The UK is set to abolish its compulsory retirement age of 65 in October 2011. The CBI frets that this will reduce opportunities for younger workers -- job blocking, which is kind of like "bed blocking" in hospitals, I suppose -- but most media commentators seem to be in favour.
Many of these commentators are citing the "lump of labour" fallacy, an oldie but goodie in the economist's armoury. The fallacy is that there is a fixed amount of employment in the economy, with the result that if one person has a job, someone else is deprived of the chance of employment. The reason this is deemed fallacious is that employed people spend their earnings, which in turn creates employment for others.
As the great Baltimore economist Stringer Bell might put it, "true dat". But it's not the whole story. Sure, it's true in a macro sense, but there's quite a lot of devil in the details. A 70-year old finance director at a major corporation might well be spending his money like water, but the jobs he's creating are mainly in the restaurants he frequents or at the Mercedes factory. Meantime the 55-year old chief accountant is spinning his wheels and so are all the people in the chain behind him, till at the very lowest level the firm decides there's no need to hire a new entrant in the finance department this year -- and the potential new entrant then finds himself serving the finance director his after-work cocktail instead.
But hey, the new entrant has a job of sorts, so lump of labour is still a fallacy and none of this really matters, right? I'm not so sure. Experience tells me that there won't be many binmen or coal miners blocking jobs by hanging around after the age of 65. But there'll be lots of public servants and accountants and economists and suchlike. It's the skilled professions where the jobs will get blocked. At a time when it's already very difficult for young graduates to make a start on their careers, is this really what we want?
One of the few objections that I've seen to the end of compulsory retirement came from someone who saw it as yet another move by the baby boomers (My Generation, baby) to rewrite the rules of society in their own favour, regardless of the consequences for anyone else. Me and Stringer Bell are as one on this: "mos' def".
Friday, 30 July 2010
Monday, 26 July 2010
The perils of cheap money
Banks in the UK paying a nice round return (0%) on most of their accounts; National Savings cutting its rates and taking its inflation-beating certificates off the market. What's the beleaguered saver to do?
Well, he/she can always turn to the investment pages of the weekend newspapers, because they're up to their old tricks again. Yes, the folks who cheerfully touted the attractions of Icelandic banks even as they careered over the precipice are at it again. The location of the favoured institutions has changed: ICICI is still there from pre-crisis days, but now it's been joined by Bank of Baroda. I know abolutely nothing about either of these fine institutions, but that's precisely my point. You tart your money about for the highest rate, and as long as you don't put more than £50,000 into any one institution you've never heard of, you've nothing to worried about, because the Government (or rather the taxpayer) will be there to bail you out if it all goes T.U.
These money pages really are the apotheosis of the moral hazard that Mervyn King used to fret about until someone told him to pipe down. It's highly irresponsible of the "upmarket" newspapers to encourage this kind of behaviour.....
....but not as irresponsible as this. On another page of this past weekend's Sunday Times, an array of professional investors were asked for their best current money-making wheezes. One that the paper really liked -- because it highlighted it at the top of the article -- was a suggestion to buy distressed real estate in the US or maybe in Spain, and finance the purchase with a Yen-denominated mortgage!
Look, I'm a former investment banker. I understand this trade; I can see that it has an awful lot of moving parts. Maybe I'm underestimating the readers of the Sunday papers, but I'm wondering how many of them will see the risks inherent in something like this. This is the sort of trade that professionals may be able to recommend to sophisticated investors as a bit of "juice" in a diversified portfolio. It shouldn't just be dangled in front of regular savers who are mostly looking for alternatives to bank deposits.
I suppose there will be no harm done, because no individual could put a transaction of this sort together without taking professional advice. Still, as with touting the Bank of Baroda and its ilk, you wonder just what the editors of these money sections are trying to achieve. The longer we stay in today's cheap money regime, the likelier it is that people will be tempted into something much riskier than they realise; and it won't be the Sunday papers that have to bail them out.
Well, he/she can always turn to the investment pages of the weekend newspapers, because they're up to their old tricks again. Yes, the folks who cheerfully touted the attractions of Icelandic banks even as they careered over the precipice are at it again. The location of the favoured institutions has changed: ICICI is still there from pre-crisis days, but now it's been joined by Bank of Baroda. I know abolutely nothing about either of these fine institutions, but that's precisely my point. You tart your money about for the highest rate, and as long as you don't put more than £50,000 into any one institution you've never heard of, you've nothing to worried about, because the Government (or rather the taxpayer) will be there to bail you out if it all goes T.U.
These money pages really are the apotheosis of the moral hazard that Mervyn King used to fret about until someone told him to pipe down. It's highly irresponsible of the "upmarket" newspapers to encourage this kind of behaviour.....
....but not as irresponsible as this. On another page of this past weekend's Sunday Times, an array of professional investors were asked for their best current money-making wheezes. One that the paper really liked -- because it highlighted it at the top of the article -- was a suggestion to buy distressed real estate in the US or maybe in Spain, and finance the purchase with a Yen-denominated mortgage!
Look, I'm a former investment banker. I understand this trade; I can see that it has an awful lot of moving parts. Maybe I'm underestimating the readers of the Sunday papers, but I'm wondering how many of them will see the risks inherent in something like this. This is the sort of trade that professionals may be able to recommend to sophisticated investors as a bit of "juice" in a diversified portfolio. It shouldn't just be dangled in front of regular savers who are mostly looking for alternatives to bank deposits.
I suppose there will be no harm done, because no individual could put a transaction of this sort together without taking professional advice. Still, as with touting the Bank of Baroda and its ilk, you wonder just what the editors of these money sections are trying to achieve. The longer we stay in today's cheap money regime, the likelier it is that people will be tempted into something much riskier than they realise; and it won't be the Sunday papers that have to bail them out.
If it wasn't for bad news, wouldn't have no news at all
Amazing first sentence from an article by the Times economics correspondent, Grainne Gilmore, today:
Gloom over the economy will deepen today with evidence stacking up that the recovery is losing momentum.
Well, I suppose that's one way of looking at it. I mean, in the last two weeks we've seen reports of an unexpectedly strong rise in employment; huge gains in car production and car sales; a strong rise in retail sales in June; and a 1.1% rise in GDP in the second quarter, almost twice the gain that markets had expected.
But enough of the boring hard facts! Ms Gilmore is basing her gloom on an couple of sentiment surveys, including one by the British Retail Consortium, arguably the UK's leading peddler of junk statistics.
The economy will face plenty of headwinds once we get into 2011, but for the moment things are about as good as they're likely to get. It would be nice if the press would focus on what's actually happening, rather than trying to talk the economy back into recession.
Gloom over the economy will deepen today with evidence stacking up that the recovery is losing momentum.
Well, I suppose that's one way of looking at it. I mean, in the last two weeks we've seen reports of an unexpectedly strong rise in employment; huge gains in car production and car sales; a strong rise in retail sales in June; and a 1.1% rise in GDP in the second quarter, almost twice the gain that markets had expected.
But enough of the boring hard facts! Ms Gilmore is basing her gloom on an couple of sentiment surveys, including one by the British Retail Consortium, arguably the UK's leading peddler of junk statistics.
The economy will face plenty of headwinds once we get into 2011, but for the moment things are about as good as they're likely to get. It would be nice if the press would focus on what's actually happening, rather than trying to talk the economy back into recession.
Sunday, 25 July 2010
Digby's big idea
I see where Lord Digby Jones (former head of the CBI, in case you've forgotten, as I trust you have) is calling for British universities to cut back on the academic stuff and offer more in the way of vocational courses.
What a great and original idea! Of course, if enough universities sign up, we might have to think of a new name for them. We could call them, oh I don't know, "polytechnics" or something like that.
What a great and original idea! Of course, if enough universities sign up, we might have to think of a new name for them. We could call them, oh I don't know, "polytechnics" or something like that.
Thursday, 22 July 2010
Black out
Dear old Conrad "Baron of Crossharbour" Black has been released from a US penitentiary on bail. His convictions for fraud are being reassessed in light of a change in US law that came into effect after his trial. Although his conviction for obstructing justice stands, it's possible that his sentence will be reduced to time served, meaning that he never has to go back to the Club Fed in Florida where he's spent a bit more than two years.
His trial back in 2007 was a lot less interesting than I'd expected, but the next little while should be fun, at least for the lawyers. Lots of people are after Conrad: see this, for example, from the Toronto Globe and Mail:
The Internal Revenue Service is after him for $70-million in unpaid taxes and penalties, the Securities and Exchange Commission has a lawsuit against him and there are dozens of actions in Canada and United States.
At the same time, though, Conrad's after a lot of people, probably starting with his "unofficial" biographer, Tom Bower. Bower has declared himself "amazed" at Black's release, but is unlikely to be equally taken aback when a libel comes zinging his way. That's assuming, of course, that Black can afford a lawyer, as it's not clear how much of his previous fortune he has been able to squirrel away (either from the authorities or from his notoriously extravagant wife, Barbara Amiel). Even if Black finds the wherewithal to sue all of his enemies (a pretty long list), any money he succeeds in shaking out of them is likely to touch down in his accounts for no longer than it takes for those litigating against him (an equally long list) to get their hands on it.
Then there's the question of where he's going to live. He gave up his Canadian citizenship in order to accept a British peerage, so he has no automatic right to return to Canada, which may anyway refuse him entry as a convicted felon. His UK passport has expired. And although his wife has continued to live in the couple's Palm Beach mansion, it's not clear that the Blacks actually own it anymore.
What with the loomimg tsunami of BP-related litigation and now the return of the Conrad Black soap opera, the US legal community must be in hog heaven right now. That's something we can all be happy about.
His trial back in 2007 was a lot less interesting than I'd expected, but the next little while should be fun, at least for the lawyers. Lots of people are after Conrad: see this, for example, from the Toronto Globe and Mail:
The Internal Revenue Service is after him for $70-million in unpaid taxes and penalties, the Securities and Exchange Commission has a lawsuit against him and there are dozens of actions in Canada and United States.
At the same time, though, Conrad's after a lot of people, probably starting with his "unofficial" biographer, Tom Bower. Bower has declared himself "amazed" at Black's release, but is unlikely to be equally taken aback when a libel comes zinging his way. That's assuming, of course, that Black can afford a lawyer, as it's not clear how much of his previous fortune he has been able to squirrel away (either from the authorities or from his notoriously extravagant wife, Barbara Amiel). Even if Black finds the wherewithal to sue all of his enemies (a pretty long list), any money he succeeds in shaking out of them is likely to touch down in his accounts for no longer than it takes for those litigating against him (an equally long list) to get their hands on it.
Then there's the question of where he's going to live. He gave up his Canadian citizenship in order to accept a British peerage, so he has no automatic right to return to Canada, which may anyway refuse him entry as a convicted felon. His UK passport has expired. And although his wife has continued to live in the couple's Palm Beach mansion, it's not clear that the Blacks actually own it anymore.
What with the loomimg tsunami of BP-related litigation and now the return of the Conrad Black soap opera, the US legal community must be in hog heaven right now. That's something we can all be happy about.
Wednesday, 14 July 2010
Nice work if you can get it
David Cameron is on the case of a South London primary school head teacher, Mark Elms, who reportedly took home more than £231,000 in pay last year. The PM says the public will be shocked by this, and argues that it proves the need for a salary cap in the public sector.
Let's first of all admit that numbers are a bit exaggerated. A large chunk of what Mr Elms banked in 2009 represented back pay from the previous year. Still, it looks as though last year he took home a basic salary of £83,000, a further £50,000 for work on a programme to raise standards in inner city schools, and £10,000 in overtime. So that's £143,000 in "true" 2009 earnings -- not an investment banker's deal, perhaps, but a big multiple of the average UK wage.
I'm not one of those who want public servants to be among the lowest paid in society, but I think Mr Elms's package is wrong on a number of levels:
* His basic wage of £83,000 is pretty lumpy, and teachers are always telling us how hard they have to work, yet Mr Elms in effect felt able to take on what looks like another full-time job on the inner city programme. (If it wasn't a full-time job, it earned him what most people would love to earn for their full-time jobs). How did he find the time? The school board says he worked evenings and weekends. Poor diddums.
* In the private sector, if you are good at your job, you're expected to pass on your expertise to your colleagues as a matter of course. You don't get paid a whole extra salary for doing it -- you may well get fired if you don't.
* And despite having two full-time jobs, Mr Elms was paid a further £10,000 in overtime! Where did that time come from? More importantly, nobody in a management position in the private sector, earning a base salary of £83,000, gets paid overtime. You just don't.
I'm a big believer that "the labourer is worthy of his hire", and there seems little doubt that Mr Elms is a fine head teacher. But the way he's compensated suggests that public sector HR departments have no idea of how compensation practices in the private sector actually work. Time for them to find out, I'd say.
Let's first of all admit that numbers are a bit exaggerated. A large chunk of what Mr Elms banked in 2009 represented back pay from the previous year. Still, it looks as though last year he took home a basic salary of £83,000, a further £50,000 for work on a programme to raise standards in inner city schools, and £10,000 in overtime. So that's £143,000 in "true" 2009 earnings -- not an investment banker's deal, perhaps, but a big multiple of the average UK wage.
I'm not one of those who want public servants to be among the lowest paid in society, but I think Mr Elms's package is wrong on a number of levels:
* His basic wage of £83,000 is pretty lumpy, and teachers are always telling us how hard they have to work, yet Mr Elms in effect felt able to take on what looks like another full-time job on the inner city programme. (If it wasn't a full-time job, it earned him what most people would love to earn for their full-time jobs). How did he find the time? The school board says he worked evenings and weekends. Poor diddums.
* In the private sector, if you are good at your job, you're expected to pass on your expertise to your colleagues as a matter of course. You don't get paid a whole extra salary for doing it -- you may well get fired if you don't.
* And despite having two full-time jobs, Mr Elms was paid a further £10,000 in overtime! Where did that time come from? More importantly, nobody in a management position in the private sector, earning a base salary of £83,000, gets paid overtime. You just don't.
I'm a big believer that "the labourer is worthy of his hire", and there seems little doubt that Mr Elms is a fine head teacher. But the way he's compensated suggests that public sector HR departments have no idea of how compensation practices in the private sector actually work. Time for them to find out, I'd say.
Searching for the cloud
The UK employment report for May, released this morning, was so much better than expected that it took BBC News more than an hour to find anything negative to gripe about -- though of course, now that they've found something, they've put it at the head of their coverage of the story in every subsequent news bulletin.
Unemployment fell; the jobless claimant count fell; the unemployment rate fell; employment rose; vacancies rose. Ah, but wait: of the 160,000 increase in employment over the survey period, 148,000 represented part-time jobs. So the job market isn't really that strong, is it?
It all depends on how you look at it. In one sense it's a bit surprising that any new jobs are being created at this relatively early stage in the recovery. Remember all the predictions before the recession, that the number of unemployed would rocket up to 3 million and more? It never happened, presumably because employers chose to hold onto workers rather than risk losing them and then having to hire them back at greater expense when recovery arrived. You'd think that the flipside of that would be virtually no job creation now that growth prospects have improved, so the fact that so many jobs have been added in the last three months is surely positive.
How about the preponderance of part-time jobs? The BBC and others are suggesting that most of the part-timers would prefer to work full time and are having to accept shorter hours because of the weak economy. We know this isn't true, because the ONS survey specifically identifies people in that position. While the number of part time jobs rose 148,000 from March to May, the number of people saying they were only working part-time because there was no full-time work available rose by only 21,000. Of the 7.8 million part time workers (a record number), only 1.07 million report that they would rather be working full time.
Overall, these numbers suggest that recent heightened fears of the dreaded "double dip" recession are overblown. The economy still has some forward momentum, and the likelihood that the looming VAT hike will pull some big-ticket consumption into late 2010 from next year should keep growth in positive territory at least until year-end. Next year, with the VAT hike and the start of actual spending cuts (most of what's been announced so far is the cancellation of spending plans, not actual cuts, but that's going to change), the risk of a double dip will be much greater. Could somebody please tell the BBC?
Unemployment fell; the jobless claimant count fell; the unemployment rate fell; employment rose; vacancies rose. Ah, but wait: of the 160,000 increase in employment over the survey period, 148,000 represented part-time jobs. So the job market isn't really that strong, is it?
It all depends on how you look at it. In one sense it's a bit surprising that any new jobs are being created at this relatively early stage in the recovery. Remember all the predictions before the recession, that the number of unemployed would rocket up to 3 million and more? It never happened, presumably because employers chose to hold onto workers rather than risk losing them and then having to hire them back at greater expense when recovery arrived. You'd think that the flipside of that would be virtually no job creation now that growth prospects have improved, so the fact that so many jobs have been added in the last three months is surely positive.
How about the preponderance of part-time jobs? The BBC and others are suggesting that most of the part-timers would prefer to work full time and are having to accept shorter hours because of the weak economy. We know this isn't true, because the ONS survey specifically identifies people in that position. While the number of part time jobs rose 148,000 from March to May, the number of people saying they were only working part-time because there was no full-time work available rose by only 21,000. Of the 7.8 million part time workers (a record number), only 1.07 million report that they would rather be working full time.
Overall, these numbers suggest that recent heightened fears of the dreaded "double dip" recession are overblown. The economy still has some forward momentum, and the likelihood that the looming VAT hike will pull some big-ticket consumption into late 2010 from next year should keep growth in positive territory at least until year-end. Next year, with the VAT hike and the start of actual spending cuts (most of what's been announced so far is the cancellation of spending plans, not actual cuts, but that's going to change), the risk of a double dip will be much greater. Could somebody please tell the BBC?
Tuesday, 13 July 2010
They're an amazing bunch of bankers, apparently
Remarkable strapline on a piece in today's Times (paywall-protected) by Stephen Hester, CEO of Royal Bank of Scotland (Prop: UK taxpayers). "We're good at banking". My first thought was that the final part of the sentence had been edited out: "....compared to Sir Fred Goodwin". But no, Hester is trying to make the case that the UK banking industry is good for the economy and needs to get its message out more effectively.
Let's put aside the shock of a banker putting his head above the parapet like this. Hester has some reasonable points that he wants to make, but he doesn't seem to be able to avoid having them blow up in his face. For example:
It is a popular myth to believe that banking and financial services dominate the British economy and should be cut down to size. In fact, banks account for a far smaller proportion of the economy than manufacturing — 7.7 per cent compared with 12.8 per cent. Everyone wants to see growth in the manufacturing sector, but we need growth in banking, too. It is something Britain is good at. And it brings much needed jobs and tax revenues.
It's true that the financial sector is surprisingly small, in terms of its contribution to GDP or employment, but its ability to cause havoc throughout the economy far exceeds that of any other sector. Before writing his final sentence, did Hester pause to calculate how many years' worth of past taxes the government had to shovel back into the banks in 2008 to stop them from collapsing? Ot how many jobs in the rest of the economy have been (and will continue to be) lost as a result of the financial crisis?
But it's in discussing investment banking that Hester really comes undone.
We have failed to remind people of what an investment bank actually does.
Most people do not realise that investment banks allow Britain’s farmers to hedge their Euro farm- support payments to protect them from swings in currency values. We have not shown that investment banks help our country to effectively finance its deficit and protect public services, both by purchasing gilts directly from the Government, and by helping sovereign debt markets function efficiently. And we certainly have not explained properly that investment banks — when properly regulated and managed — allow people to afford to buy their own homes by accessing the savings of the whole world.
Interesting little parenthesis in that last sentence, but setting that aside, is that really how Hester sees it? I'd say that in the UK (and the US and Spain and Ireland), "access to the savings of the whole world", admittedly with the connivance of the monetary authorities, mainly served to pump up a property bubble that on the one hand led to massive amounts of speculative construction (600 "ghost estates" in Ireland, empty villas all along the Costas, shoebox apartments in Leeds, etc etc) and on the other pumped up the price of property to such a degree that most first-time buyers were excluded from the market altogether.
I suspect that the public understands what investment banks do much better than Hester imagines -- and the public doesn't like it. Nobody objects to currency hedging for farmers, or helping sovereign debt markets to function efficiently, though I'm not sure that's how the authorities in Greece or Portugal would describe it. But Hester knows, and so does the public, that those things are not the primary business of the Goldman Sachses of this world, and they were not what brought the system to its knees. Hester says we can't go back to what he calls "the Hovis image" of banking, but he hasn't really made his case here. Stretching his little metaphor to breaking point, when it comes to banking, the economy certainly needs the bread, but it can do perfectly well without the circuses.
Let's put aside the shock of a banker putting his head above the parapet like this. Hester has some reasonable points that he wants to make, but he doesn't seem to be able to avoid having them blow up in his face. For example:
It is a popular myth to believe that banking and financial services dominate the British economy and should be cut down to size. In fact, banks account for a far smaller proportion of the economy than manufacturing — 7.7 per cent compared with 12.8 per cent. Everyone wants to see growth in the manufacturing sector, but we need growth in banking, too. It is something Britain is good at. And it brings much needed jobs and tax revenues.
It's true that the financial sector is surprisingly small, in terms of its contribution to GDP or employment, but its ability to cause havoc throughout the economy far exceeds that of any other sector. Before writing his final sentence, did Hester pause to calculate how many years' worth of past taxes the government had to shovel back into the banks in 2008 to stop them from collapsing? Ot how many jobs in the rest of the economy have been (and will continue to be) lost as a result of the financial crisis?
But it's in discussing investment banking that Hester really comes undone.
We have failed to remind people of what an investment bank actually does.
Most people do not realise that investment banks allow Britain’s farmers to hedge their Euro farm- support payments to protect them from swings in currency values. We have not shown that investment banks help our country to effectively finance its deficit and protect public services, both by purchasing gilts directly from the Government, and by helping sovereign debt markets function efficiently. And we certainly have not explained properly that investment banks — when properly regulated and managed — allow people to afford to buy their own homes by accessing the savings of the whole world.
Interesting little parenthesis in that last sentence, but setting that aside, is that really how Hester sees it? I'd say that in the UK (and the US and Spain and Ireland), "access to the savings of the whole world", admittedly with the connivance of the monetary authorities, mainly served to pump up a property bubble that on the one hand led to massive amounts of speculative construction (600 "ghost estates" in Ireland, empty villas all along the Costas, shoebox apartments in Leeds, etc etc) and on the other pumped up the price of property to such a degree that most first-time buyers were excluded from the market altogether.
I suspect that the public understands what investment banks do much better than Hester imagines -- and the public doesn't like it. Nobody objects to currency hedging for farmers, or helping sovereign debt markets to function efficiently, though I'm not sure that's how the authorities in Greece or Portugal would describe it. But Hester knows, and so does the public, that those things are not the primary business of the Goldman Sachses of this world, and they were not what brought the system to its knees. Hester says we can't go back to what he calls "the Hovis image" of banking, but he hasn't really made his case here. Stretching his little metaphor to breaking point, when it comes to banking, the economy certainly needs the bread, but it can do perfectly well without the circuses.
Friday, 9 July 2010
Nipped in the Budd
I was sceptical about the need for the new "Office of Budgetary Responsibility" right from the get-go, describing it as an "empty gesture" in a posting here on May 18. Nothing that's happened since then gives me any reason to change my mind.
The OBR bizarrely decided to publish its first set of forecasts, based on the previous Government's fiscal assumptions, just a week before the coalition government announced its emergency budget. The fact that the new growth forecast was lower than Labour's produced a fair amount of "I told you so"-ing from the coalition side. But come the emergency budget on June 22, with its massive fiscal tightening, the OBR had to tear up its week-old forecasts to incorporate the new assumptions. Surprise, surprise, the near-term growth outlook fell further, though with the aid of some mighty heroic assumptions, the OBR asserted that growth and employment would pick up after about 2012.
It's not clear what value there was in the OBR publishing the first set of forecasts, given that it knew they would have a shelf life shorter than that of a strawberry. The most plausible reason I can come up with is that George Osborne wanted to "prove" that his Labour predecessors had been cooking the books, which would have beeen harder to do if thge OBR had held off until after the budget. That, of course, implies that the Government leant, however gently, on the "independent" OBR. Perish the thought.
Now the head of the OBR, Sir Alan Budd, has announced that he will be leaving, after only three months at the helm. The Government says this is all perfectly in order, as Budd only ever signed a 3-month contract. Technically this certainly seems to be true, but it's very clearly not what Osborne was expecting: soon after setting up the OBR he said that he and Budd got along well, but that the acid test would be how they were doing in two years' time. He, and we, will never know.
This week's Private Eye, evidently written before Budd stepped down, has a short article querying his credentials to be the head of an "independent" OBR in the first place. He is a long-time servant of the Tory party, with strong links to the business sector. That doesn't disqualify him, of course, but it certainly makes it unlikely that he brings much of a Keynesian bias to the job. As economic forecasts always depend on your assumptions, Budd's very appointment virtually dictated the way that the OBR's first forecasts would differ from those of the Treasury. Not that they could differ too much, of course, since the OBR is in fact largely staffed by the same people who worked on the Treasury forecasts, working on secondment.
One truly amazing thing is that the OBR's forecasts are being treated as some sort of holy writ by the media, even though (a) they've already been revised once and (b) they're the work of the same people who drew up the forecasts for the Labour government that are now held in such contempt. It doesn't matter whether the head of the OBR is pure as the driven snow or a shameless political hack: all forecasts are surrounded by massive amounts of uncertainty, even at the best of times. Sir Alan Budd has no more ability to see into the future than Fabio Capello does -- though he may quite possibly be a better football manager.
The OBR bizarrely decided to publish its first set of forecasts, based on the previous Government's fiscal assumptions, just a week before the coalition government announced its emergency budget. The fact that the new growth forecast was lower than Labour's produced a fair amount of "I told you so"-ing from the coalition side. But come the emergency budget on June 22, with its massive fiscal tightening, the OBR had to tear up its week-old forecasts to incorporate the new assumptions. Surprise, surprise, the near-term growth outlook fell further, though with the aid of some mighty heroic assumptions, the OBR asserted that growth and employment would pick up after about 2012.
It's not clear what value there was in the OBR publishing the first set of forecasts, given that it knew they would have a shelf life shorter than that of a strawberry. The most plausible reason I can come up with is that George Osborne wanted to "prove" that his Labour predecessors had been cooking the books, which would have beeen harder to do if thge OBR had held off until after the budget. That, of course, implies that the Government leant, however gently, on the "independent" OBR. Perish the thought.
Now the head of the OBR, Sir Alan Budd, has announced that he will be leaving, after only three months at the helm. The Government says this is all perfectly in order, as Budd only ever signed a 3-month contract. Technically this certainly seems to be true, but it's very clearly not what Osborne was expecting: soon after setting up the OBR he said that he and Budd got along well, but that the acid test would be how they were doing in two years' time. He, and we, will never know.
This week's Private Eye, evidently written before Budd stepped down, has a short article querying his credentials to be the head of an "independent" OBR in the first place. He is a long-time servant of the Tory party, with strong links to the business sector. That doesn't disqualify him, of course, but it certainly makes it unlikely that he brings much of a Keynesian bias to the job. As economic forecasts always depend on your assumptions, Budd's very appointment virtually dictated the way that the OBR's first forecasts would differ from those of the Treasury. Not that they could differ too much, of course, since the OBR is in fact largely staffed by the same people who worked on the Treasury forecasts, working on secondment.
One truly amazing thing is that the OBR's forecasts are being treated as some sort of holy writ by the media, even though (a) they've already been revised once and (b) they're the work of the same people who drew up the forecasts for the Labour government that are now held in such contempt. It doesn't matter whether the head of the OBR is pure as the driven snow or a shameless political hack: all forecasts are surrounded by massive amounts of uncertainty, even at the best of times. Sir Alan Budd has no more ability to see into the future than Fabio Capello does -- though he may quite possibly be a better football manager.
Thursday, 1 July 2010
Casual infanticide
This week the Royal College of Obstetricians and Gynaecologists published a report in which it asserted that foetuses in the womb are incapable of feeling pain until at least 24 weeks into the gestation period. On this basis, the College could see no reason to lower the UK's current 24 week limit for termination of a pregnancy (the highest such limit in Europe, incidentally).
Reaction from the anti-abortion side has (so far) reflected sorrow rather than anger, but the "right to choose" crowd has reacted with something close to triumphalism. I saw one "expert" on the BBC News saying that the possibility that pain might be felt by the foetus was irrelevant in all cases, since it would be perfectly simple to administer an anaesthetic before carrying out the termination! I didn't catch this gent's name, but I assume he has no problems with the truly loathsome practice of "partial birth abortion". (Do NOT open the link if you are squeamish).
Then it got worse. The Times saw fit to publish an article by one of its business writers, Antonia Senior, in which she argued that for sure, abortion is murder, but it's still OK to do it. Ms Senior states that women's rights are the only cause for which she'd be prepared to die. Although having a baby of her own has given her pause for thought, she still thinks that those rights trump all (and she means ALL) other considerations.
The Times has its paywall up now, but here's the final, shameful paragraph:
As ever, when an issue we thought was black and white becomes more nuanced, the answer lies in choosing the lesser evil. The nearly 200,000 aborted babies in the UK each year are the lesser evil, no matter how you define life, or death, for that matter. If you are willing to die for a cause, you must be prepared to kill for it, too.
I assume the last sentence was lifted from an al-Qaeda brochure that Ms Senior just happened to be leafing through when she was thinking about abortion. Aside from helpless foetuses, just who else would Ms Senior think it was acceptable to kill in defence of her "rights"? The online respondents to the article, most of whom think that Ms Senior is wrong, and some of whom think she's off her trolley? The Pope? Me??
It's an appalling article, and I'm not sure how it got past the editors at The Times. It will be interesting to see what kind of response the paper allows onto its letters page in the next day or two.
Reaction from the anti-abortion side has (so far) reflected sorrow rather than anger, but the "right to choose" crowd has reacted with something close to triumphalism. I saw one "expert" on the BBC News saying that the possibility that pain might be felt by the foetus was irrelevant in all cases, since it would be perfectly simple to administer an anaesthetic before carrying out the termination! I didn't catch this gent's name, but I assume he has no problems with the truly loathsome practice of "partial birth abortion". (Do NOT open the link if you are squeamish).
Then it got worse. The Times saw fit to publish an article by one of its business writers, Antonia Senior, in which she argued that for sure, abortion is murder, but it's still OK to do it. Ms Senior states that women's rights are the only cause for which she'd be prepared to die. Although having a baby of her own has given her pause for thought, she still thinks that those rights trump all (and she means ALL) other considerations.
The Times has its paywall up now, but here's the final, shameful paragraph:
As ever, when an issue we thought was black and white becomes more nuanced, the answer lies in choosing the lesser evil. The nearly 200,000 aborted babies in the UK each year are the lesser evil, no matter how you define life, or death, for that matter. If you are willing to die for a cause, you must be prepared to kill for it, too.
I assume the last sentence was lifted from an al-Qaeda brochure that Ms Senior just happened to be leafing through when she was thinking about abortion. Aside from helpless foetuses, just who else would Ms Senior think it was acceptable to kill in defence of her "rights"? The online respondents to the article, most of whom think that Ms Senior is wrong, and some of whom think she's off her trolley? The Pope? Me??
It's an appalling article, and I'm not sure how it got past the editors at The Times. It will be interesting to see what kind of response the paper allows onto its letters page in the next day or two.
Sunk costs in Kabul
The "sunk cost fallacy" is an important concept in business investment. Here's a definition from The Skeptic's Dictionary:
When one makes a hopeless investment, one sometimes reasons: I can’t stop now, otherwise what I’ve invested so far will be lost. This is true, of course, but irrelevant to whether one should continue to invest in the project. Everything one has invested is lost regardless. If there is no hope for success in the future from the investment, then the fact that one has already lost a bundle should lead one to the conclusion that the rational thing to do is to withdraw from the project.
It's a concept that has applications outside the business world. The UK's new Defence Secretary is guilty of a sunk cost fallacy in his approach to the Afghanistan conflict. According to The Guardian, Fox says Britain would be betraying the sacrifices of its fallen soldiers if it left "before the job is finished".
There are plenty of precedents. Let's go back to The Skeptic's Dictionary:
To continue to invest in a hopeless project is irrational. Such behavior may be a pathetic attempt to delay having to face the consequences of one's poor judgment. The irrationality is a way to save face, to appear to be knowledgeable, when in fact one is acting like an idiot. For example, it is now known that Lyndon Johnson kept committing thousands and thousands of U.S. soldiers to Vietnam after he had determined that the cause was hopeless and that the U.S. would not win the war (McMaster 1998: 309).
Read it and weep, Liam. "Pathetic attempt"? "Acting like an idiot"? Not the kind of feedback you want, is it, but it's what you'll get if you persist in sacrificing the future in a doomed attempt to expiate the errors of the past.
When one makes a hopeless investment, one sometimes reasons: I can’t stop now, otherwise what I’ve invested so far will be lost. This is true, of course, but irrelevant to whether one should continue to invest in the project. Everything one has invested is lost regardless. If there is no hope for success in the future from the investment, then the fact that one has already lost a bundle should lead one to the conclusion that the rational thing to do is to withdraw from the project.
It's a concept that has applications outside the business world. The UK's new Defence Secretary is guilty of a sunk cost fallacy in his approach to the Afghanistan conflict. According to The Guardian, Fox says Britain would be betraying the sacrifices of its fallen soldiers if it left "before the job is finished".
There are plenty of precedents. Let's go back to The Skeptic's Dictionary:
To continue to invest in a hopeless project is irrational. Such behavior may be a pathetic attempt to delay having to face the consequences of one's poor judgment. The irrationality is a way to save face, to appear to be knowledgeable, when in fact one is acting like an idiot. For example, it is now known that Lyndon Johnson kept committing thousands and thousands of U.S. soldiers to Vietnam after he had determined that the cause was hopeless and that the U.S. would not win the war (McMaster 1998: 309).
Read it and weep, Liam. "Pathetic attempt"? "Acting like an idiot"? Not the kind of feedback you want, is it, but it's what you'll get if you persist in sacrificing the future in a doomed attempt to expiate the errors of the past.
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