What with the brewing revolution in Egypt and the tawdry sexism scandal at Sky Sports, the UK media haven't paid much attention to the report of the Financial Crisis Inquiry Commission in the US, which was published this week. (The website for the report is here). That's a pity. Although there is not much in the report that's new, it pulls no punches, and a lot of its conclusions resonate in London just as much as in New York.
Even the Conclusions section runs to more than a dozen pages, so these are just very brief extracts regarding the key points:
• We conclude widespread failures in financial regulation and supervision
proved devastating to the stability of the nation’s financial markets..... Yet we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it.
* We conclude dramatic failures of corporate governance and risk management
at many systemically important financial institutions were a key cause of this crisis..... Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding.
• We conclude the government was ill prepared for the crisis, and its inconsistent
response added to the uncertainty and panic in the financial markets. As our report shows, key policy makers—the Treasury Department, the Federal Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of 2007 and 2008. Other agencies were also behind the curve....They thought risk had been diversified when, in fact, it had been concentrated.
• We conclude there was a systemic breakdown in accountability and ethics. Unfortunately — as has been the case in past speculative booms and busts — we witnessed an erosion of standards of responsibility and ethics that exacerbated the financial crisis. This was not universal, but these breaches stretched from the ground level to the corporate suites.
• We conclude the failures of credit rating agencies were essential cogs in the
wheel of financial destruction. The three credit rating agencies were key enablers of
the financial meltdown. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms.
Plenty of blame to go round, then. The bankers were reckless and greedy, the regulators were complacent, the ratings agencies were incompetent. It's tempting to ask why it's taken so long for this to be officially acknowledged; most commentators were pointing these things out even during the crisis, and have been harping on about them for the last three years -- and yes, I am in part talking about myself. (See for example my posting "Banker's bonuses and all that" on September 7, 2009).
What's really remarkable is how little has changed. Sure, there's Basel III, but it's almost certainly inadequate and anyway will not become effective until the end of the decade, which leaves plenty of time for another crisis to occur. There have been no major changes in regulation in any of the key countries, and the ratings agencies continue to demonstrate their inadequacies on almost a weekly basis. Nor is there much hope that the FCIC report will trigger much action. Only the six Democrats on the committee have signed the report, with the Republicans writing dissenting views. Given the partisan atmosphere in Congress and the composition of the new House of Representatives, there seems to be little prospect that the Obama administration will try to force through the kinds of changes that the FCIC report points toward.
Meanwhile the bankers are recovering their swagger. A couple of weeks ago I noted that Bob Diamond of Barclays had said that the time for bankers' remorse and apologies was over. This week in Davos, Jamie Dimon (what's with these guys names??)of JPMorgan Chase warned against excessive regulation, and expressed surprise that some of the regulators who had failed to prevent the crisis were still in post. So they are, Jamie -- but then again, so are a lot of the bankers who caused it.
Saturday, 29 January 2011
Wednesday, 26 January 2011
(Mervyn) King's Speech
Bank of England Governor Mervyn King spoke in Newcastle on Tyne (home of Northern Rock, in case you didn't know) last night. He defended the Bank against mounting criticism that it has let the inflation genie out of the bottle, while admitting that UK CPI will not move back to the Bank's 2% target until some time in 2012.
You can't blame him for defending the Bank's credibility, but consider these quotes from the official text (available on the Bank's website):
"....large and unexpected increases in the prices of a range of commodities, including food, have pushed up import prices. For example, over the past six months
the prices of base metals have risen by 25%, foodstuffs by 40% (with wheat prices up by 60%), and cotton prices by no less than 70%."
AND
"Second, there has also been a rise in world energy prices. Sterling oil prices have risen by 110% since the start of 2007 and gas prices by 130%. Those prices are determined in world markets in which demand, especially from some of the emerging economies, has outpaced supply. That too has pushed up on overall prices."
AND LASTLY
"The economy as a whole must deal with the legacy of extraordinarily high debt levels built up prior to the crisis. In particular, shrinking the size of the balance sheet of the financial sector will constrain lending for some time, as many of you will have experienced firsthand. The indebtedness of the financial system doubled, from 3½ times GDP in 1998 – already high by international standards – to over 7 times GDP in 2008. To appreciate the scale of that increase, even if the financial sector were to cap its debt at today’s level, it would take more than a decade for growth in the economy to return indebtedness relative to GDP to its 1998 ratio."
These things -- rising commodity prices, soaring energy costs and the extraordinary (and largely unproductive) ballooning of the financial sector -- only get the Bank off the hook if you think that they're in some sense exogenous to monetary policy. But of course they're not exogenous at all. As Mervyn King well knows, they're all in large part the result of the unprecedented decade-long laxity in monetary policy initiated by the Greenspan Fed -- and followed, with very little hesitation, by the Bank of England.
You can't blame him for defending the Bank's credibility, but consider these quotes from the official text (available on the Bank's website):
"....large and unexpected increases in the prices of a range of commodities, including food, have pushed up import prices. For example, over the past six months
the prices of base metals have risen by 25%, foodstuffs by 40% (with wheat prices up by 60%), and cotton prices by no less than 70%."
AND
"Second, there has also been a rise in world energy prices. Sterling oil prices have risen by 110% since the start of 2007 and gas prices by 130%. Those prices are determined in world markets in which demand, especially from some of the emerging economies, has outpaced supply. That too has pushed up on overall prices."
AND LASTLY
"The economy as a whole must deal with the legacy of extraordinarily high debt levels built up prior to the crisis. In particular, shrinking the size of the balance sheet of the financial sector will constrain lending for some time, as many of you will have experienced firsthand. The indebtedness of the financial system doubled, from 3½ times GDP in 1998 – already high by international standards – to over 7 times GDP in 2008. To appreciate the scale of that increase, even if the financial sector were to cap its debt at today’s level, it would take more than a decade for growth in the economy to return indebtedness relative to GDP to its 1998 ratio."
These things -- rising commodity prices, soaring energy costs and the extraordinary (and largely unproductive) ballooning of the financial sector -- only get the Bank off the hook if you think that they're in some sense exogenous to monetary policy. But of course they're not exogenous at all. As Mervyn King well knows, they're all in large part the result of the unprecedented decade-long laxity in monetary policy initiated by the Greenspan Fed -- and followed, with very little hesitation, by the Bank of England.
Tuesday, 25 January 2011
UK economy stalls: time for a rate hike?
The worst of times for the UK's economic policy makers seems to be upon us. Following last week's news that CPI inflation reached 3.7% in December, and with the certainty of further price increases in early 2011, this morning brought news that GDP unexpectedly fell 0.5% in the final quarter of 2010. To be honest this has happened a full quarter earlier than I had thought possible. It seemed certain that the increase in VAT announced for early January would pull some consumer spending forward into late 2010, giving growth an artificial and very possibly unsustainable lift. In the event, the exceptionally bad winter weather across the UK through most of December took a severe toll, though the Office for National Statistics estimates (very tentatively) that even without this factor, the economy would have been close to flat for the quarter.
What happens next? I am regularly vexed by media commentators and business lobbyists who talk about output being "lost" as a result of events like train strikes, when all experience shows that the "lost" production is quickly recovered through overtime working and so on. The same applies, to some extent, with bad weather. Construction activity, one of the bright spots in the economy in the first half of the year, fell 3.3% in Q4. This certainly squares with anecdotal experience: building workers in my own area, by no means the worst hit by the weather, simply downed tools and sloped off for an early Christmas in about mid-December. They're all back on the job and trying to catch up now, so it would be logical to expect construction to bounce back quite strongly in Q1/2011.
Normally you'd expect something of the same thing in retail spending, another Q4 weak spot. After all, if people are planning to go out and buy a microwave but then see it snowing outside, they don't decide to do without a microwave for the rest of their lives. They just wait until the snow stops and then head down to the shops. On this particular occasion, though, spending may not bounce back so readily, because the VAT increase in early January may have come along before some people managed to catch up on their weather-delayed spending.
Policymakers need to think carefully about what may be holding the consumer back. Opposition politicians (hello there, Ed Balls, newly-minted Shadow Chancellor) are arguing that it's the coalition government's spending cuts that are the problem. That seems highly improbable. For one thing, actual spending cuts haven't happened yet, and for another, it's not government austerity that real people seem to be blaming for their reluctance to spend. On a talk show this morning I heard one gent state that he'd cut his weekly grocery spend at Tesco from £60-80 in the past to £40 now -- in order to keep filling his two cars with fuel. That's perverse in two senses. Obviously it's plain daft to starve yourself in order to feed your Ford, but in addition you have to wonder how closely this gent is checking his bills. Sure, fuel has gone up by 10-15% in the past year, but that's absolutely dwarfed by the rise in a lot of quite basic foodstuffs.
As a professional economist (no tittering at the back there!) I'm supposed to look beyond anecdotal evidence and focus on the hard facts. But right now I'm finding it difficult to believe that inflation is as low as the 3.7% the ONS is reporting. One example: crusty rolls at my local Waitrose were sold at 4 for a pound this time last year. Then they were 3 for a pound. Now they're 47 pence each, no discount for quantity. That's an 88% rise in a year, and there's lots more examples like that. It's well and good to point out that CPI includes less frequent purchases like television sets -- very tasty cooked in a tagine, I believe -- whose prices have fallen almost 10% over the past year. However, when people are seeing much larger leaps in prices every week than the official data suggest, they can hardly be blamed for believing their own eyes rather than the ONS survey data.
I've somewhat belaboured this point because there was something strange and disturbing in the December retail sales numbers that appeared last week. Overall spending was weak in December, yet consumers appear to have maintained their Christmas purchasing plans by cutting back on....food! The volume of food sales fell more than 3% in the month. This is not a bad thing in itself. People overbuy food so extravagantly at Christmas that a small cutback like this mainly translates into a welcome decline in the amount of wasted food being sent to landfills in January. However, people clearly perceive that they are being squeezed by soaring costs for necessities, whether that means food, fuel or railway season tickets for the daily commute. There's obviously a limit to how far spending on those things can be cut back, so unless that perceived squeeze ends soon -- extremely unlikely -- spending in other areas will have to fall.
And here, finally, we get to the policy implications of all the recent data. Much of the early media commentary on the Q4 GDP data is suggesting that prospects for a Bank of England rate hike have been pushed back indefinitely. Under most circumstances this would be logical. However, if what's holding the consumer back is a fear that inflation is on the point of getting out of control, then the Bank will be taking a huge risk with both growth and inflation if it sits idly by and watches CPI head up to 5% by mid-year. There was a strong, if mainly symbolic case for raising rates in mid-2010, when the economy was moving ahead smartly. Growth seems to have slowed dramatically (though I'm guessing the underlying picture is not as bad as the Q4 GDP data suggest), but the need to do something about inflation has arguably gone past the symbolic stage.
Oh, and one more thing. Can we stop talking about a "double dip recession" please? The economy has grown for four straight quarters, so the previous slowdown is fading into history, at least statistically. If the UK really does head back into recession now, it should be regarded as a whole new cycle, because to be sure the causes seem to be quite different.
What happens next? I am regularly vexed by media commentators and business lobbyists who talk about output being "lost" as a result of events like train strikes, when all experience shows that the "lost" production is quickly recovered through overtime working and so on. The same applies, to some extent, with bad weather. Construction activity, one of the bright spots in the economy in the first half of the year, fell 3.3% in Q4. This certainly squares with anecdotal experience: building workers in my own area, by no means the worst hit by the weather, simply downed tools and sloped off for an early Christmas in about mid-December. They're all back on the job and trying to catch up now, so it would be logical to expect construction to bounce back quite strongly in Q1/2011.
Normally you'd expect something of the same thing in retail spending, another Q4 weak spot. After all, if people are planning to go out and buy a microwave but then see it snowing outside, they don't decide to do without a microwave for the rest of their lives. They just wait until the snow stops and then head down to the shops. On this particular occasion, though, spending may not bounce back so readily, because the VAT increase in early January may have come along before some people managed to catch up on their weather-delayed spending.
Policymakers need to think carefully about what may be holding the consumer back. Opposition politicians (hello there, Ed Balls, newly-minted Shadow Chancellor) are arguing that it's the coalition government's spending cuts that are the problem. That seems highly improbable. For one thing, actual spending cuts haven't happened yet, and for another, it's not government austerity that real people seem to be blaming for their reluctance to spend. On a talk show this morning I heard one gent state that he'd cut his weekly grocery spend at Tesco from £60-80 in the past to £40 now -- in order to keep filling his two cars with fuel. That's perverse in two senses. Obviously it's plain daft to starve yourself in order to feed your Ford, but in addition you have to wonder how closely this gent is checking his bills. Sure, fuel has gone up by 10-15% in the past year, but that's absolutely dwarfed by the rise in a lot of quite basic foodstuffs.
As a professional economist (no tittering at the back there!) I'm supposed to look beyond anecdotal evidence and focus on the hard facts. But right now I'm finding it difficult to believe that inflation is as low as the 3.7% the ONS is reporting. One example: crusty rolls at my local Waitrose were sold at 4 for a pound this time last year. Then they were 3 for a pound. Now they're 47 pence each, no discount for quantity. That's an 88% rise in a year, and there's lots more examples like that. It's well and good to point out that CPI includes less frequent purchases like television sets -- very tasty cooked in a tagine, I believe -- whose prices have fallen almost 10% over the past year. However, when people are seeing much larger leaps in prices every week than the official data suggest, they can hardly be blamed for believing their own eyes rather than the ONS survey data.
I've somewhat belaboured this point because there was something strange and disturbing in the December retail sales numbers that appeared last week. Overall spending was weak in December, yet consumers appear to have maintained their Christmas purchasing plans by cutting back on....food! The volume of food sales fell more than 3% in the month. This is not a bad thing in itself. People overbuy food so extravagantly at Christmas that a small cutback like this mainly translates into a welcome decline in the amount of wasted food being sent to landfills in January. However, people clearly perceive that they are being squeezed by soaring costs for necessities, whether that means food, fuel or railway season tickets for the daily commute. There's obviously a limit to how far spending on those things can be cut back, so unless that perceived squeeze ends soon -- extremely unlikely -- spending in other areas will have to fall.
And here, finally, we get to the policy implications of all the recent data. Much of the early media commentary on the Q4 GDP data is suggesting that prospects for a Bank of England rate hike have been pushed back indefinitely. Under most circumstances this would be logical. However, if what's holding the consumer back is a fear that inflation is on the point of getting out of control, then the Bank will be taking a huge risk with both growth and inflation if it sits idly by and watches CPI head up to 5% by mid-year. There was a strong, if mainly symbolic case for raising rates in mid-2010, when the economy was moving ahead smartly. Growth seems to have slowed dramatically (though I'm guessing the underlying picture is not as bad as the Q4 GDP data suggest), but the need to do something about inflation has arguably gone past the symbolic stage.
Oh, and one more thing. Can we stop talking about a "double dip recession" please? The economy has grown for four straight quarters, so the previous slowdown is fading into history, at least statistically. If the UK really does head back into recession now, it should be regarded as a whole new cycle, because to be sure the causes seem to be quite different.
Saturday, 22 January 2011
No kidding, Professor Sherlock
Amazing revelations from the world of academia today. Apparently IKEA sets up its stores to encourage people to spend money! Yes, it's true. Here's an extract from the report in The Times:
After studying the layout of the company’s North London store, Alan Penn, director of the Virtual Reality Centre for the Built Environment at University College London, has concluded that Ikea has pioneered an ingenious architectural strategy to coax its customers into buying as much flat-packed furniture as possible. The success of the company is, in part, down to confusing their customers into submission, he believes.
“It is so well done and so cunningly done that I have little doubt that it is intentional,” Professor Penn said.
Jeez Prof, you sure about that??
I assume that an insightful thinker like Prof Penn must have full academic tenure, so I may ask him to supervise my work on the PhD I just decided to undertake. I'm going to try to solve the age-old mystery of why supermarkets have racks of chocolate bars and sweets at the checkouts.
After studying the layout of the company’s North London store, Alan Penn, director of the Virtual Reality Centre for the Built Environment at University College London, has concluded that Ikea has pioneered an ingenious architectural strategy to coax its customers into buying as much flat-packed furniture as possible. The success of the company is, in part, down to confusing their customers into submission, he believes.
“It is so well done and so cunningly done that I have little doubt that it is intentional,” Professor Penn said.
Jeez Prof, you sure about that??
I assume that an insightful thinker like Prof Penn must have full academic tenure, so I may ask him to supervise my work on the PhD I just decided to undertake. I'm going to try to solve the age-old mystery of why supermarkets have racks of chocolate bars and sweets at the checkouts.
Friday, 21 January 2011
The Olympic legacy
Bids have to be submitted today for use of the Olympic stadium in Stratford once the 2012 Games are out of the way. There are two known bidders, both football clubs. West Ham, whose present ramshackle stadium is just down the road from Stratford, want to retain the running track to allow the stadium to remain available for track and field events, even though this will result in a less than ideal stadium for watching football. Tottenham Hotspur, whose present ramshackle stadium is in another part of London altogether, basically want to tear the stadium down and build a new one for football, while also putting money into the (equally ramshackle) Crytsal Palace stadium for future athletics use.
I don't have a dog in this fight, but one thing I'm sure of is that the decision should not be based on any perceived promise, made in an effort to secure the Games for London, to retain the stadium as a "legacy" venue for future athletics events. The people trying to enforce that promise -- Lord Coe et al -- promised to deliver the Games for just over £2 billion, a rather important commitment that fell away as soon as the bid was won. The cost is now expected to be in excess of £9 billion, so Lord Coe is not in any position to demand that other people keep their promises.
Even the stadium itself represents some new Olympian apotheosis of overspending. For an estimated £537 million, the organising committee is delivering a stadium that has only 25,000 permanent seats, and has no permanent toilets or concession stands! Given that those crucial facilities will presumably be unbolted and trucked away after the Games, it's not clear how much it would cost UK Athletics to stage future events in the stadium, even if it did keep control of it.
Almost every Olympic stadium turns out to be a huge white elephant unless it's converted for regular use in another sport. You just have to look to North America for proof. In Atlanta the Games stadium was largely ripped down in order to convert it for baseball use. In Montreal the Olympic Stadium was a disaster from the outset. Its retractable roof never worked. It too was used mainly for baseball after the Games, but without any real effort to make it suitable, so that it became notorious as the worst place in the world to watch a game. As a direct result, Montreal no longer has a baseball team -- it moved to DC -- and the Olympic stadium gets used no more than once or twice a year.
I don't have a dog in this fight, but one thing I'm sure of is that the decision should not be based on any perceived promise, made in an effort to secure the Games for London, to retain the stadium as a "legacy" venue for future athletics events. The people trying to enforce that promise -- Lord Coe et al -- promised to deliver the Games for just over £2 billion, a rather important commitment that fell away as soon as the bid was won. The cost is now expected to be in excess of £9 billion, so Lord Coe is not in any position to demand that other people keep their promises.
Even the stadium itself represents some new Olympian apotheosis of overspending. For an estimated £537 million, the organising committee is delivering a stadium that has only 25,000 permanent seats, and has no permanent toilets or concession stands! Given that those crucial facilities will presumably be unbolted and trucked away after the Games, it's not clear how much it would cost UK Athletics to stage future events in the stadium, even if it did keep control of it.
Almost every Olympic stadium turns out to be a huge white elephant unless it's converted for regular use in another sport. You just have to look to North America for proof. In Atlanta the Games stadium was largely ripped down in order to convert it for baseball use. In Montreal the Olympic Stadium was a disaster from the outset. Its retractable roof never worked. It too was used mainly for baseball after the Games, but without any real effort to make it suitable, so that it became notorious as the worst place in the world to watch a game. As a direct result, Montreal no longer has a baseball team -- it moved to DC -- and the Olympic stadium gets used no more than once or twice a year.
Hypocrisy and Goldman Sachs
Channel 4's new weekly current affairs/satire show, "10 o'clock live", made its debut last night. It's supposedly inspired mainly by Jon Stewart's nightly news show on CNN, with a nod to the old BBC satirical stalwart, "That was the week that was". The nicest thing that I can say is that it needs a bit of work if it wants to be mentioned in the same breath as either of those programmes. The camera work was bizarre -- why did we need to see shots of Jimmy Carr from the rear, standing on a little podium as he did his introductory monologue? Why were the pre-recorded bits so feeble? And who invited Lauren Laverne?
No doubt those things are fixable; well, maybe apart from Lauren Laverne. But there is one flaw that may be harder to gloss over. The political stance of the show is clearly left of centre, which is fine. However, when David Mitchell hosted a small panel to discuss bankers' bonuses, I felt the token banker on the panel -- an ex-Goldman Sachs guy -- missed a real opportunity. How nice it would have been if, on live television, he'd said something like "Before we go any further, I wonder if our hosts (Carr, Laverne and Mitchell, plus Charlie Brooker) might care to disclose their own incomes". I don't know about Brooker and Laverne, but I'd be very confident that Mitchell and Carr are in the 7-figure bracket. And good for them, but it does mean they ought to feel just a bit queasy about calling other people fat cats.
Elsewhere, Thursday's Daily Mail showed the paper's truly hateful side at its very worst. The front page headline screamed "Charities pay price of greed at Goldman Sachs: Bank gives staff £9.6bn... but slashes donations to good causes by a third". Just how this compares to the Mail's charitable giving was not, of course, disclosed. Nor was the fact that Goldman uses its own charitable donations (which have indeed been cut this year, though to a still-hefty £200 million) to encourage its employees to increase their own charitable involvement, by matching donations to their favourite causes.
I know from my personal involvement in my former bank's charitable activities a few years ago that Goldman employees are extremely generous donors, of time as well as money, to good causes. This tends to be true of American banks as a group, and for that matter of Americans in general. To give massive amounts to charity and then find youself smeared by a bunch of envious, loathsome, xenophobic reptiles like the Daily Mail must make the powers that be at Goldman wonder why they bother even trying to do the right thing.
No doubt those things are fixable; well, maybe apart from Lauren Laverne. But there is one flaw that may be harder to gloss over. The political stance of the show is clearly left of centre, which is fine. However, when David Mitchell hosted a small panel to discuss bankers' bonuses, I felt the token banker on the panel -- an ex-Goldman Sachs guy -- missed a real opportunity. How nice it would have been if, on live television, he'd said something like "Before we go any further, I wonder if our hosts (Carr, Laverne and Mitchell, plus Charlie Brooker) might care to disclose their own incomes". I don't know about Brooker and Laverne, but I'd be very confident that Mitchell and Carr are in the 7-figure bracket. And good for them, but it does mean they ought to feel just a bit queasy about calling other people fat cats.
Elsewhere, Thursday's Daily Mail showed the paper's truly hateful side at its very worst. The front page headline screamed "Charities pay price of greed at Goldman Sachs: Bank gives staff £9.6bn... but slashes donations to good causes by a third". Just how this compares to the Mail's charitable giving was not, of course, disclosed. Nor was the fact that Goldman uses its own charitable donations (which have indeed been cut this year, though to a still-hefty £200 million) to encourage its employees to increase their own charitable involvement, by matching donations to their favourite causes.
I know from my personal involvement in my former bank's charitable activities a few years ago that Goldman employees are extremely generous donors, of time as well as money, to good causes. This tends to be true of American banks as a group, and for that matter of Americans in general. To give massive amounts to charity and then find youself smeared by a bunch of envious, loathsome, xenophobic reptiles like the Daily Mail must make the powers that be at Goldman wonder why they bother even trying to do the right thing.
Wednesday, 19 January 2011
Peston: too big to fire?
It had a fish wholesaler in Brixham. It had Mary Poppins. It had tobogganers on Hampstead Heath. Can you guess what it is yet? OK, these may help. It had a tick-tack man at a racecourse and trams in Basel. Still stumped? Silly you! It was, of course, BBC business editor Robert Peston's much-hyped television documentary last night: "Britain's banks: too big to save?" (You can watch it, if you really must, on BBC i-Player until January 25).
Now, there's nothing wrong in principle with using a wide variety of images and analogies to illustrate a story on TV. But it only really works if the presenter -- in this case the hugely self-regarding Pesto -- understands the underlying material. Sadly, there were plenty of indications here that when the great man moves away from what he's undoubtedly good at -- prying stories out of a wide range of business contacts -- he quickly gets way out of his depth.
A couple of examples will have to suffice. Interviewing Paul Tucker of the Bank of England, Peston asked him to explain the concept of fractional reserve banking. Tucker appeared to respond by giving a letter-perfect definition of maturity mismatching, a quite different thing. It's not clear what the intended effect of this bizarre edit was, but its actual effect was to create the impression that Peston didn't understand the difference between the two concepts -- an impression that the rest of the programme did nothing to dispel. At a later stage Peston and his editors contrived to make a whole group of academics and financial experts look stupid. Each was asked to define a "CDO-squared" (a type of structured bond), but only a couple of seconds of each person's answer was shown, giving the undoubtedly false impression that none of them could say what it was.
It's clear from the title that Peston thinks the banks are too big and should be broken up. This is a view with which I have a lot of sympathy, so it was maddening to see it so poorly represented here. Peston asked his Brixham fish wholesaler how he would reform the banking system. Simple, said the man: he'd require each bank to ask each depositor's permission if it wanted to lend his or her money out; absent that, the money would have to be kept in the vault. Peston didn't ask the man how much he'd be prepared to pay for this safekeeping service, or even point out that under these rules it might be the teensiest bit difficult for banks to pay any interest on deposits, or for that matter to advance working capital loans to Brixham fish wholesalers.
It has to be said, though, that Peston seemed to have gone out of his way to find people who would be happy to put their money into just such a bank. One lady revealed the due diligence she had undertaken before putting all of her life's savings into Northern Rock: "It was northern! And it was a rock!" I really am not making that up.
What we ended up with was an irresponsible scare story -- "the banks could get into trouble again, and this time nobody will be able to fix it!" -- without the least effort on Peston's part to suggest what could be done about it. It will serve Peston right if he finds doors being slammed in his face next time he's prowling around Canary Wharf looking for a lead, but as long as he has access to the bully pulpit at the BBC, I guess the banks won't dare to freeze him out. Still, I have some advice for the BBC: next time you're doing a documentary on a matter of key public interest, why not hire a presenter who's more comfortable with complicated topics? Alan Titchmarsh, maybe, or Graham Norton.
Now, there's nothing wrong in principle with using a wide variety of images and analogies to illustrate a story on TV. But it only really works if the presenter -- in this case the hugely self-regarding Pesto -- understands the underlying material. Sadly, there were plenty of indications here that when the great man moves away from what he's undoubtedly good at -- prying stories out of a wide range of business contacts -- he quickly gets way out of his depth.
A couple of examples will have to suffice. Interviewing Paul Tucker of the Bank of England, Peston asked him to explain the concept of fractional reserve banking. Tucker appeared to respond by giving a letter-perfect definition of maturity mismatching, a quite different thing. It's not clear what the intended effect of this bizarre edit was, but its actual effect was to create the impression that Peston didn't understand the difference between the two concepts -- an impression that the rest of the programme did nothing to dispel. At a later stage Peston and his editors contrived to make a whole group of academics and financial experts look stupid. Each was asked to define a "CDO-squared" (a type of structured bond), but only a couple of seconds of each person's answer was shown, giving the undoubtedly false impression that none of them could say what it was.
It's clear from the title that Peston thinks the banks are too big and should be broken up. This is a view with which I have a lot of sympathy, so it was maddening to see it so poorly represented here. Peston asked his Brixham fish wholesaler how he would reform the banking system. Simple, said the man: he'd require each bank to ask each depositor's permission if it wanted to lend his or her money out; absent that, the money would have to be kept in the vault. Peston didn't ask the man how much he'd be prepared to pay for this safekeeping service, or even point out that under these rules it might be the teensiest bit difficult for banks to pay any interest on deposits, or for that matter to advance working capital loans to Brixham fish wholesalers.
It has to be said, though, that Peston seemed to have gone out of his way to find people who would be happy to put their money into just such a bank. One lady revealed the due diligence she had undertaken before putting all of her life's savings into Northern Rock: "It was northern! And it was a rock!" I really am not making that up.
What we ended up with was an irresponsible scare story -- "the banks could get into trouble again, and this time nobody will be able to fix it!" -- without the least effort on Peston's part to suggest what could be done about it. It will serve Peston right if he finds doors being slammed in his face next time he's prowling around Canary Wharf looking for a lead, but as long as he has access to the bully pulpit at the BBC, I guess the banks won't dare to freeze him out. Still, I have some advice for the BBC: next time you're doing a documentary on a matter of key public interest, why not hire a presenter who's more comfortable with complicated topics? Alan Titchmarsh, maybe, or Graham Norton.
Monday, 17 January 2011
Doctor No
One of the lessons that should have been learned from attempts to inject private sector capital and expertise into state industries in the UK over the past decade and more is that outsiders brought in to shake up a business rarely know more than the people who already work there. The railways cost more to run than they ever did when they were in public hands; PFI-based IT schemes in all parts of the public sector go wildly over budget, or don't work properly, or both; a wackjob plan to privatise military training went so far over budget that it was finally killed off by the new Government; and so on and on.
By and large, professionals know best how to do their jobs, and at first glance that seems to be the principle behind the Government's announcements today on public sector reform. There's a problem, though: in the biggest public sector entity of all, the National Health Service (the larget civilian employer in Europe), the professionals are warning that the Government's proposals could spell chaos.
The essence of the Government's plan is to abolish the so-called "Primary Care Trusts" that operate hospitals and provide other health services in each area. Instead, consortia of general practitioners will be given control over local budgets and allowed to commission hospital and other services, ostensibly in response to patient demands. There may well be some entrepreneurial types among them, but surely if all of these GPs had really wanted to be small businessmen all along, they wouldn't have bothered with all of that expensive, exhausting and icky medical training.
The NHS unions are predictably opposed to all this, but what's more striking is that the professional bodies, including the BMA and the Royal College of Nursing, are also sounding alarms. Given that doctors and nurses usually can't find a way to agree on what day it is, this should give the government pause. Empowering people against their own better judgment is unlikely to prove a successful recipe for NHS reform.
By and large, professionals know best how to do their jobs, and at first glance that seems to be the principle behind the Government's announcements today on public sector reform. There's a problem, though: in the biggest public sector entity of all, the National Health Service (the larget civilian employer in Europe), the professionals are warning that the Government's proposals could spell chaos.
The essence of the Government's plan is to abolish the so-called "Primary Care Trusts" that operate hospitals and provide other health services in each area. Instead, consortia of general practitioners will be given control over local budgets and allowed to commission hospital and other services, ostensibly in response to patient demands. There may well be some entrepreneurial types among them, but surely if all of these GPs had really wanted to be small businessmen all along, they wouldn't have bothered with all of that expensive, exhausting and icky medical training.
The NHS unions are predictably opposed to all this, but what's more striking is that the professional bodies, including the BMA and the Royal College of Nursing, are also sounding alarms. Given that doctors and nurses usually can't find a way to agree on what day it is, this should give the government pause. Empowering people against their own better judgment is unlikely to prove a successful recipe for NHS reform.
Dominoes and firewalls
The desirability of separating the utility aspects of banking from the riskier investment banking side has been a regular theme of this blog. Policymakers in the UK and everywhere else seem reluctant to take such a step, which would obviously be ferociously opposed by the banks themselves.
Tim Harford has written a fascinating piece, originally in the FT but reprinted on Slate, showing the risks inherent in any mechanism that is both complex and tightly coupled, like strings of dominoes, or nuclear reactors -- or the global financial system. Measures adopted to add safety often simply create new ways for things to go catastrophically wrong.
As with safety measures at Three Mile Island, Harford argues, so also with "insurance" mechanisms like CDS in the financial market. Makes sense to me -- I've long observed that banks always find new ways to lose money, despite the best efforts of their own risk managers and the exertions of government regulators. Separating utility banking from banks' investment activity would loosen the coupling within the financial system, making it less likely that a future Lehman-style crisis would go global. You can take a look at Harford's article here.
Tim Harford has written a fascinating piece, originally in the FT but reprinted on Slate, showing the risks inherent in any mechanism that is both complex and tightly coupled, like strings of dominoes, or nuclear reactors -- or the global financial system. Measures adopted to add safety often simply create new ways for things to go catastrophically wrong.
As with safety measures at Three Mile Island, Harford argues, so also with "insurance" mechanisms like CDS in the financial market. Makes sense to me -- I've long observed that banks always find new ways to lose money, despite the best efforts of their own risk managers and the exertions of government regulators. Separating utility banking from banks' investment activity would loosen the coupling within the financial system, making it less likely that a future Lehman-style crisis would go global. You can take a look at Harford's article here.
Thursday, 13 January 2011
Go refudiate yourself!
Up until now, and watching from a safe distance, it has been possible to see Sarah Palin as little more than a figure of fun. The staggering ignorance! The incoherence!! The '60s secretary looks!!! The preposterously dysfunctional family!!!!
In the wake of the Gabrielle Giffords shooting in Arizona, amusement is no longer an acceptable response. After a remarkably long and quite uncharacteristic period of purdah, Mrs Palin has finally delivered her response to the shooting, in the form of a video statement released to the social media (you can read a transcript and see the video on Facebook).
It's a truly bizarre and scary thing. Firstly, it says much about Mrs Palin's combination of incoherence and control freakery that, at a time when American politicians of all stripes have been getting out among the people to provide empathy and reassurance, she chooses to jump in front of a camera and make a video. Secondly, look at the content. The opening few paragraphs about Congresswoman Giffords are well expressed, but more than two thirds of the statement is really about Mrs Palin herself, and how unfair it is that some people are suggesting that her inflammatory rhetoric contributed to the tragedy. She may have a point, but is this really the time and place?
Then there's the wording of the statement. This passage has been roundly and justly criticised: "...especially within hours of a tragedy unfolding, journalists and pundits should not manufacture a blood libel that serves only to incite the very hatred and violence they purport to condemn. That is reprehensible". I suppose it's possible that the words "blood" and "libel" just happened to pop into Mrs Palin's brain at the same time, but it's a very strange phrase indeed, and one with an appalling history. The term "blood libel" is almost exclusively associated with one of the most vile anti-Semitic slurs: the ritualistic use of babies' blood. Knowingly using it in her statement would be insensitive at best on Mrs Palin's part, but it's all the more reprehensible in light of the fact that Congresswoman Giffords is Jewish*.
It's extremely unlikely that the phrase is there by accident, because the most blindingly obvious thing about Mrs Palin's statement is that it's not her own work. The use of video rather than a live appearance is one clue; a second is the reflection of autocues that can be seen in Mrs Palin's glasses. Further evidence? Just look at the words, even in the brief sentence quoted in the paragraph above. "Purport"? ""Reprehensible"? This is a woman whose incoherence has been the butt of jokes ever since she came on the scene, one who is constantly and quite unknowingly making up words as she goes along. She has never, ever sounded the way she does in this week's statement.
That's the really scary part. There's a whole entourage of people around Sarah Palin, attempting to use her apparent electoral appeal to move US politics firmly to the right. There are suggestions that her inept performance over the past few days may have done irreparable damage to Mrs Palin personally, but even if she now starts to lose some of her lustre, the people who wrote that speech and operated that video camera will still be around. Paranoia? Exaggeration? Take a look at this.
* It's not just the right wing that needs to watch its language here. Here's Pima County Sherriff Clarence Dupnik making his own contribution to sensitivity and correctness: "We have become the Mecca for prejudice and bigotry.'
In the wake of the Gabrielle Giffords shooting in Arizona, amusement is no longer an acceptable response. After a remarkably long and quite uncharacteristic period of purdah, Mrs Palin has finally delivered her response to the shooting, in the form of a video statement released to the social media (you can read a transcript and see the video on Facebook).
It's a truly bizarre and scary thing. Firstly, it says much about Mrs Palin's combination of incoherence and control freakery that, at a time when American politicians of all stripes have been getting out among the people to provide empathy and reassurance, she chooses to jump in front of a camera and make a video. Secondly, look at the content. The opening few paragraphs about Congresswoman Giffords are well expressed, but more than two thirds of the statement is really about Mrs Palin herself, and how unfair it is that some people are suggesting that her inflammatory rhetoric contributed to the tragedy. She may have a point, but is this really the time and place?
Then there's the wording of the statement. This passage has been roundly and justly criticised: "...especially within hours of a tragedy unfolding, journalists and pundits should not manufacture a blood libel that serves only to incite the very hatred and violence they purport to condemn. That is reprehensible". I suppose it's possible that the words "blood" and "libel" just happened to pop into Mrs Palin's brain at the same time, but it's a very strange phrase indeed, and one with an appalling history. The term "blood libel" is almost exclusively associated with one of the most vile anti-Semitic slurs: the ritualistic use of babies' blood. Knowingly using it in her statement would be insensitive at best on Mrs Palin's part, but it's all the more reprehensible in light of the fact that Congresswoman Giffords is Jewish*.
It's extremely unlikely that the phrase is there by accident, because the most blindingly obvious thing about Mrs Palin's statement is that it's not her own work. The use of video rather than a live appearance is one clue; a second is the reflection of autocues that can be seen in Mrs Palin's glasses. Further evidence? Just look at the words, even in the brief sentence quoted in the paragraph above. "Purport"? ""Reprehensible"? This is a woman whose incoherence has been the butt of jokes ever since she came on the scene, one who is constantly and quite unknowingly making up words as she goes along. She has never, ever sounded the way she does in this week's statement.
That's the really scary part. There's a whole entourage of people around Sarah Palin, attempting to use her apparent electoral appeal to move US politics firmly to the right. There are suggestions that her inept performance over the past few days may have done irreparable damage to Mrs Palin personally, but even if she now starts to lose some of her lustre, the people who wrote that speech and operated that video camera will still be around. Paranoia? Exaggeration? Take a look at this.
* It's not just the right wing that needs to watch its language here. Here's Pima County Sherriff Clarence Dupnik making his own contribution to sensitivity and correctness: "We have become the Mecca for prejudice and bigotry.'
Wednesday, 12 January 2011
Diamond life
Barclays' new CEO Bob Diamond seems to have approached yesterday's grilling by the House of Commons Treasury Committee with the attitude that the best defence is a good offence. He and the assembled politicians largely talked past each other. The pols foamed at the mouth and made the points that had been scripted for them by their aides, but never seemed to pay much attention to Diamond's replies. As for Diamond, he concentrated on making a few key preconceived points of his own, none of which came anywhere close to the sort of apology or remorse that the politicians, or at least their constituents, might have appreciated. Diamond seems to have come out on top, judging by the media's grudging appreciation of his calmness and intransigence, as well as his mahogany tan.
He certainly got away with saying things that the committee could, if it hadn't been in such a righteous lather, have picked him up on. For example:
"Frankly, the biggest issue is how do we put some of the blame game behind us? There was a period of remorse and apology for banks – that period needs to be over. We need banks to be able to take risk, working with the private sector in the UK."
It's hard to know where to start with that little lot, but here goes:
* Does anyone else remember the "period of remorse and apology" that Diamond claims? Barclays itself may feel it had little to apologise for, inasmuch as it did not need a direct bailout, but one of the striking things about the crisis at its peak was the lack of any contrition from those who really did owe the country an apology, such as Fred Goodwin at RBS or Adam Applegarth at Northern Rock.
* "That period needs to be over"? Not for you to say, Bob, especially if you mean you want to go back to business as usual. As long as the taxpayer owns a big chunk of the banks and the Bank of England is continuing to provide unlimited low-cost funding, a bit more humility would seem to be in order.
* "We need banks to be able to take risk, working with the private sector in the UK". What's stopping you? The Bank of England's cheap funding was extended to allow exactly that, and politicians have been calling for it until they're blue in the face. Is Diamond suggesting that the banks are refusing to lend because they're cowed by public criticism? Do grow up, man!
According to The Independent, Asked if Barclays was "too big to fail", Mr Diamond said: "No, I don't think so. No bank should ever be a burden on the taxpayer. We have to make the system safer and more sound. It is not OK for taxpayers to bail out banks."
Again, where to start??
* Diamond is in a position of strength to the extent that Barclays was able to avoid accepting a government injection of capital at the height of the crisis. Even so, the assertion that "no bank should ever be a burden on the taxpayer" is a bit rich, considering that Barclays and all the rest of the banks are benefitting from ultra low-cost funding both from the Bank of England and from ordinary depositors, who are largely the same people as taxpayers.
* The astounding costs of the crisis strongly suggest that the premia the banks have paid in the past for deposit insurance were unrealistically low. That implies that all of the banks are always a burden on the taxpayer.
* As for making the system "safer and more sound", the Government has failed to advance any real ideas and if the banks themselves have big thoughts, they are keeping schtum. The one proposal that might actually make it possible to lighten the burden on the taxpayer -- separating retail banking from corporate and investment activities -- seems to be dead in the water, and would certainly be fiercely opposed by Barclays itself.
Bob Diamond and his colleagues are no doubt happy that he walked away unscathed yesterday, but neither he nor, more culpably, his interrogators did or said much to advance the public interest. A missed opportunity.
He certainly got away with saying things that the committee could, if it hadn't been in such a righteous lather, have picked him up on. For example:
"Frankly, the biggest issue is how do we put some of the blame game behind us? There was a period of remorse and apology for banks – that period needs to be over. We need banks to be able to take risk, working with the private sector in the UK."
It's hard to know where to start with that little lot, but here goes:
* Does anyone else remember the "period of remorse and apology" that Diamond claims? Barclays itself may feel it had little to apologise for, inasmuch as it did not need a direct bailout, but one of the striking things about the crisis at its peak was the lack of any contrition from those who really did owe the country an apology, such as Fred Goodwin at RBS or Adam Applegarth at Northern Rock.
* "That period needs to be over"? Not for you to say, Bob, especially if you mean you want to go back to business as usual. As long as the taxpayer owns a big chunk of the banks and the Bank of England is continuing to provide unlimited low-cost funding, a bit more humility would seem to be in order.
* "We need banks to be able to take risk, working with the private sector in the UK". What's stopping you? The Bank of England's cheap funding was extended to allow exactly that, and politicians have been calling for it until they're blue in the face. Is Diamond suggesting that the banks are refusing to lend because they're cowed by public criticism? Do grow up, man!
According to The Independent, Asked if Barclays was "too big to fail", Mr Diamond said: "No, I don't think so. No bank should ever be a burden on the taxpayer. We have to make the system safer and more sound. It is not OK for taxpayers to bail out banks."
Again, where to start??
* Diamond is in a position of strength to the extent that Barclays was able to avoid accepting a government injection of capital at the height of the crisis. Even so, the assertion that "no bank should ever be a burden on the taxpayer" is a bit rich, considering that Barclays and all the rest of the banks are benefitting from ultra low-cost funding both from the Bank of England and from ordinary depositors, who are largely the same people as taxpayers.
* The astounding costs of the crisis strongly suggest that the premia the banks have paid in the past for deposit insurance were unrealistically low. That implies that all of the banks are always a burden on the taxpayer.
* As for making the system "safer and more sound", the Government has failed to advance any real ideas and if the banks themselves have big thoughts, they are keeping schtum. The one proposal that might actually make it possible to lighten the burden on the taxpayer -- separating retail banking from corporate and investment activities -- seems to be dead in the water, and would certainly be fiercely opposed by Barclays itself.
Bob Diamond and his colleagues are no doubt happy that he walked away unscathed yesterday, but neither he nor, more culpably, his interrogators did or said much to advance the public interest. A missed opportunity.
Sunday, 9 January 2011
Tales of media power
I'm an avid consumer of the mass media, but that doesn't make me a fan. Over the years I've realised that when I'm reading or watching a news story about something I already know about -- which usually, but not always*, means economics or business -- the stories are generally full of factual errors and slipshod analysis. It would be dumb to assume that all of the bad reporters are on the business desk, so as a working assumption, I tend to take it as read that the rest of the stories are comparably flawed, even if I can't always spot the specific mistakes.
So it's scary to think that the power of the media, at the expense of elected politicians, seems to be increasing relentlessly. Rupert Murdoch may be at the forefront of this trend globally, but it's much more widespread than that. Rather than reading me wibbling on about it, please take a look at this excellent and wide-ranging analysis by John Lloyd, originally published in the FT, but here reproduced on Slate.
* I'm a know-it-all about music and travel as well.
So it's scary to think that the power of the media, at the expense of elected politicians, seems to be increasing relentlessly. Rupert Murdoch may be at the forefront of this trend globally, but it's much more widespread than that. Rather than reading me wibbling on about it, please take a look at this excellent and wide-ranging analysis by John Lloyd, originally published in the FT, but here reproduced on Slate.
* I'm a know-it-all about music and travel as well.
Friday, 7 January 2011
The real sovereign debt crisis
For the last few months, bond markets have been spooked by sovereign debt woes in the peripheral countries of the Eurozone: first Greece, then Ireland, and perhaps soon Portugal and Spain. Even founder members of the EU such as Belgium and Italy have seen markets taking a more cautious approach to their debts, if credit default swap (CDS) rates are anything to go by.
This is all scary enough, but the elephant in the room, the really big kahuna, is....the United States. The US federal government, unusually or indeed uniquely, is always subject to a borrowing ceiling, which has to be approved by Congress. The current ceiling is USD 14.3 trillion, and with current borrowing heading towards $14 trillion, the Government expects to use up its remaining "headroom" of about $335 billion by the end of March. At which point, notionally, the US government starts to close down, and could even default. You can read the story on Reuters, and there's a good potted history of the debt ceiling on Slate.
We've been here before, in political circumstances similar to today's. In 1995 the Clinton administration needed to hike the debt ceiling, but Congress was in Republican hands, under the hard-line leadership of the irascible Newt Gingrich. Newt pushed the process all the way to the precipice, and a partial shutdown of the US government had begun before a deal was finally struck.
For the past several years the annual increase in the debt ceiling has been a non-event, because Congress agreed to tack it onto the annual budget bill. However, the new Republican majority in the House has quickly adopted procedural rules that make this impossible, so this year's increase will have to be specifically approved. The Republicans are determined to extract their pound of flesh in return, and have already begun to introduce proposals for spending cuts. The Obama administration is responding with proposed cuts of its own, including a huge slice out of the military budget, which of course the Republicans would prefer to leave untouched.
The new Republican House Speaker, John Boehner (he pronounces it Bayner -- well, you would, wouldn't you?) insists that his party has no wish to shut the government down, and other senior GOP congressmen agree. However, they have to be wary of the assorted right wing kooks and ideologues who have just arrived in Congress with the support of the Tea Party movement. Their willingness to compromise with the Obama administration on even the most trivial matter -- which this, assuredly, is not --must be seriously in doubt.
None of this would matter to the rest of us if Americans were just arguing about reneging on their IOUs to each other. But of course, the US is the world's biggest international debtor. If the debt ceiling isn't raised, Uncle Sam may be faced with stiffing the international creditors who have underwritten its standard of living for the past couple of decades. The consequences for international relations and for the global financial system can only be imagined, but to be sure, it would all make the problems in Ireland and Greece look like, well, a tea party.
This is all scary enough, but the elephant in the room, the really big kahuna, is....the United States. The US federal government, unusually or indeed uniquely, is always subject to a borrowing ceiling, which has to be approved by Congress. The current ceiling is USD 14.3 trillion, and with current borrowing heading towards $14 trillion, the Government expects to use up its remaining "headroom" of about $335 billion by the end of March. At which point, notionally, the US government starts to close down, and could even default. You can read the story on Reuters, and there's a good potted history of the debt ceiling on Slate.
We've been here before, in political circumstances similar to today's. In 1995 the Clinton administration needed to hike the debt ceiling, but Congress was in Republican hands, under the hard-line leadership of the irascible Newt Gingrich. Newt pushed the process all the way to the precipice, and a partial shutdown of the US government had begun before a deal was finally struck.
For the past several years the annual increase in the debt ceiling has been a non-event, because Congress agreed to tack it onto the annual budget bill. However, the new Republican majority in the House has quickly adopted procedural rules that make this impossible, so this year's increase will have to be specifically approved. The Republicans are determined to extract their pound of flesh in return, and have already begun to introduce proposals for spending cuts. The Obama administration is responding with proposed cuts of its own, including a huge slice out of the military budget, which of course the Republicans would prefer to leave untouched.
The new Republican House Speaker, John Boehner (he pronounces it Bayner -- well, you would, wouldn't you?) insists that his party has no wish to shut the government down, and other senior GOP congressmen agree. However, they have to be wary of the assorted right wing kooks and ideologues who have just arrived in Congress with the support of the Tea Party movement. Their willingness to compromise with the Obama administration on even the most trivial matter -- which this, assuredly, is not --must be seriously in doubt.
None of this would matter to the rest of us if Americans were just arguing about reneging on their IOUs to each other. But of course, the US is the world's biggest international debtor. If the debt ceiling isn't raised, Uncle Sam may be faced with stiffing the international creditors who have underwritten its standard of living for the past couple of decades. The consequences for international relations and for the global financial system can only be imagined, but to be sure, it would all make the problems in Ireland and Greece look like, well, a tea party.
Thursday, 6 January 2011
Red Ed's economic revisionism
Nobody has been more enthusiastic about rubbishing new Labour Party Leader Ed Miliband than the Murdoch media, so it's a bit of a surprise to find him gracing the op ed pages of today's Times with a column attacking the government's deficit reduction plans. I guess it's a welcome change from his day job of underwhelming the members of of his own party.
The story is behind The Times paywall, but here are a few choice extracts, with the usual carefully calibrated comments.
No surprise that Ed thinks the Government is cutting the deficit too quickly, but he's at pains to assure us that this is not just about politics:
"....no other developed country is taking such an extreme approach. That is why we say Mr Osborne is going too far and too fast on the deficit. This is not a political slogan, it is our economic judgment".
Well, let's look at it in those terms, then. Just what is this economic judgment based on? There's no mention of Keynes in Miliband's article, but he and many others have been keen enough to put on the great man's mantle in the recent past, so we can fairly assume that's his starting point.
Problem is, Labour's record in office doesn't really entitle Miliband to claim to offer a Keynesian alternative: at least, not one that would be recognizable to Keynes. Much of Labour's fiscal policy was founded on Gordon Brown's claim to have abolished boom and bust, which isn't Keynesianism or any other kind of -ism: it's just idiocy. Based on that belief, Brown and Alastair Darling enthusiastically ramped up spending throughout the first decade of the new millenium, which is a very non-Keynesian thing to do: fiscal policy should be counter-cyclical in good times as well as bad. In fact, the growth in spending was so robust that the Treasury had to keep moving the goalposts in order to maintain the illusion that Brown's self-imposed "golden rules" were being met.
Let's go back to Ed Miliband:
"...the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997".
This is only sort of true. The Treasury expended enormous energies during the Labour years in finding ways to keep public sector debt off the books. Accounting fictions at Network Rail, hugely expensive private finance initiative (PFI) schemes and underaccounting of the true cost of public sector pensions all played a role. It's close to impossible to come up with an accurate measure of public sector debt (for other countries as well as the UK), but ask yourself this: if the size and growth of the debt really wasn't a problem, why was the Treasury working so hard to cloud the truth?
One more quote from Ed:
"....the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason".
Wow, Ed, is that really a club you want to be a part of? Japan has had the ongoing fiscal deficits and ultra-easy monetary policy that you seem to favour for more than a decade, and all it's done is to rack up massive public debts without getting the economy out of its near-depression. As for the US, it's close to bankrupt at both the national and state level, and only manages to keep going because the dollar is still accepted internationally as a store of value. That's not an option for the UK, and it may not be one for the US for much longer: in the words of the great economic soothsayer Leonard Cohen, "there's a mighty judgment coming, but I may be wrong".
All of this leaves us in a bit of a quandary. The Con-Dem coalition may well be right for the long term: we should have the size and scope of public sector that we're willing to pay for. Yet Miliband is surely at least half right when he cautions in the Times article that "The big question is whether the Tory approach will leave us with low growth and squeezed living standards in the short term, as well as deeper economic problems in the long term". The problem with paying attention to Miliband is that there's little sign that he and his party have even acknowledged. much less learned from what went wrong when they were in office. We'll know soon enough whether Miliband is right about the short-term outlook, but for the long term, he seems to be just as delusional as his predecessors.
The story is behind The Times paywall, but here are a few choice extracts, with the usual carefully calibrated comments.
No surprise that Ed thinks the Government is cutting the deficit too quickly, but he's at pains to assure us that this is not just about politics:
"....no other developed country is taking such an extreme approach. That is why we say Mr Osborne is going too far and too fast on the deficit. This is not a political slogan, it is our economic judgment".
Well, let's look at it in those terms, then. Just what is this economic judgment based on? There's no mention of Keynes in Miliband's article, but he and many others have been keen enough to put on the great man's mantle in the recent past, so we can fairly assume that's his starting point.
Problem is, Labour's record in office doesn't really entitle Miliband to claim to offer a Keynesian alternative: at least, not one that would be recognizable to Keynes. Much of Labour's fiscal policy was founded on Gordon Brown's claim to have abolished boom and bust, which isn't Keynesianism or any other kind of -ism: it's just idiocy. Based on that belief, Brown and Alastair Darling enthusiastically ramped up spending throughout the first decade of the new millenium, which is a very non-Keynesian thing to do: fiscal policy should be counter-cyclical in good times as well as bad. In fact, the growth in spending was so robust that the Treasury had to keep moving the goalposts in order to maintain the illusion that Brown's self-imposed "golden rules" were being met.
Let's go back to Ed Miliband:
"...the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997".
This is only sort of true. The Treasury expended enormous energies during the Labour years in finding ways to keep public sector debt off the books. Accounting fictions at Network Rail, hugely expensive private finance initiative (PFI) schemes and underaccounting of the true cost of public sector pensions all played a role. It's close to impossible to come up with an accurate measure of public sector debt (for other countries as well as the UK), but ask yourself this: if the size and growth of the debt really wasn't a problem, why was the Treasury working so hard to cloud the truth?
One more quote from Ed:
"....the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason".
Wow, Ed, is that really a club you want to be a part of? Japan has had the ongoing fiscal deficits and ultra-easy monetary policy that you seem to favour for more than a decade, and all it's done is to rack up massive public debts without getting the economy out of its near-depression. As for the US, it's close to bankrupt at both the national and state level, and only manages to keep going because the dollar is still accepted internationally as a store of value. That's not an option for the UK, and it may not be one for the US for much longer: in the words of the great economic soothsayer Leonard Cohen, "there's a mighty judgment coming, but I may be wrong".
All of this leaves us in a bit of a quandary. The Con-Dem coalition may well be right for the long term: we should have the size and scope of public sector that we're willing to pay for. Yet Miliband is surely at least half right when he cautions in the Times article that "The big question is whether the Tory approach will leave us with low growth and squeezed living standards in the short term, as well as deeper economic problems in the long term". The problem with paying attention to Miliband is that there's little sign that he and his party have even acknowledged. much less learned from what went wrong when they were in office. We'll know soon enough whether Miliband is right about the short-term outlook, but for the long term, he seems to be just as delusional as his predecessors.
Wednesday, 5 January 2011
Happy New Year, Mr CEO
I loved this story from The Vancouver Sun:
Top CEOs will have earned average workers' full annual pay by 2:30 p.m. today
"Today" refers to January 3, when the Sun's story appeared, and these are Canadian CEOs we're talking about. Canada remains more egalitarian in its income distribution than the UK (or the US), though evidently that's not really saying very much any more. Even so, the CEO-to-average-worker comparison may not quite hold in the UK -- but only because most people here hadn't straggled back to work by January 3.
It's nothing to worry about, anyway. After all, we're all in it together, aren't we?
Update, January 6: By coincidence some related data for the UK were released this morning by IDS (Income Data Services). In the year to November, private sector wages rose 2.2%, while income for corporate directors edged up by a mere 55%. As I said, all in it together.
Top CEOs will have earned average workers' full annual pay by 2:30 p.m. today
"Today" refers to January 3, when the Sun's story appeared, and these are Canadian CEOs we're talking about. Canada remains more egalitarian in its income distribution than the UK (or the US), though evidently that's not really saying very much any more. Even so, the CEO-to-average-worker comparison may not quite hold in the UK -- but only because most people here hadn't straggled back to work by January 3.
It's nothing to worry about, anyway. After all, we're all in it together, aren't we?
Update, January 6: By coincidence some related data for the UK were released this morning by IDS (Income Data Services). In the year to November, private sector wages rose 2.2%, while income for corporate directors edged up by a mere 55%. As I said, all in it together.
Tuesday, 4 January 2011
Insurance fraud
Oh joy. Time to renew my car insurance for another year.
I'm a big believer in holding as little insurance as possible. Once you've paid off your mortgage, life insurance is a complete waste of money -- mathematically speaking, it can't be a good deal for the average buyer, because if it was the insurers would be unable to stay in business. The same goes double for the extended warranties that retailers try to force on you every time you make a purchase. The very fact that they seem almost keener to sell you the warranty than the underlying product has to tell you something, and that something is that it's a great deal for them, which means that it can't be a good deal for you. (I was once offered an extended warranty on a small electrical item that cost less than £10 to buy!)
Anyway, the car....I have been dealing for ten years or so with an agency that operates across the UK. They have already sent me two e-mails reminding me that my policy is due for renewal this month. But of course, they haven't actually shown me a quote yet. As usual, they'll do that as close as possible to the renewal date, in the hope that I won't have enough time or energy to check with other providers. I've also been pestered already by several other companies who have managed to find out when my insurance is due for renewal. Then there are the innumerable price comparison websites, one of which I will probably consult, despite the gruesome certainty that once I provide them my details, they'll be all over me like a cheap suit for the rest of my days.
There can't be any product that's sold more aggressively than insurance, yet to hear the companies tell it, they're all losing money hand over fist. It makes you wonder why they work so hard to attract your business, if it's going to cost them money. So is insurance more profitable than the companies are prepared to admit, or are insurance people stupid? I suspect the answer to both questions is "yes".
Update: within an hour of using a comparison site, I received FIVE e-mails trying to bounce me into a quick decision. No intrusive phone calls yet, but give it time...
I'm a big believer in holding as little insurance as possible. Once you've paid off your mortgage, life insurance is a complete waste of money -- mathematically speaking, it can't be a good deal for the average buyer, because if it was the insurers would be unable to stay in business. The same goes double for the extended warranties that retailers try to force on you every time you make a purchase. The very fact that they seem almost keener to sell you the warranty than the underlying product has to tell you something, and that something is that it's a great deal for them, which means that it can't be a good deal for you. (I was once offered an extended warranty on a small electrical item that cost less than £10 to buy!)
Anyway, the car....I have been dealing for ten years or so with an agency that operates across the UK. They have already sent me two e-mails reminding me that my policy is due for renewal this month. But of course, they haven't actually shown me a quote yet. As usual, they'll do that as close as possible to the renewal date, in the hope that I won't have enough time or energy to check with other providers. I've also been pestered already by several other companies who have managed to find out when my insurance is due for renewal. Then there are the innumerable price comparison websites, one of which I will probably consult, despite the gruesome certainty that once I provide them my details, they'll be all over me like a cheap suit for the rest of my days.
There can't be any product that's sold more aggressively than insurance, yet to hear the companies tell it, they're all losing money hand over fist. It makes you wonder why they work so hard to attract your business, if it's going to cost them money. So is insurance more profitable than the companies are prepared to admit, or are insurance people stupid? I suspect the answer to both questions is "yes".
Update: within an hour of using a comparison site, I received FIVE e-mails trying to bounce me into a quick decision. No intrusive phone calls yet, but give it time...
Sunday, 2 January 2011
God let down by Tony Blair
A few weeks back there was a public debate in Toronto about the role of religion in public life. Speaking on behalf of God was former UK Prime Minister Tony Blair; opposing him was the writer (and sadly, current cancer victim) Christopher Hitchens. The BBC News channel chose to show the debate, with virtually no advance billing, early in the evening of New Year's Day. Shame, because it was well worth watching.
The participants offered an interesting contrast. One was an important political thinker, a former leftist yet a supporter of the Iraq invasion of 2003, and the author this year of a well-received autobiography with a slightly naff title*. The other was Tony Blair.
A vote taken among the invited audience after the debate showed Hitchens as the clear winner. Watching the broadcast, it was impossible to disagree. Blair's argument in favour of religion basically boiled down to a repeated assertion that religious people do good things for other people. Since nobody could deny that atheists and agnostics also do good things, it was hard to see what this was supposed to prove. Even the behaviour of the two participants worked in Hitchens's favour. When Blair was speaking, Hitchens took copious notes in order to frame his rebuttals, whereas when Hitchens had the floor, Blair sat smirking and gurning in his usual style.
A better debater might well have scored more heavily at Hitchens's expense, because his bog-standard modern atheism prompts many questions. For example:
- If it's laughably primitive to believe in heaven because nobody has ever seen it, how come it's at the cutting edge of science to believe in billions of parallel universes, or in dark matter and dark energy, all of which are equally unseen?
- How did consciousness evolve?
- Given that nature is driven by the survival of the fittest, where do human moral attitudes come from?
You, good reader, no doubt have your own ideas about these things, as do I. The sad part of the Hitchens-Blair debate is that because of Blair's inept performance, such questions were never aired.
* "Hitch-22". Blair's doorstopper was called "A Journey".
The participants offered an interesting contrast. One was an important political thinker, a former leftist yet a supporter of the Iraq invasion of 2003, and the author this year of a well-received autobiography with a slightly naff title*. The other was Tony Blair.
A vote taken among the invited audience after the debate showed Hitchens as the clear winner. Watching the broadcast, it was impossible to disagree. Blair's argument in favour of religion basically boiled down to a repeated assertion that religious people do good things for other people. Since nobody could deny that atheists and agnostics also do good things, it was hard to see what this was supposed to prove. Even the behaviour of the two participants worked in Hitchens's favour. When Blair was speaking, Hitchens took copious notes in order to frame his rebuttals, whereas when Hitchens had the floor, Blair sat smirking and gurning in his usual style.
A better debater might well have scored more heavily at Hitchens's expense, because his bog-standard modern atheism prompts many questions. For example:
- If it's laughably primitive to believe in heaven because nobody has ever seen it, how come it's at the cutting edge of science to believe in billions of parallel universes, or in dark matter and dark energy, all of which are equally unseen?
- How did consciousness evolve?
- Given that nature is driven by the survival of the fittest, where do human moral attitudes come from?
You, good reader, no doubt have your own ideas about these things, as do I. The sad part of the Hitchens-Blair debate is that because of Blair's inept performance, such questions were never aired.
* "Hitch-22". Blair's doorstopper was called "A Journey".
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