Osborne to the rescue?

Britmouse, otherwise a very informed commenter, makes the mistake of saying Britain would need a new parliamentary act to switch to a nominal GDP level targeting regime. Not so.

Here is the relevant section of the 1998 Bank of England Act:

11 Objectives

In relation to monetary policy, the objectives of the Bank of England shall be –

(a) to maintain price stability, and
(b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.

12 Specifications of matters relevant to objectives

(1) The Treasury may by notice in writing to the Bank specify for the purposes of section 11 –

(a) what price stability is to be taken to consist of, or
(b) what the economic policy of Her Majesty’s Government is to be taken to be

The Treasury can, were George Osborne to be interested in re-election, switch to a nominal GDP targeting regime by only resorting to legislation which is already on the books. Defining the objective of the Bank of England as “to maintain price stability…including its objectives for growth and employment” is almost an exact layman’s description of NGDP level targeting.

If Britmouse means merely  that this decision would not be final, I agree, but no decision made by parliament is ever final. No Parliament may bind its successor. There is no way to forever adopt NGDP targeting, because no parliament can bind its successor. Mervyn King himself has written  (in a paper I will discuss when I get round it) that it doing so is likely impossible:

The core of the monetary policy problem is the uncertainty about future social decisions resulting from the impossibility and the undesirability of committing our successors to any given monetary policy strategy. The impossibility stems from the  observation that collective decisions cannot be enforced so that it is impossible to commit to future collective decisions. The undesirability reflects the fact that we cannot articulate all possible future states of the world.

There would be parliamentary fulminations were Osborne to announce an immediate change of policy, but a steep economic recovery would put pay to those. The British legal system is flexible, and by the time a legal challenge were mounted, if it ever were mounted, it would be easy to pass the Bill to formalise an already successful policy.

I don’t like Tory government, but I dislike this depression even more. The Tory have an almost foolproof re-election tool at their disposal, they should use it.

Filed under: Economics, Politics, Britmouse, NGDP, Osborne, Treasury

I must stop using such apocalyptic language, its not that ba…mother of God, what was that?

Via.

Filed under: Economics, Politics, Europocalypse, Hollande, Merkel

Couldn’t have happened to a nicer person

Welcome to Schadenfreude Tuesdays.

Rebekah Brooks and her husband, Charlie, are being charged with conspiracy to pervert the course of justice over the phone hacking inquiry…

She is charged – along with her husband, personal assistant Cheryl Carter, chauffeur Paul Edwards, security man Daryl Jorsling, and News International head of security Mr Hanna – with conspiring to “conceal material” from police between 6 and 19 July.

In a second charge, she and Ms Carter are accused of conspiring to remove seven boxes of material from the News International archive between 6 and 9 July.

And in a third charge, Mr and Mrs Brooks, Mr Hanna, Mr Edwards and Mr Jorsling are accused of conspiring to conceal documents, computers and other electronic equipment from police officers between 15 and 19 July.

Some semblance of justice at last. Apropos of nothing in particular, anyone else remember this?

The Evening Standard yesterday interviewed Chris Bryant about his tireless efforts to investigate phone-hacking. This, understandably, annoyed Rebekah Brooks (nee Wade). Here’s Bryant’s version of his last meeting with Rupert Murdoch’s favourite seemingly Teflon-coated, flame-haired executive:

“She came up to me and said, ‘Oh, Mr Bryant, it’s after dark — shouldn’t you be on Clapham Common?”

“At which point Ross Kemp [the ex-EastEnders actor and her then husband] said, ‘Shut up, you homophobic cow’.”

By the way, here is how the gracious Ms Brooks responded to today’s charges.

We have this morning been informed by the Office of the Department of Public Prosecutions that we are to be charged with perverting the course of justice.

We deplore this weak and unjust decision.

After the further unprecedented posturing of the CPS we will respond later today after our return from the police station.

All together now: Aw, diddums!

Filed under: Politics, Hackgate, Homophobia, Rebekah Brooks, Schadenfreude

The True Meaning of Francois Hollande: As Politics move in the right direction the Economy is about to fall of a cliff

Here is a great graph via David Beckworth showing Nominal GDP for the whole OECD.

Source: OECD Statistics

Looks like we are all still way below trend. The demand shock starting in 2007/8 has not been corrected and although total spending has recovered to above its precrisis levels that masks wide variation in rates of recovery. Canada’s doing great, Spain, not so much.

During the worst of the crisis the fundamentals of developing world helped to drag global growth back up. In fact the late 00s were good for large parts of the world. China, Brazil, many African countries all performed strongly through to 2012, despite a set back in 2008. In fact global GDP per capita has never been higher.

The bad news is that serious problems appear to be developing all around the world. The Eurozone is still in a permacrisis, industrial production is stagnant in India, China has been fighting deflationary pressures for some time and appears to be beginning to lose, Brazilian industrial production has turned negative. The US is facing huge budget cuts in the autumn which will be broadly contractionary through its economy.

The insane European Central Bank‘s policy rate is at 1%. That’s right, despite the Eurozone imploding the insane ECB is has steadfastly refused to ease policy despite even Germany heading towards recession. Other central banks around the world have all done good jobs avoiding anything as horrific as America’s Great Depression, but they all remain wary of using unconventional tools to expand demand.

In 1999, what Ben Bernanke argued was needed in times of great crisis is the willingness to be aggressive and experiment, to show Rooseveltian Resolve to get the economy moving again:

Needed: Rooseveltian Resolve

Franklin D. Roosevelt was elected President of the United States in 1932 with the mandate to get the country out of the Depression. In the end, the most effective actions he took were the same that Japan needs to take—-namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment—-in short, to do whatever was necessary to get the country moving again. Many of his policies did not work as intended, but in the end FDR deserves great credit for having the courage to abandon failed paradigms and to do what needed to be done.

This is the real meaning of Francois Hollande. He needs to say “non!” to more or less everything Merkel and the insane ECB put forward.  Hard money and austerity have been a disaster in a benign international environment, if demand for European and American exports dries up and deflationary pressures go global we will see a recession inside a depression scarily reminiscent of the 1930s. We need a Roosevelt.

Filed under: Economics, Foreign Affairs, Politics, Ben Benanke, Brazil, China, David Beckworth, FDR, India, the insane ECB

Hail France!

A chance, a small chance, France and the whole of Europe might not be screwed.

Filed under: Foreign Affairs, Politics, Hollande, Sarkozy

Gosh…

…missed my birthday: 27th April. So happy un-birthday to me. Today marks three years and five days of blogging.

 

Filed under: Politics

How to End this Depression!

Targeting the path of Nominal Gross Domestic Product (NGDP) is probably the most “fashionable” solution proposed for dragging the developed world’s economies out of depression. This post will refer to the UK, but lots more work has been done on the US from this perspective, particularly by Scott Sumner and David Beckworth. Britmouse has blogged about NGDP from a UK perspective.

Real GDP is a proxy for our incomes adjusted for inflation, how well off we are. Nominal GDP is the same but refers to our incomes in cash terms. This nominal measure deviating from trend has been what has driven the wild swings in employment and production the developed world has seen since 2007.

NGDP matters because wages and debt are sticky.

Wages: NGDP can decrease if all other prices decrease with it, the relative prices between them will not change and apart from updating some menus nothing will have really changed. But it is incredibly hard to cut wages, look at the clustering of wage changes around zero in the below graph (via Paul Krugman). This means a decrease in NGDP relative to wages will throw people out of work as employers become unwilling to employ them at the prevailing nominal wage.

Debt: We care about what real resources we can consume but all our contracts are written in nominal terms. If I owe someone £10,000 then at some point I have to hand over some bits of paper, or packages of electrons, to someone for that amount. But, if NGDP grows below trend the total nominal size of the economy will be smaller than expected when I took out the debt, but the size of my debt will not. The real cost of my debt will have increased and this will work to depress the economy because this dynamic will affect a number of people.

If NGDP sinks below trend there are then at least two mechanisms which can act to depress an economy. [1] Has it sunk below trend? Yes it has.

Is off trend NGDP growth associated with weak real GDP growth? Yes it is.

Are changes from trend NGDP correlated with changes in employment? Yes they are.

That might be a little difficult to make out for some. So I zoomed in and inverted the unemployment figures. Are they correlated? Yes, and closely.

Let me tell you a story with a different ending to the one you know. The year 2007 began with NGDP growing to trend, and employment decreasing against the backdrop of international inflationary pressures and financial distress. NGDP reversed course and began to decline during the second quarter of 2007 as did employment, crucially this was before the Lehmann Brother’s bankruptcy and the ohmygodwereallgoingtodie stage of the financial crisis. Unemployment had already increased by nearly 200,000 after NGDP began declining but before the financial crisis began in earnest.

This doesn’t exhonerate any bankers, they put the Bank and Treasury in this position after all. But it does imply different priority for actions. Occupy Threadneedle Street, my friends, not the London Stock Exchange.

Scott Sumner and Ben Bernanke

Looking at the third graph you can see NGDP decline, recovery and stagnation correlating closely with decline, (mild) recovery and stagnation in UK employment. The Bank of England controls the country’s printing presses and hence the nominal economy and responsibility for this depression lies with the Monetary Policy Committee for doing too little to avert it and with the Treasury for doing so little to force them to do more.

In the UK and US the last couple of decades have seen NGDP grow at about 5% a year, and this nominal growth has been split between price increases and economic growth. In 2008 NGDP collapsed and we saw deflation, disinflation, and recession. To date NGDP has not yet recovered to trend, in fact it remains over 10% below trend – and this is our main problem.

Increase NGDP and employment, incomes and taxes would increase, many intractable problems would vanish (though many would not). There are risks and there are methodological problems, but there huge gains for everyone if they right policy is adopted and I want to do my part to try and make sure the right policy is adopted.

____

[1] Data from here, I’ve used basic prices to strip out the effect of VAT jumping up and down

Filed under: Economics, Foreign Affairs, History, Politics, Society, Adam Posen, Britmouse, Market Monetarism, Mervyn King, NGDPLT, Scott Sumner, Unemploy, Unemployment

Erm, not how it works

Rupert Murdoch “is not a fit person to exercise the stewardship of a major international company”, MPs have said.

Sorry, Rupert makes lots of money, Rupert seems very fit to run a major international company, that’s the system’s we’ve got.

Filed under: Politics

Stiff upper lip chaps!

It could be worse, couldn’t it?

Oh, no sorry, my bad. In fact, the beatings will continue until morale improves.

Filed under: Economics, Politics, Austerity, Cameron, Idiots, Osborne

Sortition

Replace the House of Lords with a massive jury with a universal ballot (with an opt out) for all people on the electoral role.

People, at random, telling politicians they are talking crap. Sign me up.

Filed under: Politics

In Defence of Secular Morality

I posit that if a person is offered a credible chance of either eternal joy or eternal torment and they choose to act in a way which they think guarantees eternal joy they have not acted morally.

That statement is in danger of begging the question, that morality is in part defined by making a sacrifice. But I think the idea that morality incurs a cost is inherent to it. Otherwise a moral code wouldn’t be required.

This, for me, places my rather self indulgent, but basically decent, behaviour on a higher plateau morally than do gooding religionists. Many of them probably make the word a better place in terms of utility, think Sally Army Soup Kitchens, than I do, but these may be swamped by those for whom religion commands them to be cruel.

Even if you ignore utility my good behaviour is more moral than that of the saintly, because they have rewards in huge excess of their behaviour. The only reward for I receive for my behaviour to me is the behaviour itself.

As a irreligious hedonist, an argument for secular morality is important to me. I feel that doing something should be determined by whether doing that something is morally right. That seems a fairly uniquely human worry, but I have to admit that I’ve never seen any advantage in theist answers to this question. Leave aside the dodgy provenance of the Torah, Bible, Koran etc. [1], I think theistic moralisers have a deeper problem.

Karl and others have been discussing secular morality, with Ross Douthat denying it can make any strong moral claims at all and Karl himself saying…

…a coherent secular morality is a tricky problem in and of itself. One that makes absolute claims even more so, and one that makes absolute claims absolutely seems well beyond our grasp. And, I say this as a secularist who is very much concerned with ethics or what, to make the point, I have often been forced to call the-ethics-game…

Intending no disrespect to the underlying issue, the argument seems to devolve into “na-na na-na boo-boo.” Which is to say, simply refusing to accept the denial as valid.

Karl doubles down in a later post saying that Daniel Keuhn pro-pluralist defence of secular morality isn’t anything more than a weak affirmation that “some things are just wrong.” Saying “some things are just wrong” does not pass muster logically.

My primary defence of secular morality would be that only a non-theist morality can really counts as morality at all. Theist morality  is just cost/benefit analysis with better PR.

____

[1] Abrahamicentrism alert. Sue me, I’ve not much knowledge of eastern [2] religions other than they are mental, at least as mental as our own.

[2] Eurocentricism too.

Filed under: Politics

Don’t let idiots run things

Is the Argentine government good at running things? Not really. Then it is probably a bad for them to run things.

Filed under: History, Politics, Argentina, Baring Bank, Corralito, YPF

Who’s responsible? You fucking are!

I see the press are doing their best to make mass murder look like an even better way of getting publicity than a contract with Saatchi and Saatchi.

Filed under: Politics, Society, The Media

The Tories at least used to be competent

Why couldn’t it have been this lot to have taken on the miners? Scargill would have eaten them for breakfast. Mind you, the Argies would have as well.

Theresa May, the Home Secretary, ordered the rearrest and deportation of the extremist cleric on Tuesday morning, believing a time limit in which his lawyers could appeal against his removal had elapsed.

But yesterday, to the surprise of the Government, officials at the European Court of Human Rights said the deadline was 24 hours later and that it had received an appeal application from Mr Qatada’s legal team with an hour to spare.

As the situation descended into chaos on the eve of a government-hosted conference in Brighton to reform European human rights laws, the Home Office was accused by Labour of potentially acting illegally by starting the deportation process apparently before the deadline had passed.

Filed under: History, Politics, Idiots, Theresa May, Tories

Good news

A former Libyan dissident who was abducted and flown to one of Muammar Gaddafi’s prisons in a so-called rendition operation mounted with the help of MI6 has started legal proceedings against Jack Straw, who was British foreign secretary at the time.

Finally!

Filed under: Politics, Foreign Affairs, Justice, Rendition, Jack Straw

You can be a well cultured despot you know

Noah and Scott‘s argument about China’s culture is going nowhere. They’ve got bogged down talking about whether culture affects economic potential or not. Long story short, of course it does! Consider these two examples:

Chinese expats around south-east Asia seem more entrepreneurial and they sure as hell are richer than the locals in places like the Malay Peninsula and Thailand. Less fortunately, Black Africans are less trusting than other people and this is just one reason economic growth is more difficult there. Without being able to trust that someone will take your money, disappear into another room and come back with what you want there can be no Argos. And where would you be without Argos? A lot poorer. [1]

The reasons for these cultural traits are complex. I don’t know the Chinese, but Africa’s level of trust appears to still be badly effected by the long defunct institution of slavery; kidnapping was very common for 200 years or so in a way which the rest of the world hasn’t had to deal with. You can be culturally more entrepreneurial. Likewise, you can culturally more or less prone to trust strangers. Both of these have real effects for lots of things, including economics. There, cleared that one up for you.

But whether culture affects wealth given a certain set of economic institutions is irrelevant. What is important is whether culture can influence China’s institutions. China is still deep in the throws of catch up growth, entrepreneurship is of course very important, but not nearly as important as having institutions which allow for the full execution of whatever entrepreneurship occurs. As I said earlier:

No amount of “pragmatism” will make a self-interested elite step aside, the pragmatic thing to do is to expropriate assets and imprison your enemies: to shut down economic activity you’re not involved and to erect barricade between the population and your clients…

Until now, Chinese elites have not been threatened by creative destruction they have been able to harness it to embellish their own power, wealth and status. The true test of Chinese growth will come when China’s central planning runs out of steam and urban elites and rural poor separate from the CCP begin to erode its power, then we will see whether elites will be forced to do what is right.

The only way China’s culture will significantly influence its long run - at least until it reaches say half of rich world income per capita) – growth prospects is by influencing its institutions. An entrepreneurial culture, or pragmatic culture, is completely unrelated to whether China adopts a growth friendly political framework over the next five to ten years. What matters is whether the politically powerful can be convinced/forced to become economic losers. Look at those guys at the top. Do you think they’re culturally inclined to agree to that?

____

[1] Not sure if that translates to my non-British readers. Argos is a shop with a tiny shop front full of catalogues and a big warehouse full of stuff. You order at the front and stuff appears a few minutes later from the back. The flippancy of my reference is of course a little ruined by this extensive footnote.

Filed under: Economics, Foreign Affairs, History, Politics, China, Elites, Entrepreneurship, Noah Smith, Scott Sumner, Why Nations Fail

Anti-Politics

If your goal is to accumulate a fan base and fire them up, then of course calling intellectual fouls on the other side is the way to go. However, I claim that if your goal is to contribute to a discussion in which fair-minded people will consider changing their minds, then calling the other side’s intellectual fouls does not get you very far.

I have to say I detest this particular view of politics. I’d like it to be true but it isn’t. At best it might be true of how you maintain and reproduce the status quo.

Politics is basically about violence, the Glorious Revolution might have been mostly bloodless, but it wasn’t successful because the Stuarts were convinced to leave. The Stuarts left because they were forced to.

So, if your hobby is changing people’s minds then you may want to adopt a gentler tone than Paul Krugman and that would be fine, as a hobby. If you care about politics then you have to act to rally people to your side or shift the overton window. Measured reasonableness doesn’t work, its just a recipe for impotence and objectively a position in favour of the status quo.

Filed under: Politics

Why complicate things further?

A heuristic is something that makes a complicated thing easier to understand – they usually involve simplifying things so that complicated things become easier to understand. But sometimes I think people mistake for a heuristic something which in facts makes things more complicated.

Chris’s adoption Marglin and Bhaduri terminology of ”stagnationist” and “exhilarationist” for describing post-war economic institutions looks like a heuristic but really makes things more complicated. The theory goes that up until the 1970s capitalists gained from statist interference and support for the working class as the economy would have otherwise stagnated. This flipped in the 1980s as capitalists needed a more easily exploitable working class and they used the state to weaken the bargaining power of the working class.

I have two critiques.

One is that the post war world was one with incredible investment opportunities, lots of easily monetizable technological progression with a great deal of catch-up growth possible too: the UK never caught up with the US in terms of living standards. US standards of living and rates of investment were clearly seen as sustainable from this side of the pond so why state support would be necessary is unclear.

To make my second point, I have negotiated the thicket of the ONS. The vast, vast majority of economic activity is so utterly mundane that it seems bizarre to suggest that it is possible for the economy to be “stagnationist” or “exhilarationist.” Most sectors just plug along, so any ”stagnationist” or “exhilarationist” impulses would be driven by very small sectors of the economy.

The top seven or so categories of production in the national accounts are: Total government, health and education; Total distribution, transport, hotels and restaurants; Total production; Total professional and support; Wholesale, retail, repair of motor vehicles and m/cycles; Total manufacturing; Real estate; Financial and insurance; Total human health and social work activities.

That is some mundane shit and I’m not sure that the heuristics mentioned above are useful in describing an economy so boring.

Filed under: Economics, Politics, Exhilirationist, Heuristics, ONS, Stagnationist

Actually, Tim owes John Christensen an apology

Thinking about this last post a little bit more, the more and more I think Tim is very, very wrong.

The problem with developing countries finding resources is that it becomes very easy for whoever controls the resources, usually the only thing in the country capable of beign exchanged for foreign currency, can control the country and set the rules of the game in their favour. This is usually very bad for economic growth.

That doesn’t sound too dissimilar to the position Finance has found itself in since the 1980s in the UK and US. Finance is immensely profitable and those that control financial firms seem capable of controlling the institutions of the countries in which they operate setting rules – with regard to barriers to entry, bailouts, taxation – in ways which suit incumbent rich people.

The Finance Curse doesn’t operate to anything like the degree the Resource Curse operates in poorly run, poor countries. Perhaps Finance handicap is better.

Filed under: Politics

Anecdotal evidence of climate change in Wine

As discussed at Lawyers, Guns and Money there’s lots of negative anecdotal evidence of the climate changing. However you don’t here much about the good news about climate change. So here are a few pieces of good news (and one bad) from what I know about: wine.

• Since 2000 Bordeaux has seen four famously awesome vintages; 2000, 2005, 2009, 2010. Both 2003 and 2011 were very, very warm in places.
• Traditionally Germany would have two good vintages a decade. They’d produce some of the best wines ever, but only rarely. They have had several such vintages in the last decade or so, and significantly fewer poor ones.
• Australia has fallen from the top wine exporter to the UK, after briefly overtaking France, because it keeps getting either baking hot droughts or torrential, tropical floods in key wine producing areas.

When you work in an industry where profitability is tightly coupled with the weather, then you notice something like climate change.

Personally, my two favourite wine producing regions are Bordeaux and Germany so there is a major, probably overwhelming, upside to mild to modest degrees climate change (about 80% of likely scenarios). However, I still find climate change worrying and we should definitely take steps to stop it.

If we don’t then I can highly recommend 2009 in both Bordeaux and Mosel or Pfalz for drinking now and for their ageing potential – and 2010, 2011, 2012, 2013…..

Filed under: Politics