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

*The Selfish Gene* er… I mean *The Selfish Toilet Seat*

To resolve an argument there’s nothing quite like Google Scholar. Should toilet seats be left up or down?

First of all a disclaimer. It might be too expensive to move from our current toilet seat norm to a different one. Expensive I mean in terms transition costs, maybe the social anxiety and anti-social behaviour required to move us would be more awful than the small benefits we gain from moving from one norm to the other. Even if that’s true, these are still interesting, and vital, matters to discuss.

What the women are dreading, and the men [1] are hoping for is that I’m going to say toilet seats should be left up, not down. I am not. Lots of people would like to argue that the toilet seat being one way or the other is inherently better, more hygienic or sightly but those arguments are destined to be weak. If Dr. J. Evans Pritchard can’t tell the worth of a poem toilet seats are beyond us all.

There are two things to bear in mind while norm choosing. First is the inconvenience of leaving the toilet seat other than you’d like to find it and the other is the inconvenience of finding the toilet seat other than you’d like to find it. Compared to NGDP growth shortfalls this is all unimportant, but we’re lucky enough to live in an age when we’re allowed to care about the unimportant, embrace it.

I think visually, and the below graph helped clear up my thinking on the subject, taken from the above linked paper by Jay Pil Choi.

If everyone is a woman then seat down is clearly optimal. If everyone is a man then seat up is clearly optimal. That is if we assume the inconvenience of putting up and down a toilet seat is roughly equal. A reasonable assumption, although feel free to register your complaints in the comments.

First of all, a woman having used a toilet is predictive of another woman using that toilet next. Either because the same woman will come back or because the presence of one woman is indicative of there being other women in the vicinity or using that facility in particular.

The more important and logical strand of argument is different though, when society operates under a seat up or seat down rule one set of people  must incur the inconvenience of using the seat on every (for women) or almost every (for men) occasion. The other group incurs no toilet seat related inconvenience.

Because of these two interrelated  the socially optimal arrangement is for you to leave the toilet seat alone. This is what the above graph shows. Only under circumstances of extreme asymmetry in terms of inconvenience does it become important whether the seat is left on way or the other.

This finding is trivial, but also profound.

First of all because it shows that being selfish is good. The world is a better place because of selfishness as selfishness. Adam Smith argued that the selfish interest of the butcher and baker helped provide us with a service, when it comes to toilet seats there are direct positive externalities from selfishness.

Secondly, the results are generalisable. More things in life are like toilet seats than you realise. [3] When sharing a car, leaving it as you want it is superior to always returning it to someone else’s preference, or to somewhere neutral.

A society which is more selfish, and more accepting of bring selfish, does not therefore represent a move towards barbarism, but represents a sort of progress. Thing of that next time you’re on the toilet. In fact, some of you may be there right now reading this on your phone. Take my advice. Leave the seat alone and go and do something you enjoy.

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[1] Yep, just thought, “that’s very cissexist of you”, but sod it, I’m talking about toilet seats. [2]

[2] What do you mean you come here for serious political analysis? You really haven’t been paying attention these last four years.

[3] Can I submit that as one of the best sentences ever?

Filed under: Blogging, Economics, Society

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

War is a very particular accounting issue

For me, like Chris, [going to war] is an accounting issue.

Thus sprach Paul. But I think that’s an ugly, confusing way of phrasing it. In retrospect perhaps you can decide whether a war was a good idea with a quick tally ex-ante and ex-post death tolls with some role for economic performance, but a forward looking evaluation is very different.

My priors suggest strongly that killing people is very wrong. My priors are very strongly biased in that direction. Call it a personality flaw! I think you’d have a tough job convincing me that killing one person was worth probably saving a hundred.

Thinking about war as something likely to be fucking terrible and which definitely has incredibly high costs and definitely has incredibly uncertain benefits is useful. It sets the bar for war incredibly high. No particular policy position needs be behind the war or your opposition, I am just talking about stacking the deck.

Stacking the deck gets a bad name, but stacking the deck against killing people is a self-evidently pretty good idea. War is one subject where I think the principle “first, do no harm” is a good one.

Why? Because history. The historical record says that some truly awful actions can lead to prosperity but that truly awful wars normally just lead to death and suffering. So, for example, my priors tell me to somewhat support what’s happening in coastal China, but not what happened in Iraq. I’ll do the same in the future too.

Filed under: Foreign Affairs, History, Society

Do no harm? You have no choice

The principle “first, do no harm” is a good one in most situations. But one situation where I find it hard to apply is in development: getting poor countries rich. Harm is inevitable and unavoidable and to some degree unmitigatable. Owen Barder lays it out thus:

We should pursue policies which do (much) more good than harm, which take account of the broader consequences, which take proportionate steps to limit the harm and risks, and which are careful and responsible about looking after those who are likely to lose from change.

I think is an eminently sensible position to take. I’m going to make a more fundamental argument that Owen though. Sometimes, merely moving policy in the right direction will have directly harmful side effects which you won’t be able to mitigate and this is okay. It’s okay because we don’t really have another option.

Norm takes umbrage with Owen’s defence of a utilitarian approach to the harm caused during development (and will likely dislike mine), laying out two key reasons. First, there are some things which are so wrong that no amount of mitigation can offset, Norm offers the example of torture. The other is that far-off, uncertain, broadly shared benefits should not be won at the cost of concentrated, short-lived, acute, concentrated costs.

Neither of these are good arguments for adopting “first, do no harm” in the field of development.

Take something as innocuous sounding as quinoa (no, really, take it!). According to the Guardian the trendy vegan boom in quinoa consumption has meant that the poor Bolivia and Peru can no longer afford their staple food and must seek alternatives. Although the guardian gives the impression that harm is occurring here, it is important to remember that we are talking about a mitigatable harm. Redistribution within Bolivia could split the gains from trade between winners and losers, with everyone better off.

But think more deeply about what’s going on here. Neither Bolivia nor Peru has reached the technological frontier for quinoa growing. I’m only working on the photos of those growing it supplied in the Guardian, but it looks pretty low productivity to me. Prices have increased because it is difficult to increase production to keep up with demand. Development is the process of ensuring that production eventually does.

However, this poses a paradox. Actually existing institutions that have seen this happen have also created incentives to do great harm.

Meeting demand (for export markets and domestically) will require investment. Those doing the investment need a degree of certainty that those investments will get a return and this means securing property rights for investors so they can spend big now and reap the rewards long term.

But, if the institutions protecting the property of the wealthy are stronger than those protecting the property of the poor then those peasant cultivators of quinoa are going to be kicked off their land. Given the institutional strength of the wealthy in any polities and the compromises unavoidable in politics the decks are likely stacked against those farmers. This is a harm that could be, but will not be mitigated.

I don’t just refer to simply exploiting workers, but to the expropriation of land and the intimidation of communities. These things are typical of development success stories because effective institutions make the stakes so high. They make honest hard work pay, but they often make the criminal exploitation pay too. Think Chinese land grabs, or America’s westward crawl – the historical record is full of successful developmental cases where incentives to profit coincide with incentives to pillage.

The job of development is to apply pressure and create institutions that cause economic growth, but brutality and suffering has coincided with all stories of development. “Do no harm” doesn’t work where successful policies cause suffering incidentally but inevitably.

Do I like it? Not exactly. Do I have a choice? Again, not really. Is “first, do no harm” a good principle for guiding development policy? Nope. I wish it were, but all the maps I have from getting from rural idiocy to modern society have these satanic mills halfway. [1]

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[1] Actually, there is a detour called “migration”, but that’s another blogpost for another time. In brief, if the institutions won’t come to Mohammed, Mohammed should go to the institutions.

[2] I find the this excerpt (below) at odds with Norm’s support for certain Mesopotamiam adventures as they featured a likely high ex-ante and a realised high ex-post death toll, but that is a subject for yet another blog post.

There are doubtless more qualifications necessary than just these two, but the point is that the ‘Do no harm principle’ can’t be adequately replaced by a purely quantitative measure of goods against harms. Some harms should not be done in any circumstances  Some benefits are too uncertain to justify definite harms.

Postscript: I have missed blogging. Ah. Feels like I’m stretching after a long lie down.

Filed under: Economics, Foreign Affairs, History, Norm Geras, Owen Barder

‘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

It’s Don Pacifico time

A death sentence handed down in Bali to a British grandmother found guilty of drug trafficking has been condemned by the UK government.

Foreign Office minister Hugo Swire said the government objected and that appeal options were open to Lindsay Sandiford.

Sandiford, 56, was arrested at Bali’s airport in May 2012 after 4.8kg (10.6lb) of cocaine was found in her suitcase lining during a routine check.

She faces death by firing squad.

Any chance?

Filed under: Foreign Affairs

Hacktacular: The Guardian adapts The Daily Mail’s online strategy

What prompted this headline? One throwaway line uttered as a joke to an interview to another publication: [1]

“I can’t say I love the idea of a banker liking our music, or David Cameron,” the singer told Dazed & Confused. “I can’t believe he’d like [2011's] King of Limbs much. But I also equally think, who cares? … As long as he doesn’t use it for his election campaigns, I don’t care. I’d sue the living shit out of him if he did.”

I know the discovery of adulterated food, a helicopter crash and a kidnapping in Western Africa mean today is a slow news day, but does this really need to be on the front page?

Sean Michaels has bills to pay I’m sure, but this is a new journalistic low. And is, in case you were wondering, precisely the Daily Mail’s online business model but replicated for a Guardian audience.

Look at it this way. The Daily Mail may have a reputation as a conservative hate rag, but online it is a font of celebrity gossip and paparazzi shots, this has made the Daily Mail the biggest English language newspaper website. The Guardian attempting a similar technique here. But instead of an almost completely fabricated account of Kim Kardashian’s view of the Chipotle restaurant chain, you have a completely misleading story about Radiohead’s view of the coalition. It is the same form but with different content.

It’s quite cute in a way.

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[1] Link works but with http:// replaced with hxxp:// because you shouldn’t reward linkbait with links.

Filed under: Blogging, The Media

Worse than fiddling while Rome burns

A central bank is never doing nothing. Every announcement tells you not just about policy now, but about likely policy in the future. By announcing that rate cuts were not even discussed at January’s meeting the European Central Bank is offering forward guidance that would make Nero seem empathetic.

The Eurozone is blowing up. Unemployment is increasing across Europe and this is in large part because of contractionary policy from the ECB.

However, and I still can’t quite believe it, inflation remains stubbornly close to the ECB’s target of 2%, even in pain-racked Spain (see HICP in the below table for FT Alphaville).

The ECB has done all sorts of unconventional things. For example, it has publicly demanded certain styles of reforms in certain countries (insert: free market and Southern Europe), radically overstepping its supposed mandate. Likewise, it has threatened intervention in the bond market of certain countries to push down yields where they have cooperated, so-called Outright Monetary Transactions, for countries that play along with the ECB’s plans.

What they have not done, in a continent savaged by depression is cut fucking interest rates in the last six months. They have another 0.75% before they reach 0, but they are not willing to do so.

Am I losing my mind, or is the main conventional tool central banks have to fight off depression and suffering interest rates? In the UK and the US, to a certain degree central banks have become “mute.” Their interest rates reach the floor and they can go no further, but this isn’t the case in the Eurozone, they’ve never run out of ammunition, they’ve never been stuck at zero unable to go lower.

Let that sink in.

Maybe they couldn’t have lessened the suffering much (although really they could), but they could have lessened it a little but they have decided not to. Suffering in the Eurozone is a policy choice. I think it is because some people think suffering is good for the soul and Southern Europe has sinned.

If you’ll permit me to flit between classical Rome and Greece, Nero while of fiddled while Rome burned but at least he stuck to the old Greek dictum “first, do no harm.” I wish the ECB would do the same.

Filed under: Economics

Writer’s block

In case you can’t tell Mungo here has a serious case of can’t think so good.

Filed under: Blogging

Indeed Atrios

Although I have gone off Left Outside as a soubriquet, and I would rather see Scott Sumner use my real name (and link to me, blogiquette please) when referring to me, the sort of stuff in the last post is why writing under a pseudonym is valuable.

Anyway, let’s not dwell on the unpleasant. Have some Buddy Rich.

Filed under: Blogging

Email to the Dean, Provost and President of the University of Rhode Island

Dear all,

I wanted to write to protest in the strongest possible terms your treatment of Erik Loomis.

Following the tragic Newtown shooting, Erik Loomis called for Wayne LaPierre’s “head on a stick.” This was in reference to Wayne LaPierre’s anti-gun control advocacy as head of the National Rifle Association. This was a demand for the NRA to be held accountable for their pro-gun work, not a demand for vigilante action. As should be clear to all.

Following these comments a fake scandal has dogged Erik and some have claimed that Erik proposed the physical insertion of a stick into Mr LaPierre’s head. This is frankly ludicrous, and serves only as a distraction from the real, and avoidable, tragedy that occurred at Newtown last week. Erik has been visited by the police and has now, rather ironically, received threats himself.

Beyond the misleading nature of the accusations, it should also be emphasised that they are deeply hypocritical and politically motivated. Two months ago, right-wing blogger Glenn Reynolds voiced his anger over the State Department’s lax provision of security in Benghazi by demanding, “Can we see some heads roll?” Yet that very same Glenn Reynolds is now accusing Loomis of using “eliminationist rhetoric.”

I was therefore very disappointed by the statement issued yesterday:

The University of Rhode Island does not condone acts or threats of violence. These remarks do not reflect the views of the institution and Erik Loomis does not speak on behalf of the University. The University is committed to fostering a safe, inclusive and equitable culture that aspires to promote positive change.

By stating that the University of Rhode Island “does not condone acts or threats of violence” you imply that Erik Loomis does, moreover you imply that the allegations against him are true. For the record Erik does not want LaPierre impaled,

When you should have been supportive of Erik’s right to freedom of speech and expression and brave enough to stand by him, it seems you have instead thrown Erik under the bus. For the avoidance of any doubt, this is a metaphorical bus.

I urge you to read what he and others have written on the situation and reconsider your stand. Although it is never pleasant to be subject to such ire, this is the price which must occasionally be played to protect freedom of speech and personal integrity. Please reconsider your position and offer Erik the unreserved support which he deserves.

Yours sincerely,

etc.

 

Filed under: Blogging, Erik Loomis, Newtown shooting, Wayne LaPierre

Regime change at the Bank of England?

Mark Carney was poached last week to replace Mervyn King as Governor of the Bank of England. As though replacing an incompetent central banker with a competent central banker wasn’t good enough, the news just kept on getting better:

From our perspective, thresholds exhaust the guidance options available to a central bank operating under flexible inflation targeting.

If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP (NGDP)-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting. This is because doing so would add “history dependence” to monetary policy. Under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses on the path of nominal GDP

I’m behind the curve a little bit on this one, but it is potentially huge news. Remember that under inflation targeting if you crash an economy but get inflation back up to a positive but low value then you’re more or less out of stimulus options. Hello lost decade. With a target for the level nominal GDP you must make up for any shortfall. Hello recovery summer.

Now, Mark Carney isn’t saying he wants to implement NGDP targeting, he isn’t even saying other people might want to implement it. He is merely saying that it is an option and central bankers need more options. The anti-Yes, Minister. “Something must be done. This is something. But there are other somethings too.” Eminently sensible and of course very central bankerese, as you would expect.

The Government is replete with figures who already find this option attractive. Giles Wilkes, much missed blogger, now my favourite coalition apparatchik (low praise indeed!), wrote the book on this from a UK perspective in 2010 in his paper “Credit Where It’s Due.” His Boss, Vince Cable is also sympathetic. Indeed, even George Osborne “said he was pleased Mr Carney was discussing such ideas.”

What makes this exciting is that implementing this policy revolution is really easy given the laws on the books in the UK.

One interesting thing about central bank independence in the UK, is that there are very few checks or balances protecting it. The Bank must aim for “price stability,” but the Chancellor can change the definition of “price stability” whenever he wants. It’s right there in the 1998 Bank Act. I thought I was the first UK blogger to cover this, but actually Britmouse got there a full two months before I picked it up. This isn’t an esoteric or obscure fact, if it’s in the FT it’s more or less in respectable discourse.

Politically, it would cement austerity as a fiscal and social policy measure, but would likely dramatically improve private sector job and productivity performance. As demand picked up underutilised resources and resources (stuff and people, basically) shed from the public sector would find it easier to find work. It is an electoral nightmare for Labour.

However, it would dramatically improve the economy’s performance, so even the anti-Tory in me agrees with Britmouse when he says “Tories Should Embrace Nominal GDP Level Targeting.” In 1931 the UK blazed a trail by abandoning the gold standard and ending the Great Depression, in 2013 maybe we will get a chance to end the Little Depression and one last moment as a great power.

________

In the main shamelessly cribbed from Britmouse, here are some links to things other people have written.

The BBC lower the tone by getting confused: “Mark Carney suggests targeting economic output“

Sky News Editor Ed Conway: “Why we all need to know about NGDP“

Jeremy Warner at the Daily Telegraph: “It’s time the Old Lady was given more obvious growth objectives“

Larry Elliot at the Guardian: “New Bank of England governor Mark Carney mulls end of inflation targets“

Gavyn Davies at the FT: “Carney differs from Bank of England orthodoxy“

Chris Giles and George Parker at the FT: “Treasury open to Carney radicalism“

FT Editorial: “New broom clears way for Old Lady“

Chris Giles again: “Osborne should heed Carney’s message“

Faisal Islam, Channel 4: “Carney’s recent musing on UK jobs and housing bubbles“

…continued…

Dropping the Inflation Target? from Duncan Wheldon

Tories Should Embrace Nominal GDP Level Targeting from Britmouse

Monetary Policy Innovations from Simon Wren-Lewis

Mr. Osborne: “There is a lot of innovative stuff happening around the world” from Lars Christiensen

How soon is now, UK NGDP targeting edition from FT Alphaville

Filed under: Economics, Britmouse, Giles Wilkes, Mark Carney, NGDP, Vince Cable

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

Third time’s a charm

Like Ben and Jamie, its been a little while since I’ve endorsed any clicktivism, so sign this petition to free a Chinese tweeter.

Filed under: Foreign Affairs

The art of taxing carbon without taxing carbon

Before I talk about how the coalition have screwed up, I’ll talk about how the energy industry seems to be moving in the right direction. Despite there being limited progress in pricing carbon or achieving a low carbon economy. People in the energy industry seem to be acting as though there has been. I put this down to expectations.

The more and more closely with people in the energy sector, the more and more I begin to see expectations determining people’s behaviour. Every UK energy company has a smart metering team (that is mandated by law), but they are also dedicated to working out how to get people to use less energy (which isn’t).

Likewise, BP has invested in renewable energy research (although of course it hasn’t abandoned its profitable fossil fuel business). Other energy companies have made a move to low carbon generation and to reducing their customers’ energy consumption. The language executives use has even shifted. Find a speech from an energy company exec that doesn’t mention reducing emissions, you might be surprised how hard it is.

These actions won’t show up in policy discussions because the policies haven’t been implemented yet. So pessimism is to be expected. But when you look at what people are moving towards, it begins to look as though the expectations of more expensive carbon and cheaper renewables is affecting people’s behaviour. In an industry with such a long planning horizon I suppose this is to be expected, but I was surprised.

I suppose this is another of my hobby horses. Economics isn’t about choice. It is about expectations and contracts. Expecting higher prices, even if today’s prices are low, will impact your decisions. I think we can see some of this in the energy sector. I don’t want to be Panglossian, we are still probably screwed by climate change, but probably less screwed than people assume.

Filed under: Economics, Carbon, Climate Change, EMR, Energy