So. Much. Stupid. Conservative blind spots edition

Alex Tabarrok

Hey, black dudes! Its great having a big willy! Why you get so mad?! Us white guys are complimenting you!

Okay, that’s not what he said. But he did say this of Asians:

Alex Tabarrok

Hive mind is not even an insult it’s a compliment – like wisdom of the crowds. The hive mind diffuses knowledge and cooperates–it’s not all thinking alike it’s all using the best of each.

Perhaps I better back up a little and give all this a little context.

Noah Smith wrote a post saying that an academic paper  on A Garett Jones paper called “National IQ and National Productivity: The Hive Mind Across Asia“. When I hear about IQ and economic development I reach for my pistol. Noah Smith is just as sceptical. Personally, I don’t see the mechanism. As Chris Dillow says, there are models and mechanisms. You can come up with a pretty model and then become angry when the world deviates from it or you can think about how your pet theory would work its way through the real world.

I can understand a mechanism that uses slight changes in IQ to predict which “nation” will develop first. I’ll describe the one I have in my mind. There are thousands of institutional forms –  ”rules of the game” – and only a few of them are compatible with economic growth and prosperity. A higher IQ gives a group 1) a wider the selection of institutional forms to choose between 2) those institutional forms will on average be more complicated 3) better institutions are more likely to be chosen 4) once successful institutions are identified a more intelligent group will be more likely to keep them.

That is an interesting model, but it doesn’t seem to bare any resemblance to the history of the world. The more accurate picture is that various interest groups fought it out in various different places until, in north western Europe a powerful merchant group came into the ascendency and won political concessions that secured their property rights. This happened to have happened after the political revolution following black death in which western European peasants won a degree of autonomy and near some coal. That combination of secure private property, freeish though expensive labour and cheap energy happened to produce sustained economic growth. Nobody planned it because they were smart. It wasn’t sustained because it was smart by the best of my knowledge either. Because Europe was the most violent place in the world, everyone had to strive towards economic growth or face political annihilation. So greed, luck and violence seem far more important to the first sustained initiation of economic growth than IQ.

Similarly, why are some nations wealthy now and some not? Well there is again a similar model where clever nations adopt good institutions and stupid ones don’t, merely out of ignorance, but that doesn’t seem to be the mechanism we observe. Very poor places had their institutions fucked up by white people – psst, that’s Africa, Latin America, China, India etc. – and it takes a long time to get it together after an occupation and negative structural shock. National IQ sounds racist, and while I concede it might have some predictive power with regard to who’s developed, it doesn’t accord with most of the other mechanisms we have for where economic growth comes from – so I’m fairly happy to dismiss it.

So it is into this milieu we jump.

Noah argues that the paper discussed, by Garett Jones, uses lots of racist tropes and should handled with care. He provides some evidence contrary to the predictions of the paper of varying degrees of convincingness. Scott Sumner, whom I respect greatly, hits back that there is a great deal of explanatory power in culture and that Noah shouldn’t throw around the word racist because it is a bad thing. The only problem is that nobody was talking about culture, they were talking about racially innate IQs, and their explanatory power with regards to economic growth. And that brings us to Alex Tabarrok’s comment, at the top of this post and left underneath Scott’s saying how a “hive mind” is a good thing.

This gets to the heart of the real problem.

For some reason, those on the left can see the context in which things happen in a way those on the right cannot. Noah isn’t too left wing, but he seems to have this special power (and attribute of the left wing hive mind, no doubt).

Because for conservatives it often seems context means nothing. I mean seriously; when, in any cultural artefact ever created, any film, novel, piece of art, daydream or utopian novel has a “hive mind” been presented in a positive light? From Zamyatin’s We, to Huxley’s Brave New World a hive mind is not presented as something good. The hive mind does not refer to the wisdom of crowds.

Lets go back to black people, because its easier to talk about racism against blacks. What has been one of the most persistent racist tropes about black people? That they are sexually promiscuous, even sexually aggressive. This is why white people going on about black guys large cocks is usually racist in content, and often racist in its implications. For a female example, the Hottentot Venus wasn’t exhibited for Londoners to gawp at just because white people were/are racist, but because they were/are racist in particular ways. The ways in which people are racist must colour the way in which we view statements.

Context matters. Asians have been stereotyped as sneaky, corrupt, uniform, “hive mind” automatons for over a  century. You still see it in most western reports of strikes and social unrest in China – shocked, shocked reporters that Chinese people are rebelling against their bosses or bureaucrats. Jamie covers Mass Gathering Incidents frequently and there is a good article length treatment of labour unrest here. Hive mind? Tell that to Foxconn. Considering a racist slur in context is not hard, it takes effort in fact to abstract away from the negative connotations of most racist slurs, yet conservatives do so all too often.

This is sometime around the 1970s conservatives realised they were losing the fight for intolerance, so they changed tactics and tried to reframe the debate. They were no longer arguing in favour of racism, oh no, they were arguing against over earnest antiracism. This was politically convenient for two main reasons.  One, lots of the ground work of antiracism was carried out by those on the left. Two, it gave racists someone to vote for. Now in the UK Labour had an at best mixed record on race, especially with regard to housing policy, but during the 1980s they were much more focussed on antiracism. During the same period conservatives began to create a victim mentality where attacking antiracism became more important than attacking racism.

Alex Tabbarrok might like the idea of being part of a hive mind. And some white men might like the idea of being sexually promiscuous with a mighty, large penis. But to completely ignore over a century of casual and institutional racism is plain stupid. But it is a pattern conservatives find themselves slipping into too often: attacking antiracism more virulently than racism. This post is less than completely satisfactory, but I’ll leave it there, and pick up in the comments if necessary.

Filed under: Economics, History, Politics, Society, Alex Tabarrok, Chris Dillow, Garett Jones, Hottentot Venus, IQ, NIE, Noah Smith, Racism, Scott Sumner

Blogrades and commenters, a question

Anybody else get a Glastonbury ticket?

Filed under: Politics

The arsehole theory of politics

Obama, if there is a hell (which there is isn’t, luckily for him), is headed there. His drone war in Pakistan is truly dystopian, and his other infringements of civil liberties would make even Blair blush, as Conor Friedersdorf describes:

1. Obama terrorizes innocent Pakistanis on an almost daily basis. The drone war he is waging in North Waziristan isn’t “precise” or “surgical” as he would have Americans believe. It kills hundreds of innocents, including children. And for thousands of more innocents who live in the targeted communities, the drone war makes their lives into a nightmare worthy of dystopian novels. People are always afraid. Women cower in their homes. Children are kept out of school. The stress they endure gives them psychiatric disorders. Men are driven crazy by an inability to sleep as drones buzz overhead 24 hours a day, a deadly strike possible at any moment. At worst, this policy creates more terrorists than it kills; at best, America is ruining the lives of thousands of innocent people and killing hundreds of innocents for a small increase in safety from terrorists. It is a cowardly, immoral, and illegal policy, deliberately cloaked in opportunistic secrecy. And Democrats who believe that it is the most moral of all responsible policy alternatives are as misinformed and blinded by partisanship as any conservative ideologue.

2. Obama established one of the most reckless precedents imaginable: that any president can secretly order and oversee the extrajudicial killing of American citizens. Obama’s kill list transgresses against the Constitution as egregiously as anything George W. Bush ever did. It is as radical an invocation of executive power as anything Dick Cheney championed. The fact that the Democrats rebelled against those men before enthusiastically supporting Obama is hackery every bit as blatant and shameful as anything any talk radio host has done.

3. Contrary to his own previously stated understanding of what the Constitution and the War Powers Resolution demand, President Obama committed U.S. forces to war in Libya without Congressional approval, despite the lack of anything like an imminent threat to national security.

Aside immediately from stripping him of his Nobel Peace Prize – boy must the Norwegians be feeling silly now – we should ask “why Obama is doing this?” I wouldn’t argue that he is an arsehole. He doesn’t seem like an arsehole, he has done nice things for lots of poor Americans. I’ve also seen the point made innumerable times that Romney would be the same, or worse, but why?

Will Wilkinson seems to imply that the system of democracy in America is broken. You can vote for Obama and passively approve these attacks. You can vote for Romney and very likely end up with the same, or worse. Romney’s aides have suggested that if Romney were elected, one of his first acts would be to give back ‘mericans their right to torture people. Alternatively, you can offer a protest vote to a third party candidate like Gary Johnson, who actually opposes these attacks (imagine a third party more ineffectual and irrelevant than the Lib Dems and you begin to see how silly this last option is).

I disagree that democracy is broken. People are broken. How can you fix the fact that a lot of people are arseholes? Similarly to my analysis of Ian Cowie, as somebody who simply hates poor people, this analysis lacks a certain subtlety. But that is its strength. It is unsubtle because arseholes are unsubtle. Democrats are painted as weak on warmaking defence, and so Obama must appease the arseholes or face potential political annihilation.

This isn’t a feature of a failed democracy or of a failed republic or a failed anything. It is a feature of a democratic empire. One of the advantages of democracy is that people get what they vote for, good and hard.

Domestically this normally stays the hand of those with the most ludicrous ideas because people actually have to deal with the consequences of the actions. However, intrigue and murder are the rule internationally not because these policies are good, but because people don’t have to deal with the consequences of their own arseholeness. The same people who will refuse to starve their poor because they’ll riot will happily watch the poor starve abroad because they can deny them a visa.

Acting as a democratic empire the US has no choice but to sporadically accede to the demands of its arsehole faction. Sometimes, it will just be their turn to be appeased. Arseholes have no natural restraint on their actions because their victims are abroad. The US has the capacity for total destruction anywhere it likes. Eventually, inevitably, somebody is going to start bombing children in Pakistan.

The only way to prevent people dying in war is to throw hundreds of thousands of soldiers, sailors, pilots, mechanics, engineers, consultants, etc. out of work. Give me an off switch and I’ll flick it in a heartbeat. However, while the technological ability remains to kill people, people will be killed. Arseholes don’t kill people, but armies do, so get rid of the army.

Filed under: Foreign Affairs, Politics, Science, Conor Friedersdorf, Drone war, Gary Johnson, Obama, Pakistan, Romney, The arsehole theory of politics, USA, Will Wilkinson

This is the week he won: two faces that won Obama re-election

On Tuesday, in the wake of the tragic death of US embassy staff in Libya, Mitt Romney slurred president Obama as a terrorist sympathising anti-colonial Kenyan Muslim (I paraphrase). Afterwards, showing all the political nous and weight of a daddy long legs, he smirked to himself as he thought “those dead Americans really helped my election chances.”

On Thursday, Ben Bernanke announced a round of open ended QE which sent markets up and which might just feed through to improved labour market conditions through September and October. Some would call this political interference. I call it beginning to take their job seriously, they don’t choose the political cycle.

Today, Obama is the incumbent, presiding  over an accelerating economic recovery and is faced with an opponent disliked by the press and who smiles at dead Americans. Smells like victory to me.

Filed under: Foreign Affairs, Politics, Bernanke, Obama, Romney

The Tories’ Plan to sink the (non)recovery

Oh come on guys! Are you doing this specifically to annoy me?

George Osborne should introduce emergency tax breaks paid for by welfare cuts to “shock” the UK economy back to life,  according to the Conservative MP Liam Fox. Fox called for capital gains tax, currently set at 28%, to be suspended and reintroduced after three years at 10%. These should be paid for by benefit cuts, said Fox… “We need to have a look at everything that we have in terms of paternity leave and all the other things that are there.” He added: “With the sort of economic problems that we face in the UK it is irrational and unreasonable to expect that those in work should keep all their social benefits and workplace benefits should be protected, at the cost of making the next generation unemployed. That is not a sustainable generational compact.”

Liam Fox is proposing a policy which will make the slump worse, not better. Sadly, Liam Fox has chosen to drop this clanger behind the Times paywall so I can’t find the exact quotes or policy. Presuming, rather generously, this is not just a political salvo and is a thought through policy. On its own terms it completely fails, let me explain why.

Let’s leave aside the unsubtle class war and the political manoeuvring – other blogs do that better – and assume this is a serious policy. What effect would it have?

I want to ignore the small details (like fathers not seeing their children grow up or people pushed into poverty) and focus on the macroeconomics, because that is the sort of hip, cool blog this has become daddio. Fox is portraying this as a “shock” treatment to promote a rapid economic recovery. This is bullshit, in the classic sense of the word. Fox is indifferent to whether it is true, it just sounds good, so he says it. The policy is a jobs killer.

To understand why just think of Fox as the anti-Simon Wren-Lewis. David proposes a balanced budget multiplier. If the problem today is too little demand and a fragile debt market then the solution is normally simple – cut interest rates. At the moment interest rates are at zero so some help from fiscal policy may be necessary. [1] Normally this refers to deficit spending, but if you’re genuinely worried about debt this is unacceptable. You’re left with one option, raise spending and raise taxes. In doing so you increase demand because, although all the money is spent now, some of the money taken as taxes comes out of savings, not consumption. This means aggregate  consumption increases temporarily. No increase in debt, but more demand.

Liam Fox is demanding the opposite cut taxes and cut spending. In his scheme welfare payments are cut; this self evidently leads to less spending because nearly all benefits are spent. They are cut to give businesses and the wealthy a tax cut, some of which will be saved. We know lots of it will be saved because firms are already sitting on a cashpile of £64bn, which they are not spending. So if make the safe assumption that Liam Fox is proposing this policy to be fiscally neutral, then there will be no increase in debt, but there will be less demand.

Quite how a policy which reduces aggregate demand is meant to “shock” the UK economy into recovery, I don’t know. Thus I conclude: Liam Fox, bullshitter and class warrior.

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[1] The Bank of England could theoretically offset a policy this stupid, but will they? Well, with the most incompetent central banker in Britain’s history behind the tiller, I’m not confident enough to try. Fox is either a brave man or an idiot…draw your own conclusions from that little thought experiment.

Filed under: Economics, Politics, Balanced Budget Multiplier, Capital Gains Tax, George Osborne, Liam Fox, Simon Wren-Lewis

Reshuffling deckchairs on the Titanic

No, not the Titanic, the Lusitania, this boat isn’t sinking by accident.

Filed under: Economics, Politics

Limits to monetary policy

There is a limit to monetary policy. Once the central bank has bought everything then we will have hit the limits of monetary policy.

When the company you work for is owned by the central bank and the pub you drink in is owned by the central bank and your pension fund is owned by the central bank, then we may start running into difficulties. How can the central bank inject money into the economy when it has already bought the shoes off your feet? Then we might have a problem. We are nowhere near the point where central banks are out of ammunition. Such a position shows a poverty of imagination.

There are a couple of straightforward ways for monetary policy to boost growth when an economy is depressed, one is to increase the amount of money chasing the  goods that have been produced. When an economy is operating well this simply increases prices, rents and wages without anybody actually getting better off. When an economy is depressed people don’t simply increase prices, rents and wages, they use the spare capacity available to bring more goods, land and people into employment. This is what a recovery is.

The other way of looking at it, would be to see this as a devaluation of the currency vis a vis other countries. This makes imports more expensive and exports more competitive. This shifts production to produce more exports and import competing goods and promotes growth. Is monetary policy impotent to generate either of those effects? Hell no!

If monetary policy is impotent to increase demand and the amount of money chasing goods, then the Bank of England could make the whole stock of national debt vanish without anybody suffering ill effects. If monetary policy is out of ammunition then monetising £1 trillion will have no effect on prices, rents or wages, and will just  reduce future expected taxes. That sounds a little too good to me.

While we at it, we may as well solve the European sovereign debt crisis, if monetary policy is impotent to affect a devaluation we may as well print enough pounds to buy enough euros to retire every continental nation’s stock of debt. If that doesn’t devalue the pound and boost exports I don’t know what will.

Frankly, the idea that somebody with a printing press, capable of producing money which is accepted around the world and for all imaginable goods and serves is unable to increase economy wide spending is laughable.

Of course, nothing is that simple, a central bank that went on a spending spree could always reverse its stance and suck the world dry of currency. The expectation of this reversal would seriously dent the efficiency of easily reversible actions like QE. However, that does not mean we should abandon QE it means we should pair it with a nominal target, a commitment device, like a nominal GDP level target to stabilise expected and current demand.

Filed under: Economics, Politics, Bank of England, Eurozone, NGDP

Regardless of morale, the beatings will continue

If they think the Tories are being mean, wait until they have to meet the electorate again.

Filed under: Politics, Cameron, Clegg, Electiogeddon, Liberal Democracts

Is Osborne being squeezed from all sides?

The FT reports that “cabinet ministers”  - it’s Vince Cable, everybody knows it’s Vince! – are looking into completely nationalising RBS and setting it to work directly lending to firms in an effort to boost growth. It would cost £5bn to buy the remainder of RBS and the betting I expect is that this would be paid for several times over if the purchase leads to even a modest increase in growth. Yet, this is the same Vince Cable who asked “What tools does the Government have?” and responded:

The first is continued use of monetary policy, and stronger communication of the policy aim it is meant to achieve – robust recovery in money spending and GDP.

This is what has confused me. Taking over RBS seems to be a losing proposition because were RBS – or the newly formed national investment bank – to boost lending it would eventually lead to firms expanding production and hitting bottle necks. Those bottle necks would cause price increase and those price increases would lead to tightening from the Bank of England. The action would be entirely self defeating.

There seems to be only a couple of ways to explain Vince’s economic policy in view of his previous comments. One is that there is a supply side problem in the banking system. The banking system is currently in a stable equilibrium where no banks are lending much and it doesn’t make commercial sense for any bank to break ranks because unless others join and encourage growth it will fail. The government is there to overcome this and move the banking industry to a high lending equilibrium. Overcoming this problem would actually lend a deflationary pressure to the economy by improving productivity and encourage more stimulus from the Bank of England.

The second justification for Vince’s policy is that no longer doesn’t believe that changing the Bank of England’s mandate to target nominal GDP is enough. Given Vince’s past comments I don’t think either explanation for this policy is really convincing. Vince has always emphasised the Chuck Norris effects of a NGDP target for the Bank: communication is the tool, not the banking channel. I then got reminiscing and thought…where had I heard of combining a nominal GDP target with directed lending to firms…why its good-egg of the liberal blogosphere and coalition apparatchik Giles Wilkes’  Centre Forum paper “Credit Where it’s Due” of course!

It looks like what is being discussed is the second plank of Giles’ prefer policy:

The Bank should start by targeting a high level of nominal growth until the economy is performing at its potential. This will reassure the private sector that liquidity won’t dry up in the near future, and so encourage more investment now. The second step should be for ‘credit easing’ to replace ‘quantitative easing’.

But why start with the second, less potent policy? Politics.

Then it occurred to me. George Osborne is facing as much pressure  to change course from within the Cabinet as from without.

It looks like a rearguard action is being fought within the Government to upset Osborne’s deficit cutting and investment cutting first policy platform. This is unsurprising, the coalition is presided over a lost decade in progress and that does terrible things for your reelection chances, especially for the Lib Dems.

As I’ve pointed, ad nauseum, the Chancellor can change the Bank of England’s mandate to adopt NGDP level targeting at any time, but there are political risks to doing anything unconventional and Osborne seems loathe to deviate from the script. Osborne is very much a part-time Chancellor but he is a full-time political operator.

Perhaps there is a worry in Government that changing the Bank mandate alone will be insufficiently convincing for firms and markets, it may be that this policy is a supporting plank of one that will be much more effective. And perhaps, more importantly, there is a worry in parts of government that they will not be able to convince another part of government change the Bank’s mandate unless the groundwork has been laid to make it politically acceptable.

So although the nationalisation of RBS may prove good policy in the end, it may be that its political power is more important than its economic significance. Although it doesn’t strike me as necessarily the best way run a bank, given that we’re already screwed and convincing expansionary monetary policy is our only hope, I’ll see how this one plays out.

Filed under: Economics, Politics, George Osborne, Giles Wilkes, NGDP, Vince Cable

Nope, no nice stuff for us either

Jesus wept.

Filed under: Blogging, Foreign Affairs, Politics, North Korea, O-limp-dicks, South Korea

No, non, nein, όχι: Not good enough

I’ve heard some push back that we shouldn’t blame the Tories for this…

…or this…

…because we are facing a global recession because of this lot…

…Bullshit.

As Britmouse points out – in ever more virulent, desperate appeals to sanity – we have had exactly the recovery you would expect if aggregate demand had been very weak. Under Brown nominal demand grew only 1.3% a year versus a 5% trend growth rate. Under  Cameron and chuckles Osborne nominal demand has grown at a still anaemic 2.8% a year.

The Bank of England is in charge of demand in this country and it has used the Eurozone pursue a disinflationary policy which has seen inflation collapse even more quickly than the Bank expected. The Bank of England could do more, and they underline this fact at their regular meetings, but they are choosing not to do more.

So in a way yes, the weak recovery is a result of the Eurozone, but only because the Bank of England and central government have used the crisis to depress demand growth. Rather than push against the crisis with more expansionary policy the Bank has used these deflationary tailwinds to keep unemployment elevated and prices subdued.

The policy which is producing weak growth is also producing low bond yields. The low interest rates Cameron is paying is a vote of no confidence in his government from the bond market, they don’t believe growth will return for a very, very long time.

Something is rotten in the city, the Bank of England is not democratically accountable, people do not understand its remit well or the damage it is doing in the name of price stability. This is why the London Stock Exchange gets occupied, not Threadneedle street.

Filed under: Economics, Foreign Affairs, Politics, Britmouse, Cameron, Disinflation, Merkel, Osborne, Trichet

Why you can’t rely on the railways: Institutional constrains to fiscal stimulus

The timing of infrastructure spending should be strongly countercyclical so government can employ people without crowding out private sector activity and provide jobs when they are scarce. But, as Chris shows, government investment is in fact rarely strongly countercyclical. Simon Wren-Lewis is understandably annoyed that David Cameron is true to form in this respect. There will be no economic growth this year, borrowing is cheap and yet there will be no new infrastructure spending.

The coalition has announced £9bn of rail infrastructure spending, which is great – gentlemen, get your rivet guns ready! – apart from the fact the spending won’t hit until 2014 (and most of it has already been announced). This is because Network Rail’s investment in the rail industry takes place over five years plans control periods. We are in the middle of control period 4, which runs from 2009 to 2014, and we have just had the announcement for work to take place in control period 5, from 2014 to 2019.

It isn’t a physical problem which has pushed investment to 2014 it one of organisation. The are many shovel ready projects in the rail industry. Newark could use a flyover to ease congestion, electrifying the Barking to Gospel Oak line would open a freight corridor linking east and north London, the Welsh valleys which are to be electrified have needed more investment for decades.

So while there are rivet gun ready projects, we have to concede that investing in rail does takes a lot of planning. Since privatisation that planning has taken a very particular form. Every five year the DfT announce what infrastructure they expect Network Rail to deliver and the Office for Rail Regulation decide whether or not that is realistic given the industry’s business constraints. There is tooing and froing as they negotiate and they eventually settle on the work to be done.

It would be possible to bring forward infrastructure spending but you would have to pass new legislation to do so. The Office of Rail Regulation would need to look the other way while you stuff money and project managers down Network Rail’s throat. Gordon Brown called himself a restless reformer, rail has felt the worst of a political culture that makes a virtue of constant turmoil.

After more than two decades of regular reorganisations and continuous micromangement, there is no industry more in need of certainty over funding, infrastructure and organisation than rail.  The final round of organisation reform, infrastructure spending, spending priorities and fare structure may finally leave us with something approaching a decent railway by the end of the decade.

Fiscal policy is just one aspect of what a Government does. Countercyclical investment projects can and should be prepared, they could and should have been included in a separate schedule of possible work for this control period, but they were not. The lesson here is that where institutions have been established after hard bargained the feasibility of idiosyncratic countercyclical spending is reduced.

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PS This bargaining determined capacity for idiosyncratic countercyclical spending explains the lack of countercyclical investment before Thatcher discussed by Chris. Before the 1980s institutions were much more rigid; labour unions demanded more predictable working patterns and there was less entry and exit of firms and facilities with the greater prevalence of state owned industries. This is rather a counter intuitive result given the trumpeting of China’s countercyclical prowess.

Filed under: Economics, Politics, Chris Dillow, HLOS, Network Rail, railways, Simon Wren-Lewis, SOFA, trains

Help Mervyn King or Sack Him

Mervyn King acts as though monetary policy is currently about right to hit a medium term inflation target of 2%, but insufficient to put Britons back to work. This is because his job is to provide price stability because this is meant to stabilise aggregate demand. Stabilising aggregate demand is something which was achieved very well until 2008 when it allowed it to crash and unemployment to rocket.

The mandate for price stability he has been given is not currently compatible with full employment. Merv has been told to target price stability and financial stability and although he has been relatively dovish in executing his duties, he has not been nearly forceful enough in explaining their shortcomings.

I don’t really want to call for Merv’s head because he seems to be more dovish than average for the Bank of England’s Monetary Policy Committee. I am beginning to think he is no longer capable of delivery the recovery we need. His recent comments indicate that he isn’t being clear enough why he can’t deliver the recovery people want. Today he gave evidence to the Treasury Select Committee that suggested we should be grateful for a decade of stagnation.

When this crisis began in 2007, most people did not believe we would still be here. I don’t think we’re yet half way through this. I’ve always said that and I’m still saying it. My estimate of how long it will take to recover is expanding all the time. We have to regard this as a long-term project to get back to where we were, but we’re nowhere near starting that yet. We’re in a deep crisis with enormous challenges.

In June he was one of the MPC members calling for further QE in response to the worsening situation in the Eurozone. He was entirely right to do so, even if it is the least he could have done that wasn’t nothing.

Regarding the stock of asset purchases, five members of the Committee (Charles Bean, Paul Tucker, Ben Broadbent, Spencer Dale and Martin Weale) voted in favour of the proposition [no extension of QE]. Four members of the Committee voted against the proposition. The Governor, David Miles and Adam Posen preferred to increase the size of the asset purchase programme by £50 billion to a total of £375 billion. Paul Fisher preferred to increase the size of the asset purchase programme by £25 billion to a total of £350 billion.

He has now admitted he is either unable or unwilling to do anything more. We know that there is plenty more the Bank could do because he voted for one of those things in June. We also know that there are other examples of Banks running highly accommodative policy through the exchange rate, some serious, some not so serious, which the Bank has not yet even attempted.

Mervyn King knows he isn’t going to do much about unemployment. A genuinely reflationary policy which put people back to work would threaten price stability and the Bank isn’t authorised to make that call, only the Treasury is. Since Meryvn is acting like he is happy current policy is on track but that the track includes at least five years of suffering we can help him by criticising him. He has to be enticed to explain to everyone that unemployment could be lower but that the Treasury doesn’t want it to be and that he can’t do anything on his own. Mervyn King wants more accommodative policy but is unable to deliver it with the current MPC and Bank mandate.

Rather than ignore this he should be making clear the limits of the mandate he has been given. If he is happy with doing nothing about unemployment he should be made to say so and ejected from his job, if he is unhappy he should make it clear his hands are tied unless the Treasury change his mandate. If he is unhappy with being honest about the limits of what he can delivery legally and what he can delivery technically we need a new Governor of the Bank of England.

In the US, as in the UK, criticism of central banks has predominantly been that monetary policy has been too loose. Monetary policy looks loose if you only look at interest rates but other indicators tell us monetary policy has actually been incredibly tight. Nominal GDP growth has been low all through the developed world, as has inflation. Even in the UK where inflation has been high a large portion of this has been due to tax increases not monetary looseness.

Criticism of the Fed from people like Scott Sumner and Paul Krugman have helped to shift the Overton Window, the bounds of acceptable discussion, to include the possibility that money is too tight. I don’t think it is viable to have somebody in charge of macroeconomic stabilisation who thinks it is acceptable to spend ten years recovering from a crisis. Either we help Meryvn come out of his shell or we help organise the coup of Threadneedle Street.

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PS The Treasury Select Committee need to update their website more quickly. Sir Merv’s testimony is still missing. The latest story is a push piece about Merv’s upcoming appearance, but there’s no link to the testimony now it has happened. I had to crib from the Telegraph.

Filed under: Economics, Politics, Adam Posen, Ben Broadbent, BOE, Charles Bean, David Miles, GNDP, Martin Weale, Mervyn King, MPC, Paul Fisher, Paul Tucker, Spencer Dale, Unemployment

The Rt Hon Richard Benyon MP, Parliamentary Under-secretary for Environment, Food and Rural Affairs

Dear Minister,

Thank you for you letter.

Even though I am no longer your constituent it is nice of you to continue to write to me. Almost exactly two years ago I wrote to you about Refugee and Migrant Justice. I am pleased to know you are still interested in immigration.

I must admit, I was a little, confused by the content of your letter. When I wrote to you I was asking for funding reform for a charity that your government was starving of funds. There were more than 10,000 asylum seekers who could have been affected. They would have effectively been cut off from legal help in navigating the  thicket that is UK immigration law. Last year they were abandoned as Refugee and Migrant Justice closed its doors.

Your letter boasts of how mean you have been to immigrants. Shurely shome mishtake?

I once thought of you as a competent Tory, something in short supply, but it turns out I may have been wrong. It is of course very efficient of you to have a list dedicated to people with “concerns” about immigrations. I do find it slightly amazing you don’t have a separate list for people whose “concerns” regard the conduct of your government.

Turing to your letter, your first point about capping the numbers of non-EU workers allowed to enter the UK interested me a lot. I am happy to see you are proud the Tories have generated such an anaemic recovery that nobody wants to live here. I still do, just, but your letter is certainly giving me pause to consider that too.

Allow me to thank you for letting me know you have “reformed the student visa system.” It is good to know who to blame when my friends are forced out of the country. I’ve just finished my studies at LSE, so like last year it is my friends you will be forcing out. The deportation of people more diligent and intelligent than I is something of which you should be so proud.

I am pleased to hear that your Government is taking steps to cripple one of the UK’s most competitive export industries. Your government’s own Department for Business, Innovation and Skills estimates Higher Education contributes around £8 billion a year. Congratulations on making me poorer in friends and money.

I am impressed by your measure to punish skilled workers who earn less than £35,000 a year  by deporting them. It is certainly a tremendous way to extend your government’s programme to punish people who dare to be working class beyond this country’s shores. How it is to make me better off I am not sure.

Of course merely punishing working class people is not enough, some of those working class people want to breed. Punishing poor people in love by preventing poor people bringing their spouse to the UK is a lovely touch. Again, I am unsure how this is to make me better off.

I don’t want much from an MP. Effectively labelled spreadsheets is pretty low down the list. Not relishing the opportunity to punish people for being poor, in love, or freshly graduated and intelligent are even more fundamental. Perhaps what I find most offputting is that you presume I share your Party’s enthusiasm. More evidence of the Tory Party’s natural arrogance.

I am pleased to say you are no longer my MP Richard, but I do hope this letter finds you well.

Yours sincerely,

Left Outside

Filed under: Migration, Politics, Society, Refugee and Migrant Justice, Richard Benyon

For the nth time, already!

I just want to inform all my international readers that there are no institutional problems with the UK adopting NGDP  level targeting. Failure is a choice.

First of all, for those keeping score, we’re still doomed. Secondly, the coalition can still, at any time, prevent doom, by changing the Bank of England’s mandate to target nominal gdp and to ease policy until it returns to trend.

If NGDP level targeting can be adopted quickly somewhere it is here. If somewhere needs to lead by example, I would recommend the UK too. NGDP is below trend, our banking system is weak, we are closely tied to the Eurozone, inflation expectation are falling and all anyone needs to do is to convince David Cameron’s cabal that this policy would get them elected. Conservatives *love* getting elected.

Britain has a parliamentary system with a lot of power vested in the executive. This is normally very good for getting things done. Sadly it also means you get bad legislation passed “when something needs to be done.” Something needs to be done and for a change it would be nice were the Government to do the right thing.

Filed under: Economics, Politics, Society, David Cameron, George Osbore, Mervyn King, NGDP Targeting

The EU as the US the late 18th century

After the war of independence most American states were in debt and some where in danger of not paying back the money at all. Alexander Hamilton, all round dude, argued that the only solution to the debt problem was to nationalise the debt, give the central state some taxing powers to pay it off, and to ban individual states from running up large debts.

As discussed by Martin Wolf, something similar could work in Europe. However, the thirteen colonies had just been brought together by defeating the evil British (mwahaha), whereas Europeans are down each other’s throats, blaming one another for another fine mess.

On the other hand, the basics, are probably in place in the EU in a way they never were in the US prior to the 1800s. A pact to prevent member states from running deficits has already been instituted (although this could be rendered a dead letter law, were it to become politically necessary to ignore it), and a national currency already exists (for now).

All the EU needs is some incredibly unpopular tax and fiscal reforms and it would be half way to becoming a United States of Europe. Three things cause me to be tolerate this idea more than my gut tells me to.

One, European leaders want power, and continental scale is necessary for geopolitical clout, Germany will soon be too puny, Europe united never will. Europeans used to own some continents but they lost them last century, so a plan for Europe’s leaders to all share the same one may appeal as a Plan B. Secondly, Currency Unions tend to become countries or break apart, there seems little appetite for either  course of action, but one will come to pass eventually. Three, since Bismark, Napoleon, Charles V, Charlemagne, hell, for a long time, there has been a political impetus towards greater European centralisation, that logic didn’t vanish in 1945.

So, yeah, Alexander Hamilton, best start reading up.

Filed under: Politics

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