HIV up 200%, Malaria flaring up in Greece

Greece is borked, but because of the incompetence or malice of those at the ECB it is significantly more borked than it needs to be. It such a bad state are Greece’s finances because the ECB has sat idly by as it languishes in depression that they’ve cut major public health programmes leading to…

“Greece is an example of perhaps the worst case of austerity leading to public health disasters,” Mr. Stuckler explained in a telephone interview.

“After mosquito spraying programs were cut, we’ve seen a return of malaria, which the country has kept under control for the past four decades. New HIV infections have jumped more than 200 percent,” he noted.

Via. This is just an addendum to yesterday’s post trying to personalise it a little.

Filed under: Economics, Foreign Affairs, Politics, Society

"To Understand Inflation We Must Understand Money"

Reblogged from uneconomical:

Christina Romer's paper links to this brilliant "infomercial" video from the US in 1933, which explains the power of monetary policy - which, by the way, is all about expectations:

Absolutely wonderful!

Filed under: Politics

How to guarantee your shiny new nuclear power plant is over budget

September 2012 – EPR reactor construction site – Flamanville, France © EDF, Morin Alexis

First of all, nuclear power is a safe and clean energy source. However, building nuclear power stations is really, really hard and they are often delivered over budget and behind schedule. You’d think, since we’re on the verge of building a new one at Hinkley Point, we’d be doing everything we can to make sure it’s done right. Right? Wrong. To incentivise its construction the government and EDF are doing everything they can to destroy any incentive of building to time and budget.

To understand energy investment in the UK today you need to understand the government’s energy market reform. Trust me I’ll keep it short and use bright colours.

The government doesn’t want to, and legally cannot, willy-nilly subsidise energy investment in the UK. One because they’re Tories and they don’t want any spending on balance sheet because they’ve fetishised the UK’s debt and two because EU state aid rules mean they’re just not allowed to subsidise private energy producers. In the next few years lots and lots of power stations are going to be retired because they’re old and nobody wants to replace them without a subsidy. We are at an impasse that leads to an energy crisis. Can an impasse lead somewhere? Yes. Shut up.

The solution is an elaborate system of contacts, payments, counterparties, bargaining, auctions and horseplay that we know as Electricity Market Reform. The system is really simple. You sign a contract agreeing to produce electricity and the government guarantees you for a set number of years a certain price per Megawatt hour. If the market price is below that contracted price consumers receive a surcharge on their bill, if the market price is above it they get a bonus. How often do you get the bonus? Shut up.

Eventually the contracts will be auctioned which should mean that payments to consumers occur roughly as much as payments from them. But to begin with the contracts will be negotiated. Because we’re in such a poor state generation wise we’re getting blackmailed by the French.

Taken from here.

EDF want to build a nuclear power station using a reactor developed by Areva called the EPR. In order to build it is reported that EDF are to receive £93-96 per Megawatt hour. This is more than double the current market price of electricity. To justify the investment EDF claim to need an ex-ante internal return of around 10%. Their problem isn’t that a nuclear power plant is an unproductive investment, they produce a phenomenal amount of electricity. It’s the construction.

Olkiluoto, the first EPR to be built will be 200% over budget and six years late when complete. Flamanville, the second EPR will be about 150% over budget and 4 years late. Linear projects are a fool’s game, but fuck it, at this rate Hinkley Point C will be two years late and double the cost expected. Since the UK is desperate for new, low-carbon generation EDF know they have us over a barrel and a likely cost overrun on their hands. Hence why we’ll be paying them double the market price for electricity.

It doesn’t end there though. If you thought the incentives were bad enough as I’ve describe, it gets worse. To prevent massive windfall profits the government are going to insert a clause into the agreement which will allow for excess profits to be clawed back. Mull that one over.

If EDF build over budget they’ll make a modest profit because they’ve been guaranteed a high energy price.

If EDF build to budget they’ll make a modest profit because government will confiscate the payments consumers pay to EDF because they’ve been guaranteed a high energy price.

As well as being an arsebackwards roundabout way of getting you and me to subsidise the building of power stations it completely eviscerates any financial incentive for EDF to run the project to budget and to schedule. I’ve a soft spot for giant infrastructure projects, complicated engineering and carbon free electricity, but we are running this project like we want it to fail and to cost everyone a lot of money to get there.

Filed under: Economics, Politics, The Media, EDF, EMR, Energy Bill, Flamanville, Hinkley Point, Olkiluoto, the French

Greece & Germany: Things tend to get worse before they get more worse

The young man stood up.
“Mrs. Bylaxis came in this morning,” he said. “She said the proverb you did for her last week has stopped working.”
Didactylos scratched his head.
“Which one was that?” he said.
“You gave her `It’s always darkest before dawn.’ “
“Nothing wrong with that. Damn good philosophy.”
“She said she didn’t feel any better. Anyway, she said she’d stayed up all night because of her bad leg and it was actually quite light just before dawn, so it wasn’t true. And her leg still dropped off. So I gave her part exchange on `Still, it does you good to laugh.’ “

Terry Pratchett – Small Gods

Noah points out that there’s an oft overlooked argument in favour of austerity. It’s a stupid argument, but that doesn’t mean we shouldn’t take it seriously. The argument runs that stimulus will work but that is bad because it will delay “necessary” reform. This idea has a long heritage and it’s always been a good idea to mock it. I’ll try to provide some constructive examples against it.

First of all, let me say, I am a dedicated can kicker. Karl Smith is right, do you realise that everyone you know someday will die? The future is uncertain so simply making a bad thing happen later is valuable because we might not be here. Problems also sometimes solve themselves and erstwhile solutions become problems. Pretending to have the foresight necessary to say “you now must suffer now so that they then do not” is insulting.

I also think the idea is bad on its own terms. Crap policy begets crap policy for a number of reasons. Most mundanely I’d posit there a correlation between following good short-term and good long-term policy. If a government is adopting crippling austerity now, it is more likely not less that they’ll be adopting bad long term policies.

Most of all I think this “butter tomorrow, sawdust today” policy has been tried before and sown disaster. Here are a few examples:

• Hayek thought the depression would force down wages by brute force and trigger the end of unionised workers. He thus resisted efforts to end it. The result? Starvation! Smoot-Hawley! Nazis! Bet he felt pretty silly about that one.
• He’s in good company. Lenin in the 1900s argued that mitigation of the worker’s condition would delay the inevitable revolution and that nothing should be done to mitigate it. He actually got that one right. This time it was the Tsarist industrialists who must have felt silly (as much as dead people feel silly).
• The little depression seriously derailed efforts to tackle climate change. Short-term suffering crowds out the long-term thinking needed to make policy effectively. Extending austerity makes it harder to talk about long-term sensible sacrifices because you’ve less to sacrifice.
• As Ben Friedman argues “History suggests that, in the past, a rising standard of living has promoted tolerance for others, commitment to economic opportunity, and democracy. But stagnating incomes due to inequality can lead to the opposite outcomes.” Suffering makes people worse human beings and worse human beings make worse long-term policy.

To underline my point: the worst case scenario is Nazis. It is such a bad idea you can legitimately say “no because Nazi.” I can think of at least one apposite positive counterexamples too, also from Germany.

• Via Scott, the German labour market reforms of the mid-2000s took place against the more benign global and domestic macroeconomic circumstances imaginable, the great moderation was in full flow. The reforms were so successful that German unemployment continued to sink  lower even as Europe was mired in depression.

Coincidentally, just as Noah laid out the argument hypothetically, Steven Pearlstein comes along and positively endorses it. Only austerity and suffering can save Greece apparently. By embracing  short term suffering interest-groups can be defeated and illogical and burdensome regulations can be removed. Only brave short-term sacrifice can engender long term growth.

So how is Steven’s strategy paying off? Yep, same as last time, fucking Nazis again:

Via Greek Left Review

First of all a defense. Greece is one of the few countries which spent the late 20th century moving from a middle-income to a high-income country. A round of applause please before you lecture them. Their politics and economy are dysfunctional and that will make them poorer, but it doesn’t need them to be in a depression. Being poor is bad, but being unemployed is evil.

Of course if unemployment is an evil, using unemployment as a punishment for being poorer than optimal is really evil. If the Greek economy is dysfunctional they should have higher inflation and lower real incomes, what they shouldn’t have to suffer is a manufactured unemployment crisis. It’s not just stupid and evil it’s perverse.

It is a bad idea that policy should be actively destructive in the short-term to act as a bargaining tool or cudgel to implement a certain pet policy. Suffering is bad, it makes us worse people and worse people make worse policy. If your leg does fall off, laughing probably isn’t the worst thing you could do, you could listen to these bozos.

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Edit: Matt Yglesias makes similar arguments, positively citing Mario Monti’s reforms which were scuppered because they didn’t stop Italy being in a depression.

Filed under: Politics, darkest before dawn, karl smith, necessary reform, small gods, terry pratchett

Is it time to nationalise the railways?

You can tell that the one state-owned train operator was never meant to be permanent by the goddamned awful name they gave it. They were probably right, directly operating railways isn’t a recipe for success, more competition is, as I’ll show below.

For this post I’ll refer to them as DOR. Directly Operated Railways seemed to catch the left’s imagination last month. A profitable, popular state-owned railway was going to be privatised! [1] Labour’s Maria Eagle attempted to seize the zeitgeist:

With the Government’s rail franchising programme in chaos, it is a bizarre and dogmatic decision to prioritise the privatisation of a service that is actually on track. Since running services on a not for private profit basis, the East Coast operator has returned £640million to the taxpayer and invested more than £40million in improvements to the service, achieving some of the best results for passengers since records began.

The company only exists because in 2009 National Express defaulted on the line in the face of recession and hubris induced gigantic losses. Are there convincing arguments for keeping DOR running the East Coast Mainline? Ed Miliband thinks so and has argued it should be kept in public ownership as a benchmark for private operators. I’m not convinced. Lets look at the arguments.

Maybe railways will just be better run by the state because at a state-owned rail company employees  are motivated by “knightly motives“, as Julian le Grand describes. I doubt this for two reason. Firstly, these were people recruited from the rest of the rail sector to run a franchise. They don’t have a public sector “mission” like in the NHS, nobody does overtime etc. to set a benchmark. Secondly, I’ve met the people who run train companies, and they love running trains. They’re like children with toy sets. It’s sweet really. The problem isn’t passion for the industry, its service and profitability.

Perhaps DOR are run differently and more efficiently to other train companies? Nope. That’s not true. Nor is it really possible. Whereas, for example, Stagecoach have a couple of buses companies and rail franchises to run, gain experience, share best practice and variously enjoy economies of scale and scope DOR have one franchise and, of course, aren’t in a position to innovate if they’re meant to act as a benchmark.

So how can we make our minds up?

Luckily we have a comparator. There is also a West Coast Mainline run by a private sector company. They’re both much better than they used to be, that’s clear. You could probably argue that the East Coast Mainline offers as good a service at a lower cost, but you’d be relying as much on faith as on evidence. The data here is on overall service satisfaction and is taken from Passenger Focus’s National Passenger Survey and it illustrates gradual but real improvements in service on both.

The data I could find only went back to 2008 which isn’t far enough for my liking, but that’s what I’m working with. You can’t spot the National Express’s default in mid-2009 or the takeover by DOR. That is probably because National Express East Coast had been in trouble for some time and DOR had a mess on their hands to begin with and the data doesn’t go back to 2006 as I’d prefer.

What you can see is an accelerating improvement in service on the East Coast from mid-2011 onwards. Some people have argued that this is because it is a state-owned railway and therefore better. I’ve two words for you people: “British Rail.” That’s not good enough an explanation.

A good argument runs like this: DOR aren’t improving in a cost-effective because they’re state-owned, it’s because they face direct competition from better operators: First Hull Trains and Grand Central. Those two firms are Open Access Operators and run services in between those scheduled by DOR and they have always been better but smaller than the East Coast operator.

You could counterargue “well why is Virgin Trains so good.” But you’d only be falling into my trap.  During quality spurt visible 2008-2010 they were facing competition from an Open Access Operator call Wrexham and Shropshire. In 2011 the company, stymied by regulation which favoured its larger regulators, folded and improvements in Virgin’s services somewhat plateaued.

What we learn looking at the East Coast and West Coast Mainlines is that improvements in rail service are not correlated with state ownership. If you look at Passenger Focus’s surveys, service has improved across the board (as have prices, but that’s another story), but service quality has really accelerated where competition was most intense.

So, should I answer my linkbait title? No, we shouldn’t nationalise the railways, what they need is the opposite: less direct state involvement, more private train operators and more competition. Rail is almost a natural monopoly but not quite. As I’ve shown competition is possible and where it can work it works really, really well. It should be encouraged.

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[1] Actually, we’ve had profitable, popular state-owned railways in this country for a while, they’re just French, German and Dutch state-owned railways: Keolis, Arriva and Abellio.

Full disclosure: I occasionally help organise events in the rail sector.

Filed under: Economics, History, Politics

Q: How do we save Afghan interpreters? A: Nigel Farage

Afghan interpreters and their families who risked their lives working with British forces are now in danger of being denied asylum and being killed by the Taliban. The coalition are processing them on a case-by-case basis greatly increasing the chance that many will be killed before they can make it to safety.

Liberal Conspiracy, The Times, The Guardian, Paddy Ashdown and Avaaz are protesting this but I’m not sure that will work. So, I would like to make a submission to the bloggers’ logically coherent, counterintuitive, and never going to happen, policy institute.

Get Nigel Farage to help them.

The general arguments in favour of helping the Afghan interpreters runs like this:

• Moral argument: they helped us, because of that their lives are in danger because of Taliban, therefore we should help them.
• Noble argument: they helped us because we’re better than the Taliban, so we should help them to prove it.
• Practical argument: they helped us and if we want others to help us in a similar way we should help them in an organised way.

The counterargument officially runs “it is better to deal with these things on a case-by-case basis,” but the real counterarguments runs  ”the coalition have set themselves an arbitrary limit on immigration so we can’t let in lots of Afghan interpreters.”

The government is making everyone in the country poorer by stopping students coming here to study. If the cash cow that are Chinese students aren’t safe then what chance do poor Afghan’s have? Especially when the Tories are running from their UKIP/idiot-right faction. 

While I recommend you sign the Avaaz petition, I’m not sure protests from the usual suspects will work. The problem isn’t that our arguments are weak or that theirs are strong. Quite the opposite. Its that Afghan interpreters aren’t currently on the public radar and immigration is a toxic topic. So what hopes have we got? 

Joanna Lumley helped the Gurkhas for altruistic reasons, but we can’t always rely on altruism. We need to find someone cynical enough to use refugees for political gain, bulletproof on immigration, and who needs to prove they’re not a racist. What we need is Nigel Farage saying “we need to save these heroes”.

It makes sense. It will help detoxify their brand in a completely nationalist way. It’s pro-armed forces, it lauds the UK’s superiority over the Taliban and it involves a relatively small number of migrants. It’s safe for Nigel and its wise for Nigel.

With the disproportionate press coverage UKIP are currently receiving, this would put the issue into the public domain while also removing the political penalty the Tories fear from arranging a settlement for the translators.

Tim, any chance of you passing this on to UKIP’s strategy guys? Never going to happen. But its an idea.

Filed under: Foreign Affairs, Migration, Politics

How to get Bangladeshi workers first world safety standards

Move them to the first world. There’s your one sentence answer, but if brevity’s not your thing stick with me.

Obviously, calling for workers globally to have the same safety standards, and yesterday, isn’t a serious proposal. I’d put the “globally unified workplace health and safety” in the same category as “open borders” something that isn’t going to happen, but something useful to endorse and promote because it moves the overton window.

But you rarely find people advocating open borders as a solution to the world’s problems. You even get general good eggs like Martin Wolf arguing the concerns of foreigners should be afforded zero weight when deciding policy at the national level. This is despite the fact that open borders solves most of the world’s problems.

First of all, Bangladesh. Last month’s factory collapse is a tragedy, an ongoing tragedy. While you’ve forgotten about it and moved on with  ECB rate cuts or whatever families are still seeing their relatives’ bodies being pulled from the wreckage, last hopes of survivors being rescued evaporating.

Why would workers put up with such awful conditions? This isn’t, as Matt and Tim argue, that this is their choice and a rational decision, that a life is worth less here than there. The reasons workers suffer under such conditions is because they don’t have another choice. But a set of choices isn’t neutral or natural, it is created.

What creates those conditions? Well at one level grinding rural poverty creates those conditions. As Matt Yglesias points out in a better post, Bangladesh now is poorer than the US was at a comparative level of development. In the US American workers could escape to the (stolen) countryside and set up their own homestead. This practice and the threat of leaving has meant that the US has pretty much always been a high wage country.

This “exit” option is denied to Bangladeshis now. Not because their rural population is high and productivity is poor, as Yglesias implies. Who wants to move to the Bangladeshi countryside other than douchebags on their gap yah? Bangladeshi wages, living conditions, safety standards are held down by immigration controls.

In the 18th and 19th century the threat of exit boosted American workers’ wages whether they left or not. The same is true today. In Lithuania the wages of those left behind by emigrants rose in response as (specifically single male) workers became more likely to leave. Contrary to popular opinion, a world of open borders gives the workers bargaining power. The threat of exit is important and works. Hundreds of years of history proves it.

I said earlier “move them to the first world”, but that’s too simple. I meant “let some of them move to the first world and they’ll do fine, but the conditions of those left behind will also improve because their threats finally become credible.” Those textiles workers  weren’t slaves, but they weren’t free either. Free people don’t make the choice they had to, to go to work that day.

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Photo by Photo taken by Sharat Chowdhury. Used under terms and conditions of creative commons license.

Filed under: Blogging, Foreign Affairs, Migration, Politics, Bangladesh, Rana Plaza, Textiles

A post about anything other than Thatcher 2: Nuclear power saves lives

It is annoying that one of the things that everyone knows is that nuclear power is unsafe. This it simply isn’t true!

Here’s a graph from a new paper by James Hansen outlining how many lives nuclear power saves in the average year. In total nuclear power is estimated to have saved over 1.8 million lives relative to fossil fuel generation of the same Terrawattage.

How does that work? I’m so glad you asked.

There are two ideas it is important you keep in mind when thinking about this. All power generation is going to kill someone. All everything is going to kill something. Every action we take has consequences and some of those consequences involve people dying because that is what everyone does eventually anyway.

The second idea is substitution. If we do one thing we will do less of another, especially when those activities are similar. My advocacy for drug legalisation is in large part informed by my upbringing in provincial towns where alcohol fuelled violence is ubiquitous. Nobody ever got beaten up by someone on MDMA or marijuana, substitution from booze to drugs would make the world safer. But I digress.

Although nuclear has well publicised (and well exaggerated) risks so do all generating technologies, as illustrated by the below graph.

Lets look at a few examples. Coal generation is dirty. Burning it pollutes the air, not just global warming but soot and smoke clog the air and slowly choke people. Digging it up is also dangerous.

A different story can be told about wind power. Its generation is clean, but you have to use a lot of steel and other metals in the construction and because each turbine uses a lot of material relative to the amount of energy produced it contributes to more deaths than you’d expect.

Nuclear on the other hand is fastidious in its safety. Chernobyl, the worst nuclear disaster by far, according to the IAEA, the UN’s nuclear arm, probably caused about 4,000 deaths. The Fukushima nuclear disaster, as opposed to the Fukushima Earthquake and Tsunami has so far killed precisely no one.

Lastly, look at Hydro. Looks pretty safe. But the largest catastrophes are not nuclear ones. The Banqiao Dam collapse in China and killed about 26,000 straight away and about 145,000 more later through famine and general devastation.

Without nuclear people would be using something else to generate their electricity. Much of Europe and the Eastern US would look like Poland and burn loads of coal. The mining and pollution of that coal would kill far more people that nuclear ever has thousands of times over.

So when it is reported that building nuclear power plants is expensive please bear this in mind. They are remarkably safe when you think about it. In fact, if people are serious about tackling climate change we’d probably (subject to a carbon tax’s implementation) see a lot more nuclear generation being built.

DISCLAIMER: as pointed out by Luis Enrique, I should have been clearer that I occasionally help produce events aimed at the nuclear sector. So don’t trust anything I say obviously.

Filed under: Economics, Politics

Quick, a post about anything other than Thatcher: Ecuador’s performance is even more impressive that you realise

No preprepared obituary for her Toryness here, no siree, instead something completely irrelevant (or timelessly more relevant) about Ecuador.

So, first things first, I’ve always had a soft spot for Rafael Correa.

Firstly, because he also went to LSE, secondly for actually going ahead and repudiating the odious debt built up by past kleptocracies, thirdly for running a relatively effective industrial policy and finally for this truly brilliant, hollywoodesque sequence during an attempted coup:

President Correa went to the police barracks in Quito where he arrived at 11:00 A.M. (GMT+5); after being ill-received — an honor guard was not assembled — he first tried to have a dialogue with the police and criticized their actions as treason to “the people and the country”, but after hearing hostile police chant “Lucio presidente, Lucio presidente” he screamed “‘If you want to kill the president, here he is. Kill me, if you want to. Kill me if you are brave enough!”

So when I see someone ripping on Ecuador and Rafa, I get a little peeved, especially when the criticism is so bizarrely weak. Timmy highlights this paragraph from a glowing guardian write-up of Ecuador.

By rejecting the neoliberal recipes of privatisation, structural adjustment and curtailed demand, we have grown by 4.3% over the last five years despite the global slowdown. Central to this growth, and to the reduction of unemployment to the lowest rate in the region, has been public investment, which at 14% in 2011 is the highest in Latin America.

He comments:

Dear God. Sub-Saharan Africa is growing by 5.5% a year without much if any public investment in anything.

With 14% of GDP in said public investment Ecuador should be roaring away at a much higher rate than that. They’re boasting about the figures that show what a poor job they’re doing.

This is bizarre on so many levels. Where to begin?

Well first I should not that Ecuador is much wealthier than Sub-Saharan Africa, seven times wealthier! [src src] As countries get wealthier it gets harder to grow rapidly.

Logically it could be no other way, as poor countries get richer amongst other things they have to stop borrowing ideas and technologies and come up with their own. That’s much harder and growth slows.

Africa has had the advantage of being really poor and violent and one of the best ways to grow rapidly is to stop killing people all the damn time.

Ecuador has the much harder task of seeking export led growth. This sort of development is the only really tried and tested model we know of to take a country sized economy from the idiocy of rural poverty to urbanised development.

But there’s a catch. It seems not everyone can get rich this way at the same time. It seems that pockets of development and successful export led growth move about. First the UK, then to continental Europe and North America then to a cluster focussed on Japan (including South Korea and Taiwan) then another focussed around China. The pattern is rock solid, but it’s pretty good.

So, Ecuador is not just trying to pull of this most difficult of feats cut off from much of the world’s financial markets (that debt repudiation thing mention earlier), it also has to compete with China, Destroyer of Worlds. I’ll let Karl explain this one:

China at some points has had investment rates of in excess of 40% of GDP…. For super-geeks this exceeds the Ramsey Rule at a zero discount rate. For non-geeks it means that there is no investment strategy under which this is the profitable thing to do.

Its always hard to tell but on balance I think the Chinese government is aware of this, yet is willing to lose money on its capital investments in order to provide jobs for people moving to the city. This is a smart move if you think cities produce agglomeration effects.

With apologies to the less wonkish, China is using physical capital as a loss leader in order to grow cities that will produce network effects will in turn foster the human capital that really makes a country rich.

Ecuador is competing with this, and is geographically cut off from the major global growth cluster of our time and is still growing at a reasonable pace. I’ll concede a lot of the growth appears to be oil driven, but so what. They are selling their capital stock of oil and investing it in a different sort of capital stock of public services. Sounds like a reasonable plan to me.

Filed under: Economics, Foreign Affairs, Politics

Eppur si muove: stagnation and regime chance at the ECB and Bank of Japan

If there are deadly sins of monetary policy, timidity deserves inclusion. Timidity in a monetary authority facilitates hyperinflations and prolongs depressions. It sucks basically. The ECB and the Bank of Japan give as a good case study in what abandoning timidity can achieve.

To recap, in case you’ve had your head under a rock (or you’re Mario Draghi), Europe is a mess, unemployment has risen to 12% and Spain, Greece, Italy, Portugal and Cyprus are in depressions. Inflation ticked down in March for the third month in a row, hitting 1.7% in March, well below the ECB target and well below what would be required to drag Europe out of a depression. Yikes!

Japan’s position is arguable worse. A multi-decade stagnation and demographic catastrophe has resulted in zero nominal growth since the mid 1990s and an lot more retired people than is normal. How do you respond to situations like these?

One is the ECB approach of pussy-footing bordering on a parody of prudence. The Japanese tried this for some time and it didn’t work for them either. They recently elected Shinzo Abe, who is a bit of a nationalist knob-head, but who recently appointed Haruhiko Kuroda to the Bank of Japan, who seems alright and they have promised an end to pussyfooting and a return to growth.

The BoJ pledged to double both its purchases of Japanese government bonds and Japan’s monetary base. It also adopted a two-year target of 2 per cent inflation. Japan’s QE (or KaraokQE as one wag puts it) has also been revamped and repowered.

On the other hand, in Europe “Mario Draghi, president of the European Central Bank, has signalled that an interest-rate cut is rising up the bank’s agenda, saying it stood “ready to act” as economic weakness creeps further into eurozone countries unaffected by the sovereign debt crisis.”

…has signalled… interest-rate cut…moving up the agenda…”ready to act”… if they aren’t acting now, when will they act? Am I losing my mind here or is this economic vandalism on a grand scale? I’d swear but I’m hoping Scott Sumner will quote me one day and I don’t think he likes cursing.

From 2008 until November last year, Japan and the ECB allowed aggregate demand to follow a roughly similar trajectory. The result of this was a steep recession followed by a weak recovery. In November Japan zigged while the ECB didn’t even zag. This is illustrated below in the share price indexes (the Eurofirst300 and the Nikkei 225) I’ve cribbed from the FT. I like to use pictures when words fail me.

Wait a second…lets just look at the last couple of years and play “spot the regime change.”

Oh, oh, oh! I found it!

For those who think central banks cannot achieve reflation, that they are prisoners in a liquidity trap, that all is lost and that only “structural reform” (kicking the poors) or exploding deficits can save us, I say eppur si muove.

Look at that uptick. That is what the beginning of a recovery looks like. That is what regime change looks like. And that, is what Mark Carney will need to provide us with in the UK if we are ever going to get a decent recovery. Japan and the UK have led monetary revolutions before, we can but live in hope.

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PS Of course, my chart underestimates the disaster that is the insane ECB, because the European core economies (read Germany) contain relatively more large companies than the rest and thus the index sharprice index I used underestimates the disaster.

 

Filed under: Economics, Foreign Affairs, Politics

What about a #Leveson looking at society?

Regulating the press is generally a shitty thing to do, but our press is generally shitty. This puts me in something of difficult position. Leveson looked into the culture, practices and ethics of the British press, but what about looking at the British people who maintain that press? The vast majority of the time the vast majority of the people get the press they want.

I have actually read the draft Royal Charter, beware those who haven’t (which is everyone, because it’s so dull). I dislike the regulation of the press on principle, but that there isn’t anything particularly dangerous in the charter other than this principle. It may ultimately be unworkable, but it isn’t currently oppressive. You can read my live tweeting of the Royal Charter here.

In principle a free press is vital to the functioning of a free society, but the press we have actually agitates for a more authoritarian world – war, misogyny, xenophobia etc. The Media category on this blog is not a nice place. But the basic problem isn’t that the press and journalists are evil. Its a problem of a system not a problem of individuals. It is also a problem of supply not demand.

You see, I largely read the Financial Times and lots of blogs (many of which cross check one another). This is because I want reliable, truthful and insightful writing. Most people don’t want this. They want digestible infotainment that reinforces their prejudices and are largely indifferent to whether it is true or not.

People might not say they’re indifferent to the truth, or that they enjoy being lied to, but one look at what sells reveals what people actually want. Consider two statistics: On the one hand, The Sun outsells the FT 10 to 1. On the other, there are 150,000 online only corporate subscriptions to the FT and I cannot even find a comparable number for The Sun.

This is because companies and people face different trade-offs. It really doesn’t matter to the public whether or not their political opinions are correct or whether their prejudices are challenged or reinforced. The costs of becoming less wrong are high (between work and leisure I spend thousands of hours a year on this), whereas the benefits are very small. I mean, have you read this blog?

For a company though the calculus is reversed. The FT provides a very good value service of high quality, well sourced, reliable news. The benefits of this are concentrated within the firm in the form of a better informed, more productive workforce. Regulation won’t make the FT a more truthful paper but it might make The Sun a less entertaining one.

I am highly sceptical of the pursuit of social progress through press regulation. Legal and social censure of explicit racism and sexism worked, but the regulation we are moving towards isn’t taking aim at anything so easily targetable. Stories like Zoe Margolis‘s libel by The Independent need to become less rare and there are provisions within the Royal Charter which should achieve this. But the amount of editorial control required to prevent newspapers meeting the demand for misleading news entirely would be too much to countenance. You may as well shut them all down.

Regulation will change the press, but not much because there is a demand for the press we have. There are no shortcuts, if we want to change the culture, practices and ethics of the British then we have to win arguments. It’s back to the grass roots I’m afraid. Get off this blog and go talk to some people and change their minds.

Filed under: Politics, The Media

The EU’s bankers’ bonus cap will make banks safer and richer

It looks likes bankers bonuses are going to be capped at twice their base salary. As reported in the Financial Times (£), banks will be able to offer double this with explicit shareholder approval and there are various other schemes in the offing to subvert this regulation, but the brute force of this regulation means that big change is coming to bankers’ remuneration.

I agree with Martin Wolf that this is a political clusterfuck in the making for the Tory Party (well Martin doesn’t use that term, I’m reading between the lines). Defending bankers bonuses? Good luck with that in 2015. But the big story here is that this regulation has the potential to really improve bankers’ incentives and the productivity of the whole sector.

Bear with me. This post will essentially be me shuffling together this Lex post and this Chris Dillow post, so if you’d rather read the originals and cascade them together yourself go ahead, otherwise, I’ll continue.

The most promising scheme to circumvent this bonus ban is to replace it with vast base salaries and subject to strict clawback provisions. A rather smug sounding fictional letter in Lex puts it so:

Your fixed, cash salary will be increased from €500,000 to €10m per year…to be paid monthly into an escrow account. At year-end, you are entitled to the balance of your cash salary in the escrow account subject to strict clawback provisions detailed in this contract…

Theoretically this should produce precisely the same ex post  payments and ex ante incentives that bankers currently enjoy (and we endure). The escrow account will be an accounting reality but an economic fiction. Meet the new system, same as the old system bankers will be told.

But, this misses a lot of the vital psychological differences between bonuses and fines. A bird in the hand is worth two in the bush is just folk psychology justification of endowment effects. This is how airlines get people to pay extra charge after charge while their booking. Once you have that plane ticket in your basket its “yours” and there is a psychological cost to giving it up.

The money in bankers’ escrow account is this plane ticket and this set up will produce a different set of incentives. Will this incentive structure improve the operations of the banking system? I would suggest it will. Chris Dillow pointed to research two years ago from the University of Nottingham which suggested that fines provide better incentives than bonuses.

Economists got subjects to play an inspection game. This comprises two players – an employer and a worker. The worker can choose either high or low effort. The employer chooses whether to inspect the worker’s effort or not. Both inspection and effort are costly… The result of this experiment were clear. Fines induce more effort than bonuses. The joint earnings of bosses and workers were 18.6% higher in the fine experiment than in the control one, and 18.1% higher than in the bonus one. Bosses’ earnings in the fine experiment were 36.5% higher than in the control test, and 80% higher than in the bonus test.

One of the leading contributors to the economic fragility which led to this little depression was excessive risk taking, outright deception, fraud and opacity in the financial sector because bankers were able to extract a huge amount of the surplus from the activities of banks. Realigning incentives so that banks can control their employees and run more safely is in everyone’s interests.

The costs of this to the financial sector are pretty clear. Let us look at AIG’s share price:

Whoops!

We’re also on the hook too of course. In 2009, Andy Haldane puts the figure for direct financial support from the US at $100bn and from the UK at £20bn. World output then was around 6.5% lower it would have been without a crisis. In the UK, the loss was around 10%. In money terms, that translates into output losses of $4 trillion globally and £140 billion for the UK. Those figures are out of date now: the UK loss is now much, much larger.

The pollution that is excessive risk taking in finance then appears to have an answer, changing remuneration away from bonuses and towards fines. It is in the interest of both those who own banks and those who bail them out.

Theoretically then, we will have a test of Chris’s questions.

Why is the [bonus] system so much more common than the [fine system]? It can’t be that banks are run for the benefit of employees, can it?

If this new compensation scheme is adopted, and if our theory of fines and bonuses are correct (big ifs!), it will improve banks performance. If banks are profit maximising operations they will not leave Europe. Indeed, banks currently operating overseas will seize this opportunity to tame their rapacious staff and will or will threaten to move their operations to Europe.

Of course, if banks are run for the benefit of their employees, if they are institutions captured by their senior staff, banks will leave and carry on paying inefficient bonuses. As Jamie says, when life gives you popcorn, then eat popcorn. Let’s wait and see what happens next. One way I’m richer externally as the financial sector becomes safer and more productive, the other I’m richer internally as I get to say “I always told you they were wrong’uns.”

Filed under: Economics, Politics

Back of the fag packet macro plan that solves all society’s problems

Partially for Frances Coppola, partly as a reference to myself – my ideal big-picture policy regime.

At the moment monetary policy is meant to be conducted so that inflation is 2% in the medium term. The target is hit mechanically by moving interest rates, although interest rates serve more as a signal of the future path of monetary policy than a binding constraint in themselves. Also people are poor. And immigrants get a raw deal.

I think all those things are stupid.

A much better policy would make things clearer (that monetary policy involves creating more money, not moving interest rates) and combine with my other favourite policies in such a way that they all reinforce one another.

So first things first, monetary policy’s aim should be to hit a 5% level target for per capita nominal gdp. Actually, it should probably be a 5% level target for per capita nominal wages as they’re the price we’re most worried about. We don’t want nominal rigidities forcing people out of work, I don’t much care if nominal rigidities create a glut of girders, just people.

What policy should be used to hit this? A Citizen’s Basic Income. First of all, a CBI is a policy in which every citizen gets a basic income regardless of anything which is enough to subsist on. You remove housing benefit, unemployment cover, in work benefits and just pay everyone the same. If you’re worried about kids give everyone a lump sum payment on birth. If you’re worried about the longterm disabled cover that via healthcare. Benefits are thus extremely simplified.

This is where the clever bit comes in (which I think I stole from interfluidity), this CBI is topped up via the central bank. All currency creation is done via direct payments which top up this CBI. This means in times of financial stress etc. when nominal growth is in danger of causing unemployment etc. everyone gets a payment. In boom time this top-up CBI is scaled back. This clarifies what the bank does (prints money) and creates incentivises to support loose policy in bad times which lesson in good times.

Finally, an open borders migration policy, but migrants only get signed up to the CBI scheme after ten years. This creates an interesting incentive for citizens. Because money only enters the system via direct payments to citizens and the central bank is targeting a per capita (resident, not citizen) nominal target an increase in immigration causes an increase in payments to citizens. The policy pays off the local population automatically with a share of the increase in wealth caused by immigration. Because the deal looks pretty good to migrants (10 years ain’t so long) they don’t disrupt the equilibrium.

There we go. All my favourite ideas in one place, all reinforcing one another. What does everyone think?

Filed under: Economics, Politics, Society

How did I spend Valentine’s Day? At a lecture on feminist development economics. That’s right.

I went to an interesting lecture today on the role of feminism in improving developmental economics. The arguments were very simple. First of all, the business case for introducing feminism into development economics is incredibly strong, as the World Bank emphasise.

We’ve seen it in the west. The long post-war boom was fed by a decline in discrimination and more women entering the labour force. Something analogous in the developing world will increase economic growth. There are very few things which we can say for certain do, but that is one of them.

To get the most bang for your buck out of this increase in economic participation you have to make sure that women have access to the same inputs as men. This means anything, from something basic like title deeds to their land to simple things like equal access to fertiliser or irrigation.

Equalising access would increase the value of agricultural output about 4% (not sure if that is 4 percent of 4 percentage points), which would feed around 100 million people. Dollars lying on the sidewalk, as they say.

That ties into making sure  women are empowered. That’s nothing airy fairy, it means making sure women have an appropriate say in investment decisions and can act safely and confidently in the public sphere. It means they can state their own case at home and in public to protect their access to these economic inputs.

It’s interesting to know that institutions, which regular readers know I’m obsessed by, play a really tangible role in the shape of inequality in different places. In Ecuador, because of its colonial legacy, inheritance rights mean that land and property is split  fairly evenly between the sexes. This is in contrast to Ghana and Karnataka where women own significantly less property.

The lecture was very focused on agriculture and discussion of urbanisation, population ageing and so on was not on the agenda. That was a pity, but I understand the time constraints and there was a lot of meat in just the agricultural side of it.

If I had a criticism it echoes what I wrote yesterday. If you create institutions which create incentives to pursue economic expansion, you are also likely to create institutions that incentivise men to expropriation their partner’s land and to force them into patterns of unpaid labour. With the best of intentions but limited political capital there’s every reason to think that development will never be gender neutral.

Oh and this is nice. A few years ago, people were surveyed and asked whether they had felt love the previous day. This was later plotted against GDP by Justin Wolfers. It produced this lovely, and statistically insignificant, heart. Happy Valentine’s Day everyone.

Filed under: Economics, Foreign Affairs, Politics

‘Adam and Steve’?! This almost makes me regret my psydonymity

David Simpson MP announced during the debate on equal marriage ‘it’s Adam and Eve, not Adam and Steve.’ Confirming once and for all that being clinically braindead is no barrier to high office. O welcome to the land of opportunity.

Of course, This is a man know for his support of homeopathy, so it will come as no surprise the fucking idiot got the line wrong the first time round and said ‘it’s Adam and Steve…err…Eve not Adam and Steve.’

It’s moments like this I want to announce loudly and clearly, and for it to be indelibly recorded in my real name, ‘I am a citizen, an englishman and i say this man is a fucking idiot, and he does not represent me.’ But I won’t. Keep guessing.

Filed under: Politics, Society

Nuclear Power can save us from climate change

I think the left and environmentalists need to embrace nuclear power. There are plans for EDF and British Gas to build four reactors, and it is likely that those would be the first of many; Hitachi, GDF Suez and Iberdrola are all interested in building new nuclear in the UK.

Why new nuclear? Well, I was initially a reluctant supporter, but when it comes to large scale, uninterrupted base load generation it is hard to beat nuclear. Plus, no carbon. Not none really, building things emits carbon, but near enough for it to be properly counted as a renewable fuel.

EDF have just announced they are planning on running their existing UK nuclear fleet for another 34 years (that’s across three plants, Hinkley Point, Hunterston and Sizewell). Increasing their life like this will do enough to reduce carbon emissions equivalent to removing all the cars from UK roads for nearly five years. It is about 340 million tonnes of carbon that won’t be emitted. That is just from running longer our existing plants – that’s a big plus for the planet and for people.

But, there are huge problems with nuclear power in Europe.

First of all, Sellafield, it is a mess. Honestly, it is even worse than you imagine. Look it up, the National Audit Office have a report and Wikipedia have some background. Building 30 sounds pretty fucked up especially. And I’ve heard some odd things about the Seagulls that live there – huge they are. However, we are better at dealing with waste now and things are today built so that it is easy to take them apart safely.

That brings us to building, which is the real problem. No Europeans have built Nuclear Power Plants to budget for years. France and Finland have both fucked up colossally. Like three times above cost and behind schedule. Ludicrously badly. However, despite this, all is not lost. The Japanese and Chinese have built ahead of schedule. They don’t have special Asian-aptitude powers, anybody can do it if the corrupt, incompetent, unproductive Chinese can.

So to the problems of nuclear, I would say that they are in the past or that they can be overcome. The promise of nuclear energy is in predictable energy and tons of it with tons of carbon. I think it is the best bet for decarbonising the economy and I think serious environmentalists need to get behind it.

Filed under: Politics, Science, Society, Climate Change, Flamanville, Hinkley Point, Hunterston, Nuclear, Olkiluoto, Sizewell

Is Cameron an idiot?

Some people ask: does the G8 still matter, when we have a G20? My answer is “Yes”. The G8 is a group of like-minded nations who share a belief in free enterprise as the best route to growth.

The G8 includes Russia. Russia! Corrupt, crony-capitalist and authoritarian Russia. Obviously, Cameron isn’t this stupid, but why does he think we are?

I couldn’t even finish the insipid article.

Filed under: Politics

Young Earth Creationism: I can’t believe some people believe this crap

Via Krugthulu, Marco Rubio’s isn’t sure how old the planet is:

GQ: How old do you think the Earth is?

Marco Rubio: I’m not a scientist, man. I can tell you what recorded history says, I can tell you what the Bible says, but I think that’s a dispute amongst theologians and I think it has nothing to do with the gross domestic product or economic growth of the United States. I think the age of the universe has zero to do with how our economy is going to grow. I’m not a scientist. I don’t think I’m qualified to answer a question like that. At the end of the day, I think there are multiple theories out there on how the universe was created and I think this is a country where people should have the opportunity to teach them all. I think parents should be able to teach their kids what their faith says, what science says. Whether the Earth was created in 7 days, or 7 actual eras, I’m not sure we’ll ever be able to answer that. It’s one of the great mysteries.

At one level, this shows the Republican’s anti-science at its worse. The Christian right doesn’t see science as a path to knowledge, merely as another hermetic cult with its own competing creation myths. This is the key to why this young eartherism is a problem.

On another level, it shows the chutzpah of the Republicans. Of course being scientifically illiterate has an impact on the economy! The economy is more or less science in action, or at least the application of things that haven’t failed yet, which is more or less what science is.

This should be worrying for everyone involved (which sadly is everyone) because we’re already 13 days into the 2016 campaign, and this guy is in the front of the Republican pack.

Filed under: Politics, Society, Krugman, Marco Rubio

Pro-life, pro-death, pro-poverty

“This is a Catholic country” doesn’t seem like a good reason to kill someone, but then if you’re pro-life perhaps you will disagree.

Savita Halappanavar (31), a dentist, presented with back pain at the hospital on October 21st, was found to be miscarrying, and died of septicaemia a week later.

Her husband, Praveen Halappanavar… asked for a medical termination.

This was refused, he says, because the foetal heartbeat was still present and they were told, “this is a Catholic country”.

She spent a further 2½ days “in agony” until the foetal heartbeat stopped.

In perhaps related news that pro-life people are only pro-life until you are born:

Researchers from the University of California, San Francisco launched a Global Turnaway Study this year to explore the potential social and economic implications of denying women access to legal abortion. And after documenting the experiences of the women who seek to terminate a pregnancy but are turned away from abortion services, the UCSF researchers found that those women were three times more likely than the women who successfully obtained abortions to fall below the poverty line within the subsequent two years.

Perhaps I’m being unfair about the pro-life movement, but I doubt it. If this sort of thing worries you that is good. The pro-life movement are adopting tactic used in the US to intimidate people, for example protesting outside abortion clinics. Their success would mean the exportation of this suffering. The stakes are high, be worried.

(Via, and via, and others too)

Filed under: Politics, Society, Abortion, Pro-life, Savita Halappanavar

One reason the EU doesn’t deserve the Nobel Peace Prize

Unlike some, I think the EU winning the Nobel Peace Prize is a good thing. Europe was the most warlike place on earth for millennia. I have trouble thinking of somewhere more incessantly violent than pre-1945 Europe.

The Americas, Africa and Australia were both too sparsely populated for properly sustained warfare of the European variety. They also didn’t have the technology to produce viable killing machines. South Asia and East Asia, e.g. the Muhgals, Han etc. settled into imperial systems in which a hegemon acted arbitrarily violently, but which was never as dangerous as Europe”s state of war.

Things got a bit peaceful from 1815-1914, but once Europe had run out of non-Europeans to kill they went back for a hundred-year-giant-slaughter-anniversary bash which they ran, with intermission, from for about the next 30 years.

But, suddenly, since 1945, we haven’t really killed each other that much – apart from the Russians, but we’ve always thought they were a bit odd. In my view somebody needed an award, the EU is good enough. Plus, it has at least been pretending that maintaining the peace is what it was trying to do.

However, a couple of days before EU was awarded the prize, they did something which made the world a marginally more warlike place. Europe killed the BAE/EADS merger. BAE is synonymous with the British military-industrial complex, EADS is the same for continental Europe. A merger would have created one of the largest producers of military hardware in the world.

By killing the deal Europe has managed to prevent the management of BAE and EADS from rushing headlong into a pointless merger and stopped them from destroying millions of pounds worth of weaponised wealth.

Mergers have a terrible history. Rather than enabling synergies and economies of scale or scope, mergers often leave everybody worse off than if the firms had remained separate. The juries out on why mergers so often go wrong; it could be managerial hubris; it could be the winner’s curse wherein the winner is the person who bids ever so slightly too high; it could be something more Hayekian, in that people underestimate the complexity of the larger company.

In any case, I thought it was likely a BAE/EADS merger was a value destroying proposition. Both BAE and EADS are tightly linked to their sponsor states. A merged company would have had to answer to the British, the French and the Germans. Can you imagine them getting anything done if you had those three bosses? It would be a recipe for disaster, but disaster in the “killing things” supply chain is a net plus for the world, so I thought it odd to see these two stories come out at about the same time.

Oh, and why would two medium firms merge into a large one if it is such a bad idea? Well, its a bad idea for the owners, but for the management…

Filed under: Economics, Politics, BAE, Britain, EADS, France, Germany, Nobel Peace Prize, Peace, War