Further to my first post on this subject, I wanted to get into the subject of why the global imbalances matter. To demonstrate this I'm going to start by considering two countries.

Country A: Is a wealthy well developed country, citizens of this country have high individual incomes. Due to the level of consumption in this country the country has a trade deficit with country B.

Country B: Is a developing country, citizens of this country have a far lower individual incomes. Consumption in this country is low, although it makes a large number of the high value goods consumed in Country A. As a result it has a trade surplus with country A.

As these two countries continue to trade with each other a problem will arise, because A is not producing enough goods to cover the value of the goods it buys from B there is a need to cover the difference. One way would be for B to either pay more or buy more goods from A. An alternative would be for B to build up a stock of country A's currency for use at a later date. This situation may continue for a number of years, however, at some point it's likely that B will no longer accept A's money at this time we have a problem.

A is now no longer able to buy it's usual quantity of goods from B, as a result B's firms have a problem since they are not able to sell the stock they are producing. In this theoretical example the problem could be solved quite easily B could use it's stock of A's cash to continue to buy from A and spend the spare cash on domestic goods produced in their homeland. In the real world however, it's not quite that simple, to demonstrate this I'm going to add a little more complexity to the model.

Firstly, it takes time for an economy to change and adapt, factories need to be built, old factories need to be closed down. An economy can't just change what it produces in an instant. Second, we need to consider how supply and demand match up, consumers living on Hawaii are unlikely to ever want snow ploughs, for example. Third, we need to consider the structure of firms, if a firm can't sell it's goods it's going to go into administration with all the consequences that entails.

Going back to the example, B's consumers are unable to take up the slack due to the vast difference in average income between the two countries. The goods that A's consumers buy are not affordable to the average consumer in B. It's at this point that the problems start to occur.

The Reckoning
In B there is now a problem of a massive drop in demand, much of the infrastructure will have developed with a view to producing goods for consumption in A. In A, problems also occur since much of the economic infrastructure will have been developed with a view to selling those goods produced in B. Inevitable conseuqnce of this is an economic downturn, with the accompanying unemployment and social unrest as well as a considerable amount of value being destroyed in both countries. In addition it will take several years of adjustment for the economies to correct themselves.

The issue of global imbalances seems to have become a far greater problem with the development of the financial system. Freely moving international capital seems to have increased the degree to which debtor nations can borrow before thing go wrong, as a result economies have developed further in the wrong direction and the size of the adjustment is greater.

One reason I'm in favour idea of industrial policy is that by actively seeking to improve the balance of trade we can play a part in making sure the economy remains more stable.

All About Industrial Policy: Part 1 - Why?

2010-12-16T13:42:00.000Z

I'm very glad that Labour has supposedly "lurched to the left" and decided to embrace industrial intervention. It's something I've been in favour of for a long time. thought I'd devote a series of posts to the subject detailing exactly why I think this is a good idea and how it should be done.

Why?
For my first post, I'm going to deal with why I think we need to embark upon a policy of industrial intervention, this is for two reasons, balance of trade and unemployment.

Trade Imbalances
The need to address the balance of trade has been discussed at length since the crash, usually with reference to "global imbalances". Essentially China has been making exporting like crazy and has built up excessive savings,meanwhile in the UK, the US and Europe we've been spending like crazy. This has meant that the UK has had to "import capital".

Importing capital is a worrying prospect because those providing this capital will want to see their a return on their investment. The result is that we are essentially building up a stock of IOU's that we will eventually have to pay back. Some people like Warren Mosler don't think this is a problem that if we can't pay these IOU's than that's our creditor's tough luck, maybe, but to me it seems problematic. First, doesn't seem morally right to let a situation build up where a country goes on a debt binge and then tells it's creditors to go hang, second, there are still implications for economic coordination and economic stability from doing this (I'll try to cover this in a future post).

I don't think the UK needs to switch from being a net importer to a net exported but I do think that we need to aim to keep the trade deficit below around 2% as part of a contribution to a more stable, balanced world economy.

Unemployment
To demonstrate my point here, I'm going to take us back to 2007 before things started to go wrong. The conventional view of 2007 is that it was a prosperous year for the economy, the height of the (what turned out to be unsustainable) boom. We now know that this prosperity was largely an illusion but even ignoring future events there were still serious problems with the British economy.

Firstly, it's worth pointing out that when broken down by region the pricture looked less rosy. Firstly, while the overall unemployment statistics looked good, some regions did a lot worse than than others, these regions were also quite dependent on the public sector for jobs. Second, unemployment was far worse among the males than females, the reasonably low level of female unemployment masks a higher level of of male unemployment. Worst of all was youth unemployment rate of 14.4%.

A youth unemployment rate of 14.4% is unacceptable at any time. The fact that this rate occured at the height of a boom strikes me as a sign that something was quite seriously wrong with the economy, a sign that the status quo wasn't, and indeed isn't working.

John Rentoul on the Banking Bonus Levy

2010-11-01T13:51:00.000Z

This is not exactly new, but one the unfailingly Blairite commentator has been really getting on my nerves in recent weeks so I though't I'd point out one of his epic failures.

Here's all seeing, all knowing Blairite just under a year ago on the new levy on banking bonuses (my emphasis):

Not only is it arbitrary and indiscriminate, it is likely to be ineffective. Ways round it are certain to be found. No one seriously thinks that it will raise the £550m estimated by the Treasury.

And here's what actually happened:

The government said in September it raised 3.5 billion pounds ($5.5 billion) from a one-time 50 percent levy on discretionary bank bonuses imposed by the last Labour administration. The new levy will generate around 2.5 billion pounds annually, higher in net terms than the bonus tax, the government said today.

Why do people take him seriously?

A Few Words on Browne

2010-10-12T12:55:00.000Z

I thought I'd say a few words on the Browne review out today. One of the first things to say is that educating people to the degree we do is not necessarily useful for the economy. Employers look for a level education when recruiting, the increased number of graduates has simply meant that degree education has replaced A-Level education and Masters/PHD has replaced the degree requirement. This is not to say that we shouldn't educate the numbers of students we do, it's just that we should be clear that the economic benefits of doing so are limited.

The previous argument is important because the Browne review proposes an increase in tutition fees paid for by a loan. The big problem here is that since a university education is no longer a guarantee of a good job, those not lucky enough to get well paid jobs will still have the debt obligation hanging over their heads.

It's the unfairness of this system that I object to, the idea that whether you end up at an investment bank or a call centre you still have the same debt and it's for this reason that I don't support the idea of tuition fees funded by a system of loans and prefer a graduate tax, we'll need to iron out some of the problems, but ultimately it's the fairer option.

From The All Seeing All Knowing IMF

2010-09-28T12:53:00.001Z

Given that the Tories are shouting about their recent mild praise for their policies from the IMF, I thought it appropriate to issue a reminder of the IMF's past omnipotence on thse matters (my emphasis):

Consistent with this favorable outlook, financial sector prospects are strong. Net exports of financial services have risen steadily over the past decade and increased sharply in recent years. UK banks are among the most profitable in the G7 and ratings agencies rank the UK banking system as one of the strongest in the world. The strength of the banking system reflects effective financial regulation and supervision in the context of improved risk management, geographical diversification, and the growth of new business activities. In particular, the development of financial markets has allowed banks to transfer some of the risk that they traditionally held on their own balance sheets. The insurance sector has returned to a more stable outlook. And the ongoing shift from negotiated, bilateral banking finance to arms-length finance through asset markets has facilitated consumption smoothing.

From the Concluding Statement of the IMF Mission in 2006

What would have been nice

2010-09-20T12:52:00.002Z

Would have been if Nick Clegg had said something along the lines of:

The Lib Dems never were and aren't a receptacle for leftwing dissatisfaction with Labour. There is no future for that, there never was.

..before the election.

I remember quite a few people I spoke to before the election who were under the distinct impresson that they were. I remember a number of people who I canvassed who told me they were voting Lib Dem, but reassured me that they'd never ever vote Tory, I also remember people telling me they thought the Lib Dems were more left wing than Labour.

The Lib Dems may never have been a receptacle for leftwing dissatisfaction, but for a long time they brought an awful lot of dissatisfied lefties along for the ride.

Dealing with the Deficit

2010-08-31T23:58:00.000Z

Alan Beattie, the Financial Times' International Economy editor has challenged me to put forward a set of proposals to plug the budget deficit. Since he seems like a decent enough chap, I thought I'd oblige. It's a bit rough and ready but should hopefully do the trick.

Some Initial Notes
Firstly, I'm going to look to target the structural deficit, a large part of the deficit will disappear as the economy recovers, what we're concerent with is the bit that will still be there. I've set a target figure
of 4% of GDP, this is on the optimistic side but even if it's not the whole deficit it's enough to eliminate most of it.

For I'm using 2009 GDP of £1.392 trillion and applying the OBR figures of 1.2% and 2.3% to arrive at a working higure of £1.442 trillion for 2011. This gives us a target of £57.7 billion in cuts and tax rises. As a final note, I've not gone as far as taking into account dynamic effects from taxes and cuts. I've picked 2011 because the HMRC cheat sheet figures (see below) for 2010 look like they have been adversely affected by the recession, 2011 should (hopefully) represent a more typical year.

Getting On With It
I'm going for a 50/50 split of cuts and taxes so that means finding around £28.8bn of each. For tax rises, I'm using this HMRC Cheat Sheet. For cuts I'm using the BBC's cuts calculator

Taxes
The heavy lifting here is done by income tax, the basic rate has been given most of the work, it's an unfortunate truth that there is only so much that can be raised by taxing the rich. I've steered clear of VAT and where possible looked at taxes that will have the smallest impact on consumption.

Basic Rate Up By 3p in the UK and Scotland (£15.45bn)
Higher Rate Up By 4p (3.12bn)
Freeze Allowances for 1 year (Assume 3% inflation) (£2.55bn)
Increase Small Companies Corporation Tax Rate by 1% (£390 million)
Increase Corporation Tax by 4% (£3bn)
Increase Capital Gains Tax to 45% (£2.97bn)
Stamp Duty to 5% on properties over £500K (£750 million)
Increase IPT by 1% (£430 million)
4p on a pint of Beer or Cider (£436 million)
17p on a bottle of wine (£303 million)
44p on a bottle of spirits (£136 million)
24p on a packet of cigarettes (£135 million)
2p on a litre of Petrol (£420 million)
1p on a litre of Diesel (£238 million)

Total £30.33bn

Cuts
I've gone in to less detail on cuts, mainly because as one person I just don't have the knowledge of where the cuts could be made for the least pain, I have however put a cap on cuts at 5%, with slightly lower cuts to Welfare and Health and no cuts to Housing.

Welfare 3% cuts (£5.88bn)
Health 5% cuts £6.10bn)
Education 5% (£4.45bn)
Defence 5% (£2.00bn)
Public Order & Safety 5% (£1.80bn)
Personal Social Services 3% (£0.99bn)
Housing No Cuts
Transport 5% (£1.10bn)
Other 5% (£4.7bn)

Total £27.02bn

The total is £57.3billion, a little short of our target but close enough.

A Few Closing Thoughts
It's worth noting that foe Labour to spell out a plan in detail like this would be very politically dangerous, I've tried as much as possible to avoid upsetting anyone too much, but in the end there are some pretty unpopular taxes in the list. I don't mthink all is lost though.

First, the figures above are to deal with the majority of the structural deficit, if we follow Labour's half the deficit plan, we would only need to do half of the above in the course of a parliament, if we were to take a more relaxed approach to the deficit (as Ed Balls proposes) we need to do even less. The second point is that the popularity of certain tax rises/falls is highly dependent on media coverage. The cut iun income tax from 22% to 20% did little for Labour's popularity, the 10p tax was hugely unpopular and a 2007 change to NI that raised nearly £12bn went completely unnoticed. A lot depends on the way the changes are handled politically.

As a final note, there are a few options I've not used here, transaction taxes and land value taxes, for example. I've left these off mainly because I'm not sure of the costings. Finally, there is the option of monetising part of the deficit, it's a radical option but definitely one that should at least get some consideration.

Why I Hate the Tories (in one graph)

2010-08-12T12:56:00.000Z

A Long Boring Post on Economic Coordination

2010-08-04T13:17:00.000Z

This post is intended as a bit of a reference point more than anything else, I've long been meaning to write a post like this as a reference to use in future posts.

The best way to consider the concept of economic coordination is to consider the economy as a network of interconnected economic relationships between economic actors. Some will be of a permanent nature (employment contracts, long term contracts and working relationships between firms), others can be implied from patterns of individual transactions (for example, a newsagent might sell around 10 newspapers a day, the individuals buying the newspapers may be different but the volume and nature of the transactions will fit a generalised pattern).

There are two points to make about this coordinated network that it is this coordinated network of economic relationships that provides both the supply and the demand in the economy, disruption of the network destroys productive economic capacity, it can often have knock on effects through the network.

The second point leads on from the first and this is that some destruction of capacity in the economy is both expected and indeed desirable. The network is not static but constantly adapting and changing, new businesses are created as old ones are destroyed. If a firm develops a new method of producing a good, it's likely that the old producers of this good will go out of business. However the labour used in the old processes is now free to be put to alternative uses, this means that new businesses will spring up using this excess labour. This process was originally described by Joseph Schumpeter who coined the term creative destruction.

Some on the right will follow this with the idea that all recessions are adjustments and that the destruction that occurs in recessions leads to new economic activity to replace that which was lost. This is not necessarily the case, the creation of new economic activity is a slow process dependent on the presence of entepreneurial talent to make use of the available resources. The creation of new jobs is a slow and uncertain process.

My final note on coordination is that the ultimate danger of any economic threat, be it inflation, recession or some other shock is that the coordinated network of the economy unravels. This leads to the destruction of economic capacity with it's accompanying decline in standard of living as well as the social problems of unemployment. The ultimate aim of economic policy should be to prevent this occurence.

A Quick Note on Big Society

2010-08-04T13:07:00.000Z

There are some who say that David Cameron's Big Society is a tremendous opportunity for Labour, that we can't afford to simply dismiss it. Personally I have a big concern that Cameron wan't society to pick up the government's slack out of necessity. I think it might look a little something like this (with thanks to Shuggy)

And if it's too small? America I have been to. The reverse is the case: private opulence, public squalor. My sister lived in California for five years. America's richest state had the parents of publicly educated children exerting themselves in various fund-raising activities because their local schools couldn't afford to employ PE teachers.

I just don't like the idea of society taking up the slack in this way, some might think like the idea of parent's participating in this way, personally I think it should be an option, not a necessity.

Note to Lord Turner, Take No Notice of the CML

2010-07-29T12:57:00.000Z

I've been reading with interest what the Council of Mortgage Lenders has been saying about the FSA's mortgage review and I really don't like what they're saying.

The FSA's mortgage review can be found here, it makes a few modest proposals in particular that:

Mortgages are only issued to consumers that can afford them (the customer's mortgage payments should not take their total expenditure over their total income and should include a level of contingency).
Affordability is to be calculated on a repayment rather than in interest only basis.
All mortgages will require proof of income
When lending to borrowers with a bad credit history, total borrowing is to be reduced by a defined "buffer zone" amount (so if a borrower could normally borrow £150,000, it might be reduced by the buffer zone percentage, say 20%, to £120,000).

To me these proposals seem both sensible and reasonable (if a little tame), the UK housing market may not have been problematic so far, but we know from the experience in the US the damage that a bursting housing bubble could do. It's a surprise then, to read exactly what the CML thinks about the FSA review.

On a cursory review of the cumulative impact of the proposals in the FSA consultation paper, we do not believe the FSA will achieve its desired outcomes. And it risks serious unintended side effects which will be damaging to consumers' housing choices and to the economy more generally.

I just don't get this attitude, the mortgage market of the noughties is not something to be prod of. The level of choice in the market moved achived the kind of levels that mean't that whole industries sprang up centered around helping customer's decide. The rise of mortgages sold through financial advisers rose to the point that advisers were bidding against each other for potential customers.

Another clear lesson from the noughties is that increasing the available amount of credit didn't do much to aid housing affordability since house prices rose to reflect the increased availablilty of funds. Allowing consumers to stretch themselves is that lenders make more money, but that is not necessarily in the interest of consumers or the more general interests of society.

It really has to be asked why requiring borrowers to prove their income is unreasonable, and why these perfectly sensible measureas are some how depriving consumers of responsiblility. The proposals put forward by the FSA are a sensible response to an overinflated and incredibly risky housing market. The CML's response is nothing but partisan posturing in the name of it's mambers own profit seeking.

A Brief Note on Inflation

2010-07-22T22:48:00.000Z

I'm amused by the discussion between Mark Wallace and LeftOutside at LibCon about inflation, naturally my insticts are with LeftOutside on this one, but before I go on I thought I might point out a well known study on inflation by Robert Barro. Robert Barro is the man who came up with the modern version of what we call Ricardian Equivalence (the idea that an increase in government spending will lead to an increase of private saving in anticipation of future taxes), and hardly someone we could call an inflation dove. Here's the abstact of his paper:

Data for around 100 countries from 1960 to 1990 are used to assess the effects of inflation on economic performance. If a number of country characteristics are held constant, then regression results indicate that the impact effects from an increase in average inflation by 10 percentage points per year are a reduction of the growth rate of real per capita GDP by 0.2-0.3 percentage points per year and a decrease in the ratio of investment to GDP by 0.4-0.6 percentage points. Since the statistical procedures use plausible instruments for inflation, there is some reason to believe that these relations reflect causal influences from inflation to growth and investment. However, statistically significant results emerge only when high- inflation experiences are included in the sample. Although the adverse influence of inflation on growth looks small, the long-term effects on standards of living are substantial. For example, a shift in monetary policy that raises the long-term average inflation rate by 10 percentage points per year is estimated to lower the level of real GDP after 30 years by 4-7%, more than enough to justify a strong interest in price stability.

So an empirical study indicates that the effect of a 10% increase in inflation will lead to a loss of 4-7% of GDP over 30 years. That kind of number is so small to be insignificant, and that's for a 10% increase in inflation, the difference between a 2% and 5% would be far harder to judge.

The point I'd like to make from this is mainly to point out that Wallace's main claim that inflation destroys lives doesn't really add up, if there was a genuine negative effect from inflation it would be reflected in the GDP growth figures, since it isn't we can't really draw that conclusion. We can of course say that there is likely to be some level of redistribution from inflation, but there's not really any discernible effect on the nation's overall wealth.

A Little TPA Silliness

2010-07-01T21:18:00.000Z

Mark Wallace at the TPA comes out against the Forgemasters loan, suggesting that overall it's unlikely to make the government any money. His maths is correct, looking at the loan in terms of the rate that's been given there's even the possibility that the government might make a small loss on the loan itself but this ignores the bigger picture.

The government is not simply acting as a bank and considering the loan in terms of profitability it is also considering it's wider interests.

Firstly, although the loan is unlikely to make a profit, it's cost is going to be as close to zero as makes no difference, making this loan is not going to cost anything.
The business being lent to is in Sheffield, an area with a serious unemployment problem as well as providing jobs directly, it will give a boost to the local economy providing further jobs
By going ahead with these plans Forgemaster's would have presented a viable alternative to buying nuclear parts from Japan, future nuclear power plants in the UK could have been built with parts manufactured in Sheffield, thus reducing imports, the company could also have bid competitively for work in Europe thus generating exports, all helping this country's balance of trade

Another argument advanced is that if this was truly a viable business then the money have been obtained privately, I have my doubts about this line of reasoning. Right now, as banks attempt to rebuild their fragile balance sheets, companies are having to pay high rates as well as considerable fees to investment banks in order to raise money. The cost of obtaining the credit commercially at this point in time would not make it a viable business opportunity (this in my opinion is a problem with our banking system more than anything).

By cancelling this loan the coalition have missed out on a chance to provide good jobs in an area that sorely needs them and improve the country's balance of trade at virtually no cost, it's a terrible missed opportunity.

Careless Words

2010-07-01T12:55:00.000Z

Yesterday, David Cameron made a terriblem mistake, when questioned on the subject of unemployment he said the following:

As shown in the budget, unemployment is forecast to fall every year under this government,

He is being very optimistic, in a climate where other nations are cutting back their spending in a major way and where the financial markets are plagued with panic and uncertainty such a bold unambiguous statement will surely come back to haunt him.

A Quick Question

2010-07-01T12:48:00.001Z

Maybe a silly one, but right now, I have to ask: What the hell is going on? The FTSE tanked in a major way yesterday and today the Daily Mail is talking about doom and gloom in the city. Is there some unseen piece of this puzzle missing? Is something going on in the financial markets that we really ought to know about?

A (somewhat belated) Reaction to Mansion House

2010-06-21T12:49:00.000Z

As uncomfortable as I am saying this, there were quite a few measures that I actually liked in our new Chancellor's mansion house speech. It does seem that he does at least have a few sensible ideas about reigning in the financial sector.

The FSA No More
Firstly, let me say that there's a lot of idle talk about the failed tripartite system of regulation, there were undoubtedly problems with the financial regulation but it's hard to put this down to the structure of the agencies themselves. The complaints about the supposed "flawed tripartite structure" are little more than a soundbite.

The impression I get is that the FSA is being carved up with the macro prudential responsibilities being given to the Bank of England and the remainder becoming a smaller agency focusing on consumer protection. This sounds sensible enough although it's worth pointing out that there is some crossover between consumer protection and macro prudential regulation and this will need sorting out (the obvious examples here are things like the size of mortgages that lenders can issue and the loan to value ratio).

The idea of a Financial Policy Committee is a good one (indeed, I suggested we needed something like this back in 2008) although as has been pointed out there is a need for more work as far as the structure of this new body, it's relationship with the MPC and how it is to be held to account.

Overall, the only real negative of the new structure is the awfully large amount of power in the hands of the Bank of England, I do wonder if this is an entirely sensible move. I will also add that I don't think that these the majprity of these structural changes would have been much help in preventing the current crisis.

The Vickers Review
The Vickers review looks like it might have potential but it does raise the point that this does seem like a rather watered down version of what the Tories were promising. I do think that separation of investment and retail banking is a good idea and hope that they'll go ahead with it. I'll be watching with interest at what the result of this review is.

And Finally, Something More Ominous
Another aspect of the Chancellor's speech was the talk about China and the possibility of our banks expanding their operations into China, this strikes me as a very dangerous proposition. Iceland had already learned the hard way exactly what can happen expanding your financial services into other far larger countries, and I think it would be safe to say that China would not be nearly as forgiving as the UK was to Iceland. I'll admit that a lot depends on how such an expansion was managed, but it's hard to see how risk could be eliminated completely from such an expansion.

What worries me about this aspect of the speech is that it shows that for all the talk, the chancellor is still quite relaxed, the Chancellor has to realise that financial products are not like other goods, and that their sale carries serious risks, I'm not sure that he does.

On Middle Class Welfare

2010-06-16T18:19:00.000Z

Shorter Policy Exchange and Conservativehome:

In our efforts to ~~rollback the state~~ make necessary cuts we have decided to make an attack on welfare payments made to the middle classes, we will therefore be reducing benefits from the following overprivileged groups: war veterans, war widows, widows, the sick, the disabled, the severely disabled, the mentally ill, pregnant women, industrial injury victims, parents and pensioners

A Few Curiosities

2010-06-16T12:18:00.000Z

Over at Alphaville theres it's hinted that there may be a connection between Chris Huhne's role as vice chair of sovereign and international finance at Fitch and a report from said ratings agency calling for a more ambitious deficit reduction plan.

Another connection could potentially be drawn between at attempt to change the way homelessness is counted and the numerous cuts being made to various housing programmes.

On The Leadership Question...

2010-06-13T18:53:00.000Z

Over the next few months I'm sure I'll see a lot written about the Labour leadership, I'd like to say the following:

I am sick to death of reading patronising articles by arrgoant journalists, bloggers and former SPAD's about who is supposedly "the only sensible choice" or who will "make Labour unelectable", please just shut the hell up.

Stimulus from Across the Pond

2010-05-26T18:01:00.000Z

My attention has been drawn (thanks to James at Baseline Scenario) to some of the first estimates of the effect of the American Recovery and Reinvestment Act of 2009 (a $787 stimulus bill) on the US economy. I thought I'd repeat a few of the major achievements of the act:

Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,
Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,
Increased the number of people employed by between 1.2 million and 2.8 million, and
Increased the number of full-time-equivalent jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise.

Seems to emphasise the point that in times of trouble, stimulus is the way to go.

Public Sector Cuts and the 1990's

2010-05-24T21:01:00.000Z

This post is a response to Sunny after a brief exchange on Twitter today on exactly how the left needs to deal with the new government's plans for cuts. For my part I disagree with Sunny's analysis that we should accept the need for cuts, I'm also not sure if it's a particularly good move politically since it plays right into the whole "Labour's Terrible Economic Inheritance" narrative the the new government is trying to spin to the media (I had a bit of a rant about this in my last post).

To see why, we need to take a look at the last recession in 1990 and how the deficit was resolved in that situation. To do this I'm using my favourite methof of late, a graph. The graph below show's the inflation adjusted change in public sector spending alongside the public sector net borrowing:

As you can see, the deficit shot up after the recession evenutally reaching a figure of just under 8%, this is an important point to start with because although it's smaller than the current deficit the two figures are not a million miles apart. The second point is that the Conservative government of the day dis not make cut's, in fact, they actually increased public spending as the recession went on.Further to this, we can see that the recovery in the deficit properly begins shortly after the largest increase in public spending.

My view is that the majority of the reduction in deficit will not come from public service cut's but from economic recovery, that certainly seems to have been the case in the 1990's (as the IMF says: Automatic Stabiliser's Work, Always and Everywhere). When the economy get's into difficulty, it is always tax revenues that take the largest hit, far larger than the actual dip in economic activity, when the economy recovers tax revenues also jump back up far faster. I believe this is the effect we are seeing at the moment as the recent deficit undershoot was nearly four times the size of this year's cuts.

There may be a need to hold back on spending in a few years time, but right now I don't think the left should be falling for this cuts argument.

Rewriting Economic History

2010-05-24T13:05:00.000Z

I'm really getting pissed off at the Tories endless annoncements that seem to be rewriting recent economic history. As well as spouting all kinds of silly press releases about "Labour's scorched earth tactics" and highlighting the fact that minister's went against the recommendations of their civil servants. They aslo seem to be having a right old go at recent spending plans, and patronisingly lecturing us on how you should run a surplus in a good years (funny how all of a sudden everyone has suddenly picked up the ability to perfectly predict economic cycles and pinpoint exactly the next crash is going to occur).

Let me show you a graph:

See the way those dips in the deficit follow the dips in the economy? That shows what happens in recessions, the deficit increases. What about that tuny little dip that appears just before the almighty one for the recent recession? That would be what the Tories are now deeming LABOUR'S MASSIVE AND WHOLLY IRRESPONSIBLE SPENDING!

That's it, that tiny little bump there is the supposed irresponsible legacy that we have left the new government, for got's sake, you can even see how we were moving to bring it under control. So, coalition people, if you really must make awful accusations about us, at least do the sums first.

UK Trade in Charts and Graphs

2010-05-20T12:52:00.000Z

I've put together a few graphs on UK trade, I'm not really going to draw any conclusions from them just yet but I thought I'd put them up for all to see.

First, a breakdown of the split between goods and services in the UK economy, as you can see dominated by goods but with services growing as a share since around 1995.

Next, the UK Balance of trade, very much positive in services, negative or close to zero in goods and mostly negative in total.

And now for the value of British exports and imports.

That 55% Rule

2010-05-17T22:51:00.001Z

So, after a little confusion about whether this was a change to confidence motions or not. It came to light that this was all part of a plan for fixed term parliaments and the 55% figure was part of an arrangement to prevent the
governing party from calling an election. I still don't like it.

Ultimately, it's not the rule itself that's the problem it's the context. David Cameron's Conservatives do not have a majority, they are part of a coalition that will have difficulty getting it's legislation through parliament. Given the
nature of the coalition there are a couple of questions in need of an answer:

First: Given the weakness of the new government's mandate, should one of the coalition's first moves really be to embark upon radical constitutional reform?

..and second: Should the coaliton's constitutional reform really be made up of policies that seem quite blatantly designed to strengthen it's shaky grip on power?

It's the context of this policy that matters, it looks like the policy is being introduced to get around the problems of a hung parliament. If Cameron's government had a majority then it would be giving up power, as it is it looks more like they're desperately trying to hang on to it and that is something that you know us Labour types are just not going to shut up about.

Scorched Earth?

2010-05-17T14:08:00.002Z

Apparently, in their last days of office, the government was following a "scorched earth" policy aiming to sign off spending on anything and everything it could. That is the story, at least according to the Times and others, natually I'm a little bit more suspicious.

One of the items is in question as part of this article is:

A series of defence contracts signed shortly before the election, including a £13 billion tanker aircraft programme whose cost has “astonished and baffled” ministers.

This programme appears to be designed to find a replacement for the UK's existing tanker fleet of Vickers VC10s (Introduced in 1964) and Lockheed Tristars (Introduced in 1972). So that's a 46 year old and a 38 year old aircraft design.

Now, I'm no expert on aviation, but it does seem to me that those aircraft designs seem a bit erm...old, and perhaps they might need replacement. That and the fact that the first bids for this project were recieved in 2001 makes me smell a rat.

The whole project has the whiff of a project that was planned very carfully over a number of years with a very sensible aim. Would the new government really have abandoned this project leaving the RAF with it's ancient refuelling craft? That to me just doesn't sound sensible and that's why I'm certainly thinking that this whole "scorched earth" thing is little more than a concoction by our new government's spin doctors.

A few Thoughts on the Election

2010-05-16T18:53:00.002Z

Before I get to work on out new LibCon overlords I just thouhgt I'd string together a few thoughts on the election.

I wasn't particularly optimistic about the result, so overall, I'm not that upset about the hung parliament result. Less cheerful for me were the results in East Anglia, my MP Charles Clarke lost his Norwich South seat to the Lib Dems by around 300 votes, we failed to take Norwich North back from the Tories and we lost seats in my hometown of Great Yarmouth and also in Ipswich.

The result in the Eastern region has me seriously worrying about what went wrong and why we suffered quite so badly in the East of England, one thing I intend to do off the back of results is to do some digging and see if I can find any clues to Labour's demise in this bit of the country.

On the subject of coalitions, I'm disappointed that Labour were unable (or possibly unwilling) to form a rainbow coalition, I know it would have been difficult but I don't believe for a second that a Tory government is ever "in the national interest". We can hope that the Lib Dems exert a moderating influence on their Tory coalition partners, but so far this seems to be in vain.

A silver lining in all this is despite all that's happened, the mood of Labour party members is surprisingly upbeat, the talk is about getting back out there and fighting to win back power. That's an incredibly refreshing thing to hear after an election defeat.

Has anyone else noticed the housing market?

2010-05-05T13:01:00.000Z

With the upcoming election, as well as the crisis in Greece it seems like every single ounce of economic punditry has been devoted to discussing the deficit. The housing market has been virtually ignored, I'm thinking this might be a mistake.

Over the last year house prices rose by 10.5%, this leaves them aboout 10% short of the previous high in October 2007 and this has set me thinking. The credit crunch was an American thing, US has prices fell and the whole thing undermined the securitised house of cards that was propping up the whole thing. In Britain we suffered the side effects of this with a fall in house prices, but our house of cards remained intact and prices soon recovered.

I suppose my question is: Were house prices overvalued in 2007? If not then I suppose we can rest easy and be thankful for the recovery. If they were, then we really have to question whether there is some undiscovered point at which our own housing market will suffer a US style collapse.

It may just be me here, a 10.5% growth in house prices in the tail end of a recession just seems over the top. It has me really worried about the state of the housing market. Even if we ignore the social consequences of overpriced housing we still have the question of whether the economic recovery is based on little more than a new bubble in the housing market. If that's the case this elections obsession with the budget deficit will all seem like a lot of wasted energy.

I Swear I'm not Making this Up...

2010-04-19T12:49:00.002Z

..but when I was out delivering leaflets in my local area I met two old Ladies sat out in their front gardens, one had a Green poster in her window. Steeling myself for the expected verbal earbashing I gathered my nerves and asked the first lady if she'd like a Labour leaflet. She very kindly accepted. I then approached the lady with the Green poster, as this happened, the neigboour came over and a little banter began.

Lady #1 explained how she was really pleased with everything she got from the government. She talked about her pension credits and the heating assistance (includeing the extra payments she'd received for the long winter) and concluded that overall, this government had been very generous to the elderly. She then launched a swipe at the Greens, pointing out that a lot of the "promises" in their leaflet were things that this government already does.

What followed was some incredibly pleasant discussion about politics with one lady certain and the other highly likely to vote Labour, I thanked them and moved on.

Protectionist Arguments - The Trade Deficit Fetish

2010-04-13T22:21:00.001Z

This post is a bit of a late repsonse to a Tim Worstall post on protectionist arguments that supposedly don't add up, this one:

Second, the total balance of trade deficit went from (0.9 billion to 0.2 billion). In other words, the United States was losing less money because of Smoot-Hawley. It was in aggregate better off.

Tim's suggestion is an argument that he's used before, it's imports we want, exports are just the thing we do so that we can afford to buy imports. The real question here is why protectionists make a fetish of the balance of
trade figures railing against the idea of maintaining a negative balance of trade. What follows is my reasoning for why the government should actively seek to address balance of trade problems.

The concern in this case is not that it's a problem in itself, it's more that it's storing up problems for later. While it's possible to have an unequal balance of trade, the balance of payments always has to equal. The result of this is that in a situation where a nation has a trade deficit the shortfall is made up for by other payments.

These payments come from various sources, foreign investments, sale of assets, borrowing and such. The problem with a lot of these payments is that they mean an influx of money now in exchange for a commitment to future outgoing payments. The obvious problem with such a situation is that it is not sustainable in the long term, eventually exports will need to rise in order to meet the need for imports as well as these aquired financial commitments.

There's an obvious response to this which is that a market economy will adjust to this situation and exports will increase. The problem is that when faced with the need to make a sudden adjustment and increase the level of exports the economy will not be able to make these adjustments quickly enough. This is likely to have very nasty consequences both economically and politically.

The path from this line of reasoning to the proposal of protectionist policies then goes like this. Firstly, we accept that the nasty consequences of continuously running a trade deficit are something we would like to avoid. From here we question whether the market economy is capable of sorting it out on it's own account or whether the state needs to intervene, the argument here would be that trade deficit problems are not something individual entrepreneurs concern themselves with and have little power to influence anyway. Once we've made the leap to it being the state's problem we need to take a look at what policies would be most effective at keeping things in check, it's here where protectionism makes an appearance because such policies are incredibly effective at solving trade deficit problems.

Update: Expanded on the last paragraph, since I though the first effort was a bit lacking.

Adair Turner on Financial Regulation

2010-04-13T20:26:00.004Z

This is Adair Turner's speech to George Soros' ultra new think tank, the Institute for New Economic Thinking.

I watched all 45 minutes of it and I can honestly say that I didn't regret doing it, it was very insightful in both the political and economic observations it made.

Update: Forgot the hat tip to Economists View

Accepting Reality

2010-03-29T12:32:00.000Z

The phrase the most annoy me at the moment is "accepting reality", when used in the context of government spending. Last Sunday night on Radio 4 an SNP politician who suggested that they weren't all that keen on cuts was accusxed of living in an economic fantasyland. It appears again today in Nick Robinson's "Labour Cuts would be tougher than Thatcher" where he states "This is not the first time the chancellor has caused a stir by accepting reality."

When I first saw the figures for the budget deficit I remember making the suggestion that cuts might be needed, in hindsight that was the wrong thing to say. Admitting the need for cuts is not accepting "reality" it is nothing more than accepting the doctrine of fiscal conservatism, a doctrine that I just don't accept.

One thing that really hasn't been mentioned yet is that often cutting back on government spending doesn't even solve the problem. It's already being suggested that Greece's austerity measures are making their situation worse and there are plenty of other examples from the pages of history.

The problem is that if public sector demand is withdrawn there has to be some kind of other demand to replace it. On this score things are not exactly looking hopeful, private sector demand is slowly coming back, but not in a major way, the British consumer is still suffering under the burden of it's debt. The exports front also looks dim with other countries embarking on austerity measures it looks unlikely that we can look abroad for a source of demand.

Altogether things are not looking hopeful, but concentrating on the deficit at the exapense of everything else is not accepting reality, it's economic suicide.

The Sun's Economic Nonsense

2010-03-25T14:01:00.000Z

A very confused fragment of economic commentary, from the Sun:

But Britain is likely to be £1.4trillion in the red in 2015 - with debt making up 75 per cent of our total economic output.

Debt may be equal to 75 percent of the national output but it won't be 75 percent of our economic output will be debt, that doesn't even make sense. Perhaps this is being pedantic but I'd expect someone in the role of business editor of a national newspaper (even if it's the Sun) to explain the debt situation correctly.

More stupidity on the same page from Trevor Kavanagh

The acid test of this Budget was the health of the stricken Pound. Hopes it would flicker back to life were dashed as feeble Sterling FELL against the American dollar.

Beyond all the debate about the relative merits of a strong or weak pound there is the simple truth that the day to day movements of currencies mean absolutely nothing.

I know I shouldn't expect much from the Sun, but it would be nice if their contribution to the economic debate was at least led by people who have a clue.

RIP Mark Linkous

2010-03-11T23:30:00.002Z

I'm more than a little saddened this week by the unfortunate death of Mark Linkous, lead singer of Sparklehorse. I'm sure most people have never heard of them, but to me they really were something special. Here's a few songs:

...and one more...

Stuff* Happens

2010-03-05T13:41:00.000Z

I was really wound up by this particular tweet by @TimMontgomerie (he of ConservativeHome fame).

He points to this Wall Street Journal article pointing out that some Hatian entepreneurs have lost out as a result of the aid operations undermining their businesses. I don't object in any major way to the article, I'm sure it's correct in what it's saying, what winds me up is Tim's judgemental "Will we ever learn?" remark and the implication that somehow we shouldn't really be conducting these kind's of aid operations.

I've never planned an emergency relief operation in a disaster prone country myself but I would guess that the initial information that planners had to work with was pretty sketchy, the details of the worst hit areas where aid was most needed were few and far between and the initial planning had to be done in pretty short order.

Given the incredible difficulty of the task, is it really too much to ask that we simply accept that thing's won't be perfect and deal with problems as they arise rather than immediately allocating blame.

*I'm trying to avoid swearing

Another Economists Letter

2010-03-03T13:29:00.000Z

Writing letters appears to be the done thing for economists these days, the following is one written to the Guardian by a group of economic historians (my emphasis):

We are economic historians concerned at the recent tone of the debate as to the scale and scope of British public sector debt (Report, 2 March). History shows, first, that British public debt is not high by the standards of the last 200 years. It is rather low in comparison to the second half of the 18th century, the first three-quarters of the 19th century, and most of the interwar and post-second world war era in the 20th century. It is also low in the context of the developed world; only Germany's and Canada's are lower among the larger industrialised powers.

Second, the last 20 years has seen exponential escalation in the scale of each financial crisis: the savings and loan scandals of 1985-89, BCCI in 1991, Long-Term Capital Management and the Asian crisis of 1998; Enron in 2001; and then Lehman Brothers and the mayhem of 2008. Each step in this woeful narrative seems to have deepened the moral hazard involved, as speculators have been encouraged to believe that governments would always come to their rescue. Each crisis has demonstrated ever more clearly that, without radical global regulation, jobs and growth in other sectors are cruelly exposed to the costs of risk-taking in which the general public had no say but which it is always expected to pay for.

We urge policymakers to take into account these historical lessons and turn their attention to promoting the economic growth that can speed up the repayment of public debt. This is most likely to occur through enabling the knowledge economy to flourish, rather than continuing to be too reliant on the unreliable and profligate financial sector. The next government should develop a constructive strategy for growth, capitalising on the UK's clear advantage as the home of four of the world's top 10 universities, to invest in its role as an international hub for learning, science, innovation, advanced study and green jobs. Economic growth enabled Britain to escape from crushing debt burdens in the early 19th century and during the 1950s and 1960s. It could do so again, if the public spending cuts that would endanger such knowledge-based growth are ruled out in the short to medium term.
Dr Glen O'Hara Oxford Brookes University
Dr Simon Szreter St John's College, Cambridge
Dr Alastair Reid Girton College, Cambridge
Prof Martin Daunton Trinity Hall, Cambridge
Prof Jane Humphries All Souls College, Oxford
Dr Richard Sheldon University of Bristol
Prof Jim Tomlinson University of Dundee
Prof David Edgerton Imperial College London
Prof Roger Middleton University of Bristol
Prof Geoffrey Hosking University College, London
Dr Richard Toye University of Exeter
Prof Steve Hindle University of Warwick
Dr Hugh Pemberton University of Bristol
Prof Frank Trentmann Birkbeck, University of London
Prof Noel Whiteside University of Warwick
Dr Paul Ryan King's College Cambridge
Prof Patrick O'Brien London School of Economics
Dr Paul Warde University of East Anglia
Prof Ronen Palan University of Birmingham
Dr Scott Newton Cardiff University
Members of the History & Policy network

Pre Emptive Economics #3 and some notes on Inflation

2010-03-02T13:45:00.002Z

I've long been a bit of an inflation dove, and right now I'm quite happy to see Olivier Blanchard at the IMF agreeing with me on the whole subject of dealing with inflation. In particular he's suggesting changing the inflation target from 2% to perhaps 4%. David Smith posts his objections to the idea here. Personally I find this arguments a little weak.

Firstly:

It is wrong because, while I am no inflation nutter, adopting a target that doubles the price level every 15 years seems to me irresponsible. It is wrong because it would endorse every suspicion in the bond market that governments will seek to inflate their debt away, rather than go through the hard job of raising taxes and reining back spending. It would be a surefire way of igniting a huge sell-off in government bond markets.

My problem is not really economic, it's political. My probelm with David's argument is that it approaches the issue with rights of debt holders first and foremost. What I believe we have in this situation is a trade-off between a government's obligations to it's creditors and it's obligations to it's citizens. Naturally, I believe that in a democracy the latter should come first.

Further to this, I think it's worth considering how outstanding financial contracts will affect economic growth. In the current economic state of affairs the government, corporations and citizens are all heavily indebted. The upshot of this is that we are likely to see low investement and low consumer spending. Debt, as it stands is likely to be a major drag on economic growth, it may even drag the economy back into recessions. The government's creditors might not like losing out to inflation, but it's a damn sight better than the government getting into the situation where it has to default.

...he continues...

Most of all, I think it is technically wrong. Imagine if, over the past 10 years, Britain had had a 4% inflation target. Most of that period, inflation was below 2%. To inflate up to the higher target, interest rates would have needed to have been lower rather than higher. A 4% inflation target might have been associated with a typical Bank rate of 2% or 3%, rather than 7%. The future will be different from the past but perhaps not that much. A higher inflation target would have meant an even bigger boom is asset prices.

I'm not sure about this myself, there are a good few arguments against this. Firstly, it could be argued that low inflation provided an incentive to banks to expand their loan books throught he use of derivatives. The financial crisis was a problem of plentiful money more than one of cheap money. Further to this inflation has the effect of reducing the nominal amount of any liabilities meaning that financial institutions would have had fewer problems with the build up of risk.

At the end of the day, 2% seems a pretty arbitary figure so I don't really see any reason why change would necessarily be a bad thing.

A Few Thoughts on the Robin Hood Tax

2010-02-10T23:52:00.000Z

I rather like the idea myself, but I thought I'd say a few things about it and address a few criticisms that have headed it's way.

Firsly, my criticism, which is that I think hundreds of billions is too optimistic. I just don't think it will raise that much. My guess would be that it would lead to a serious reduction in the volume of foriegn transactions that took place. That said, I don't think that this is necessarily a compelling reason not to go ahead with it.

Now, on with some other criticisms:

Capital is mobile and this activity will just move elsewhere.
I think this one depends on how it was levied. If the tax was levied on actual foreign exchange transactions (changing one currency into another) then I think this would be the case. There's nothing to really stop someone setting up in a tax haven that ignores the tax and acting as a counterparty to foreign exchange transactions.

An alternative would be to force banks in their host nations to levy the tax on bank transfers to and from accounts outside the host nations's borders. This would prevent a nation that didn't want to play ball undermining the tax, money could be moved in and out of this nation untaxed but it would still face a tax if it was ever moved into a participating nation.

Following on from the above, there is an argument that imposing such a tax would give an advantage to those counties that choose not to participate, I don't see this as a huge problem. While a country without the tax might be a little more attractive to foreign investors, it's hardly likely to be the only factor an investor takes into account when making their decision.

It would create a huge new class of arbitrageurs seeking to exploit such price discrepancies
An argument put forth by Oliver Kamm. He's correct, but the same can be applied to plenty of other government interventions in the economy. The question is whether such aribitrage will be a massive problem or a minor irritation. My guess would be the latter.

If such an act did create a some kind of price discrepancy between participating and non participating countries we have to wonder how long the effect would last, once the tax became a fact of life would we still see distortions? Additionally, is it beyond the ability of regulators to deal with the worst forms of arbitrage? And if indeed it did affect asset prices, would this be viewed as a distortion or a correction?

The Last Word
I'm personally not sure exactly how a robin hood tax would work, my guess would be buy taxing transfers across international borders. I'm not sure if there are any holes in this approach but nothing obvious comes to mind. I accept some of the arguments put forward by critics, but personally I don't think they make a strong enough case against this tax.

A Small Matter of the Facts

2010-02-08T13:47:00.000Z

Guido says of Gordon's coming visit to Greece:

At the end of last week Guido learnt that next week Gordon is scheduled to meet George Papandreou, the socialist Greek prime minister who has led his country to ruin.

I should point out that George Papandreou was in fact elected in October of 2009. The actual leading of the country to ruin happened under the rule of the centre right New Democracy party who not only led the country to ruin but also lied about the state of the economy.

A little basic fact checking might be in order.

A Few Words on Rod Liddle and the Independent

2010-02-03T01:11:00.000Z

The folks over at libcon have been running a bit of a campaign against the idea of Rod Liddle as the editor of the Independent, the latest is an attempt to raise money for an ad in the Independent itself. I was being a bit of a spoilsport on Twitter about it so I thought I'd make my views a bit clearer.

So, first I have to say that given his numerous offensive comments and the like, Rod Liddle as a columnist comes across as a bit of a twat, more than just a bit actually. The thing is, much as I don't like what he writes I can't really say that is really enough to stir up the idea that Rod Liddle absolutely must not get the job.

His writing seems to have almost descended into some kind of wierd self parody to the point it's hard to tell what he actually believes. I also have to say that when he was editor of The Today Programme, I didn't really catch much of Rod Liddle the immense tosser.

I don't particularly like the guy, but I just can't bring myself to hate him enough start actively campaigning against his editorship.

Tom Harris, Compass and Product Placement

2010-02-02T13:29:00.002Z

There's been a bit of a spat developing between Compass and Tom Harris over this whole product placement affair. Personally (and not particularly surprisingly), I'm with the Compassites rather than the proto Blairite.

Beyond the idea of protecting our children I think there are a few other reasons worth considering. Firstly, there's the issue of regulatory complexity. It's often the case that liberalising or deregulating rules on something can actually make it harder and more resource intensive to regulate and this is a good example.

At the moment, policing product placement is simple (what part of "no" don't you understand?). If the ban is lifted it requires a new series of rules to ensure the product placement is not used gratuitously, this will require both a new set of more complex rules and the recources to enforce them. By removing the ban we actually make regulation of television more complex.

Further to this there are some economic arguments. Advertising, can in some ways be viewed as a transaction cost with the external effect of increasing consumer demand. In a society that is underconsuming this might be considered a positive externality, but is that really ther case in the UK?

Robert Peston's figures show our national debt (personal, corporate & government) as 380% of GDP, the years leading up to the credit crunch were characterised by lifestyles financed on debt, people living beyond their means. Considering the consequences of our overconsumption previously, do we really want to happily embrace a change that is likely to further fuel that culture of consumption?

Silliness at the Spectator

2010-01-20T12:48:00.000Z

The Spectator amazes me, it seems that it doesn't matter how good the news is, the slightest connection with Gordon Brown's government will have them searching for a cloud to accompany the silver lining.

So, despite the surprisingly good news that unemployment has fallen, despite the fact that unemployment is usually a lagging indicator and normally starts dropping well into the recovery and despite the fact that unemployment is way below the 3 million predicted by the CBI last February, they still manage to put a negative spin on the good news.

Who's Right?

2010-01-05T11:52:00.001Z

Alex Smith reckons it's First Blood to Labour, Iain Dale reckons that the Tories Dominate the Political News Agenda. A more pertinent question might be How Long Will it be Before I'm Bored Rigid?

I see Tom Freeman is thinking along similar lines.

Starting the Year

2010-01-04T09:27:00.001Z

First off a little statistic from the FT relating to the deficit and the FT's survey of economists:

Asked to name the three biggest risks to the economy, 37 of the 79 economists polled said the UK was threatened by a fiscal crisis that could derail any revival.

As far as I can tell this means that 42 of the FT's 79 did not list the fiscal deficit as one of their three biggest risks. This stikes me as signifigant because it means that 42 of their 79 economists thought their were three risks to the economy more signifigant than the deficit.

This is important because we have a political climate that is forming a consensus that suggests that cuts should are an absolutely and completely obvious priority and OMG HOW CAN TEH GORD NOT SEE ITZ!!!?!

So, let me stress for the new year: there is no real consensus around the need to make cuts.

2010 Predictions

2010-01-03T00:34:00.000Z

I've not done predictions before, but apparently they're all the rage on the blogosphere, so I'll have an attempt.

1) Charles Clarke will retain his Norwich South seat, his majority will very thin (around 1,000) and all political opponents (Green, Lib Dem and Tory) will be close behind.

2) John Cook will win Norwich North for Labour

3) We will see a hung parliament at the next election

4) The price of gold will remain roughly unchanged

5) Gilt yields will rise as quantitative easing is withdrawn but will remain at low levels

6) House prices will fall slightly as tougher regulations come into play

7) CPI Inflation will rise above the governments target, but signifigantly so

8) The economy will recover more quickly than expected

9) Talk about China's exchange rates will hot up, possibly leading to some serious trade related confrontations between the US and China.

10) I will be a better windsurfer

Gold Related Silliness

2009-12-15T23:00:00.003Z

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?

2009-12-15T19:12:00.004Z

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..

I'm not Sure I Buy This

2009-12-14T19:52:00.002Z

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.

Government IT Spending

2009-12-08T23:57:00.003Z

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.

Congratulations to John Cook

2009-11-30T18:48:00.002Z

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.

A Good Blogpost by Someone Else

2009-11-23T19:41:00.003Z

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

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

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

and this...

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

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

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

Comparative Advantage and Finance

2009-11-21T19:42:00.001Z

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

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

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

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

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

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

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

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

Graphology, plus a Wonderful quote..

2009-11-01T23:03:00.004Z

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

2009-11-01T22:53:00.001Z

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

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

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

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

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

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

Another point I find silly is this argument:

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

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

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

Guido the Banking Lobbyist

2009-10-27T08:42:00.001Z

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

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

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

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

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

Tories Translated

2009-10-23T07:51:00.001Z

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

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

What it should read is:

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

Hope that clears things up.

In Support of the Postal Strike

2009-10-22T08:22:00.002Z

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

Err.. No Tim

2009-10-19T18:41:00.001Z

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.

A More Complete Hannan Critique

2009-10-17T14:04:00.002Z

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.

This Man is Insane

2009-10-15T08:14:00.001Z

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?

On the Nobel Prize for Economics

2009-10-13T23:28:00.000Z

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.

I'd just like to say..

2009-10-11T12:40:00.001Z

That David Blanchflower is very very right.

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

Being "Honest" on Debt

2009-10-10T13:47:00.002Z

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.

Tax Cuts in the Interests of Tax Lawyers

2009-10-05T07:54:00.000Z

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.

In Support of Tim Ireland

2009-10-04T14:22:00.001Z

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.

Telling the Truth is not a Smear

2009-10-02T18:42:00.000Z

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.

Darling is Wrong...In every possible way

2009-08-24T17:26:00.002Z

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.

Government and Markets

2009-08-22T13:01:00.008Z

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".

High Pay Arguments, Part 1, Top Execs

2009-08-18T22:42:00.002Z

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.

Taxpayers Alliance Leave an Open Goal

2009-08-17T23:20:00.001Z

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?

Countering a few Rightwing NHS arguments..

2009-08-16T19:52:00.000Z

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..

2009-08-16T17:21:00.001Z

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)

We Built the Damn Bandwagon

2009-08-14T13:22:00.000Z

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.

Regulatory Capture

2009-08-13T20:58:00.003Z

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

2009-08-13T20:25:00.002Z

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.

A Few Minutes of Hate for Finance Sector

2009-08-11T18:53:00.005Z

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).

August Cometh...

2009-08-02T15:35:00.001Z

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.

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

2009-07-30T11:00:00.000Z

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.

I ATE'NT DEAD

2009-07-27T23:23:00.002Z

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.

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

2009-07-19T15:20:00.002Z

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?

Yet More Thoughts on Norwich North

2009-07-14T22:58:00.001Z

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.

Pragmatists vs Ideologues

2009-07-12T21:42:00.000Z

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.

Uh Oh...

2009-07-10T23:26:00.003Z

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.

Warning: This mortgage could seriously damage your wealth..

2009-07-08T11:00:00.001Z

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:

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

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

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

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

More Thoughts on Norwich North

2009-07-07T20:23:00.003Z

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.

Green New Deals

2009-07-05T22:18:00.002Z

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.

Thought's on Norwich North

2009-06-30T22:59:00.003Z

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?