2+2=5

The numbers just don’t seem to add up to me.

The Guardian today reveal that the Treasury expects that around 1.3 million jobs are to be lost as a consequence of the budget. Of these around 600,000 are direct public sector job losses with the rest culled from the private sector.

David Cameron insists, with chutzpah in Kathy Newman Alice Tarleton‘s words, that unemployment will befalling every year this parliament. This is a reiteration of what the Office for Budget Responsibility describe; a situation where jobs lost in the private sector are replaced, more than replaced, by those created in the private.

As Anthony Painter points out this means that net job creation must proceed at rates in excess as were enjoyed in the period 1999-2007. Let me reiterate, Cameron implies that our recovery from a catastrophic financial crisis – which usually tend to L shaped rather V shaped – will see a flurry of job creation not seen even during the longest boom the UK has seen.

There are ways out for Cameron, but none particularly convincing.

A contractionary fiscal position can be met offset with an expansionary monetary position; lower interest rates or quantitative easing, for example. But it looks as though we will be facing tighter, not looser, monetary policy in the near future.

Or we can trade our way to a boom, after all Stirling has plummeted, but every country is planning on doing that, and we can’t all run trade surpluses.

Businesses can be impressed by tough measures and they can boost their confidence, of course that hasn’t happened and confidence is down.

Alternatively, Cameron is just making over optimistic prediction. This is something which he lambasted Brown for while in opposition but seems to have embraced once ensconced in the seat of power. Both the private sector and the Trade Unions are dubious of Cameron’s predictions and they can add my voice to their incredulous calls.

What will happen to the North Korean Football Team?

I think today’s upcoming match pitching North Korea against the Ivory Coast is a worthwhile time to revisit a post originally published in April.

I recently finished reading The Aquariums of Pyongyang by Kang Chol-Hwan. It is an account of life in a North Korean gulag. It’s not incredibly current, especially as his time in the gulag finished in 1987, and the book was first published in France a decade ago. But in a country that seems to be plodding along at the pace of an ox drawn cart, and that has suffered a great famine in that time, it offers a relatively insightful glance into a world that very few people have gained access to. Excepting suspicious footage of the Gulag in which the memoirs speak of which surfaced on Japanese TV in the past few years, it is something which very few people have been granted access to.

I could put together a several thousand page rant about the Korean Worker’s Party, the ‘Dear’ and ‘Great’ leaders, and the bleak situation which North Korean citizens have had to endure as a result,. It’s something that many people have done before, and with limited fresh information coming out of North Korea, runs the risk of recycling the words of previous commentators. So in an effort to keep this post somewhat topical (whilst avoiding all the election hype) I saw a specific section which I thought I could work with regarding the treatment of a former North Korean national sporting hero.

As you may well be aware, the North Korean national football team has qualified for the World Cup finals in South Africa this summer. A feat that they only achieved one time previously when the tournament was held in England (as a Scot I won’t dwell on the final outcome that particular year!). Considering that even less was known about the nation then than now, and that prior to the tournament, no Asian team had ever got past the first round (again, a sensitive issue to a Scot…) very little was expected of the team. Something that was reflected in the 1000/1 odds that were granted to the lowly Koreans prior to the tournament. After a steady, if unremarkable first couple of matches, their final group match against Italy at Ayresome Park in Middlesboro was a decider for qualification to the next phase. Lining up against one of the top seeds and, at the time, joint most successful team in world football with two previous tournament wins, most had resigned them to defeat. They surpassed everyone’s expectations with a victory to take them to the quarter final where they lined up against Portugal with the mighty Eusebio. After 22 minutes, they went 3-0 up, before conceding five and killing off what would have surely been one of the greatest ever success stories in World Cup history.

Understandably, following their incredible victory, the team went on a bit of a celebratory binge, which was then used as a reason to blame for their eventual exit from the tournament. After seeing pictures of the team celebrating, the Pyongyang authorities deemed their actions “bourgeois, reactionary, corrupted by imperialism and bad ideas” and the whole team, upon arrival back in North Korea were punished with a stint in the hard labour camps. Kang Chol-Hwan talks of meeting one of the stars of this team, Park Seung-Jin 12 years later, still serving after reacting badly to the punishment which included treatment which stretched as far as a 3 month stint in the utterly barbaric “sweatbox.” This, Kang describes as a Papillon-esque small shack where prisoners are forced onto their hands and knees. Where the prisoner’s heels are pressed so tightly into their body that the buttocks turn solid black with bruising. Barely enough food is provided to survive whilst in this prison, and the tortured are forced to pounce upon cockroaches and centipedes in order to survive. Prisoners are not permitted to talk – the only gestures allowed were to raise your right hand if you wanted to be sick, or left hand if you had to relieve yourself from the other end. If the prisoner made a noise, the guards would relentlessly beat them. If there was any other movement the guard would beat them. That is of course, unless they favoured other punishments such as being forced to crouch over a septic tank with the prisoner’s hands tied behind their back and their face forced downwards.

So other than to give you an unpleasant account of torture methods used in North Korea, what has this post told you? North Korea is isolated from the outside world. Even the route of escape which Kang eventually took – past relatively lax border guards in China has been limited with the construction of concrete walls and barbed wire lining the border to stop escapees. The lack of information regular citizens have of the outside world is startling. The internet is but a fantasy to all but an elite few. Tuning in to South Korean radio is punishable with a spell in the gulags. The country has the lowest rated free media in the world. The very few tourists allowed in the country are scowled at by the North Koreans, who believe them to be a threat to their great nation. The population of North Korea genuinely believes that their “Great Leader” saved them from the American Imperialists who invaded their country. They also believe that they are the most successful and most fortunate nation in the world. The thought of them losing in the World Cup (which, lets face it, looking at their group is incredibly likely!) is inconceivable to the 180,000 odd who can pack into their Rŭngrado May First Stadium in Pyongyang, which I recently learned is the largest stadium in the world.

The World Cup for me and many other people worldwide is a hugely anticipated sporting spectacle. It’s a chance to watch the best in the world compete in the world’s most popular sport. But naturally it brings political implications. I just hope that people pay a bit more attention to this North Korean team. I fear for these players who will almost certainly never live up to their nations impossible expectations. Whilst many casual observers may expect the team to return home to a heroes welcome regardless of the results, the reality may be far starker. So let’s hope, that in 43 days (and counting) when the tournament commences, that the team won’t be ‘corrupted’ in the free, western world and be accused of actions that are “bourgeois, reactionary and corrupted by imperialism and bad ideas.” Let’s hope that the media steer clear of arousing unwanted political controversy which would have extremely far reaching implications, and let’s hope that the logic and lunacy of Kim Jong-Il doesn’t stop these players enjoying their well-earned spot in the limelight amongst some of the world’s sporting elite.

Brad DeLong slouches towards a completed manuscript

Before the invention of agriculture it is almost surely not good to be the king. You can use your status to pick the best of things, but the amount of things you have is limited to what you can personally carry. And if your exactions become too onerous the people can simply leave for the hills. But once a population becomes agricultural, people cannot leave for the hills. Hunting and gathering in the hills cannot support the population densities of agriculture in the irrigated plains, so departure means death for overwhelming numbers and also the loss of all of the value of the labor that has gone into ploughing and sowing and weeding. Agriculture opens a new career path: that of a specialist in systematic violence directed against other humans who makes threats to induce them to give you a third of their crop—or else.

A parasitic caste or class existing by virtue of their organized ability to take a substantial share of the agricultural (and craftwork) producers’ crops becomes the rule soon after the coming of agriculture. Such castes and classes live better albeit more dangerously than the peasants. (If they didn’t live better, after all, why accept the extra danger?)

Interesting throughout, you won’t read these paragraphs (only two of 17 are abstracted here) anywhere else as he’s just cut them from his book.

Class war and misleading graphs from ConservativeHome

Well the budget is out and Tim Montgomerie helpfully provides this graph showing that those with the broadest shoulders are baring the greatest burden.Screen shot 2010-06-22 at 15.02.45

Or are they?

His second graph (added an hour later in an update) shows the impact of the budget as a percentage of income and it paints a somewhat different picture.

Both graphs together tell many stories.

We are shown the dreadful impact VAT is going to have on the poorest, even with all the exemptions they are still going to feel the biggest burden because of it.

We are shown that the Tories are not afraid to offer the very richest the largesse of Government, they are suffering relatively little.

About our society, the difference in the absolute figures and relative figures shows us how unequal we are.

About Tim Montgomerie?

Well his preference for the first graph shows he is both an excellent propagandist for the wealthy [1] and someone who doesn’t understand poverty. A graph that shows poor people can’t pay much for something, and the wealthy can, isn’t exactly demonstrative of much that isn’t obvious, if you know what to look for in the first place.

[1] For those who can’t see the venom dripping from their screen, this is not a complement.

***

Sadly, I don’t have much time to analyse the budget. I stick with my original position as outlined in the below posts.

Dave, Nick and George: Crushers of optimism, enemies of business

Paul Krugman is angry

This country doesn’t have an overdraft you twat

I hope I’m wrong, but I don’t think I am. George is going to tank the economy, and while I don’t think we are destined for a double dip we are going to be in a worse state than we needed to be for sometime. Perhaps we’ll see some more activism from the Central Bank to offset some of this, but I’m not holding my breath.

Time to get your barricades polished.

File:Eugène Delacroix - La liberté guidant le peuple.jpg

“What’s that @CharlotteGore? My Restraining Order is in the post?” — Charlotte Gore continues to demonstrate that she doesn’t understand economics

This is now a trilogy.

Perhaps quite a rude trilogy now, but it appears I’m not making much headway.

However, I think perhaps I might have secured a toehold [if you need to be brought up to date please follow the footnote 1].

Charlotte Gore believes that the Government, by its very nature, has no means of creating wealth itself. This is the reason she is worried about the deficit.

This is wrong, and as yet, she has provided no evidence to support her position. She has, in fact, provided evidence which contradicts her position, although I’m not sure she realises it.

The evidence contradicting her position, provided by Charlotte, is provided below.

The things that help generate wealth – courts (and the police), roads, rail, national grid.. these are all things that the private sector WOULD provide if they needed to, if building a motorway was a way to get goods from A to B in the most efficient way possible, thus helping them make money, then they’d do it.

I am now going to summarise this argument so its easier to understand.

  1. X is currently done by the state and creates no wealth.
  2. X is a necessary service.
  3. Because it is necessary, if the state did not do X then the private sector would do X.
  4. The private sector only does things which produce wealth, because it only survives by doing so.
  5. Therefore when X is done by the private sector it creates wealth.

As I hope my more astute readers have observed this makes no sense.

In fact what Charlotte Gore has demonstrated is that certain things currently done by the state produce wealth.

This conclusion was reached solely using the assumptions presented in the three missives delivered to the internet on the subject from Charlotte’s own keyboard and their logical conclusions.

Therefore, I repeat, the state under certain circumstances can produce wealth.

But wait. There is more.

Charlotte: Anything [the state] does aids wealth generation by the private sector incidentally and indirectly only, and never as efficiently or successfully as the private sector would, which by its nature only does things from which it can make money.

This is a statement of empirical fact provided in absence of evidence. This is also a statement in denial of a widely accepted, in fact almost utterly irrefutable, theory. Enter stage right Joseph Stiglitz.

Whenever there are “externalities”—where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated—markets will not work well. But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always.

The real debate today is about finding the right balance between the market and government. Both are needed. They can each complement each other. This balance will differ from time to time and place to place.

That is flatly in contradiction to Charlotte Gore’s argument.

In fact, once again Charlotte ignores the post on which she seeks to comment, as I make the very same argument in my post with regard to Pigou taxes. Do go and check as I think I argue it quite eloquently.

But wait. There is more.

Charlotte argues that whatever the state does at best  “aids wealth generation by the private sector incidentally and indirectly only.”

This is an interesting argument because it assumes an economic system which hasn’t existed anywhere for thousands of years.

What she is describing is a system where trade is rare. Most productive processes aid wealth generation incidentally and indirectly only and only do so to any great degree when combined in aggregate with other services.

For example, I work in customer services, writing letters requested from members of staff and responding to letters sent in by customers. Even with the rest of the business, I am not aiding wealth generation in any way other than incidentally and indirectly.

Tim Worstall provides his beloved Scandium to all and sundry should you provide him with the cash he requires. Yet if a lump of Scandium were to arrive through my letter box I wouldn’t be able to put it to use as anything other than a paper weight.

Trade for my services occur in this case within a firm, Tim without, my services are for money as are his, but as usual we only provide part of the value added which the customer receives. Wealth generation only ever occurs as a small part of a value added chain, unless of course you are fucking Ray Mears.

But wait. There is more.

Charlotte: You’re still missing the important bit. While the courts, for example, are absolute [sic] essential for wealth creation – which they are, by the way, because they help make sure contracts are enforceable – they are PAID FOR by the Private Sector.

Here Charlotte argues that because service X is “PAID FOR by the Private Sector” that X cannot be a service which creates wealth.

My customer service job is “PAID FOR by the Private Sector” yet the job I do produces wealth. I still have the job, so I hope Charlotte would agree that it must logically produce wealth, otherwise it would not be “PAID FOR by the Private Sector” and I would be let go (what a wonderful euphemism, no?).

Things which are PAID FOR can still be (and almost always are) things which produce value. That they are purchased is not an indication that they do not produce wealth often the opposite.

Of course, the private sector is compelled to purchase these things. However, because all private actors can enjoy the benefits of the courts, police etc. (as you acknowledge) without paying for them a degree of compulsion is the fairest and most efficient way of delivering these.

Here you must be brimming Charlotte: “I didn’t mean PAID FOR in that manner, I meant that the private sector paid for these things yet they are enjoyed by someone else.”

Yet when we are discussing “the courts” (which you specifically cite) the private sector is enjoying the benefits, and as Joseph Stiglitz points out aboveit is almost certainly more efficient that the alternative.

There is no more.

The state can produce wealth, you have admitted even if you don’t realise it. You must refine your arguments if you wish to convince anyone.

Which actions of the state do not produce more wealth than are consumed in their production? Which actions of the state are mere second best uses for things which can best be used best by private enterprise? Etc.

Once again I conclude the same, you want to convince me of why you are, and therefore I should be, worried about the deficit, but you have yet to present any sort of logically coherent argument in favour of your position.

And now for something completely different.

Let me present an argument against the deficit to you which troubles me. It makes me rethink my position in a way you are unable to provoke.

This argument concerns fiscal policy and monetary policy.

Say the fiscal authority (call them the Labservative Democrats) and the monetary authority (call them the Bentral Cank) have different targets for employment and inflation.

If the Labservative Democrats decides to boost aggregate demand and inflation in an attempt to boost employment by fiscal measures (i.e. running a deficit) then there is nothing stopping the Bentral Cank from withdrawing stimulus to prevent  an increase in employment and inflation (i.e. raising interest rates, or signalling they will raise interest rates sooner than otherwise).

This neutralises the beneficial effects, while leaving the debt. Bad all round.

I don’t have a completely satisfactory answer to this dilemma. However, I have several completely satisfactory answers to the arguments put forth by you. If you wish to convince others to your way of thinking then you need to start being more convincing.

I’m not sure I have much more time for you when as you can see, actually existing policy dilemmas exist for me.

______

[1] To bring you up to date Charlotte Gore argued that the reason she is upset about the deficit is because she doesn’t understand economics the Government, by its very nature, has no means of creating wealth itself and that it was simply building up debt with no demonstrable benefit.

I argued at first that the police, courts and army – the night watchman and thoroughly classical liberal functions of the state – did produce wealth regardless of your political ideology. So her principle objection is in fact fallacious.

However, rather than accept this she responded that “even if you consider the courts, the police, the road network and all the other infrastructure, non of these create wealth… it’s the private sector that generates the wealth.” I began to get exasperated here and as Quinn pointed out “it appears Charlotte… left a comment without reading this post.”

So I followed with another post wherein lied two propositions.

Firstly that if the police, army and courts did not exist it would be necessary for the private sector to provide them. Of course, they would only be provided by the private sector if they produced wealth, as the private sector is motivated only by the profit motive (oversimplification alert!), ergo they produce wealth, ergo when the state performs these actions it produces wealth.

Secondly, when negative externalities are produced, such as pollution, this can be taxed at the rate of damage and the proceeds distributed to the victims of said damage. In this way allocative efficiency is raised and wealth is produced (because scarce resources are allocated more efficiently when priced correctly).

See above for Charlotte’s response, and my response in turn to her.

Can we afford the middle classes? (via Raincoat Optimism)

In 1974, Edward Heath asked: “Who governs – government or trade unions?” Speculate as you will on whether you think the re-election of Thatcher five years later answers that question, but the relevant answer today is neither. The third choice is the complexity of the political situation, it is this which has done the most to engender the system more than the above. For example, it is not for nothing that a repeat of Peter Griffiths’ campaign, wh … Read More

via Raincoat Optimism

Two propositions on the state and wealth creation for Charlotte Gore

I know I really should stop, shouldn’t I? I just can’t help picking this scab…

Even if you consider the courts, the police, the road network and all the other infrastructure, non of these create wealth. At least, not for the Government or the public sector.

It’s the private sector that generates the wealth. And these lovely things? They’re all paid for by.. yep… the private sector. ;)

That’s Charlotte Gore on the inability of the state to generate wealth commenting on my last piece. The Government, by its very nature, has no means of creating wealth itself, she writes in a blog which inspired my original blog last week.

That the state cannot produce wealth is her proposition, and it is completely unsubstantiated in anything which she has ever written so far. Personally, I am willing to go further and say that she will never substantiate it, because it is not true.

I have some propositions with which to test her, which will hopefully bring Charlotte Gore into the reality based community, should she wish to join. Continue reading

Graphs to make you go “Eeek!”

Courtesy of Ryan Avent.

This:

And this:

What we see in the first image is that even if one takes into account the unconventional monetary policy actions the Fed has used through this crisis, the federal funds rate target remains nearly 4 percentage points above the level at which you’d want it. And in the second image we see that the huge growth of the Fed’s balance sheet has basically done nothing to increase long-run inflation expectations. Inflation is no concern at all; in fact the Fed should be doing more.

As it stands, the question of the day is not what more the Fed should do but how long the Fed should wait before undoing.

If you have no opinion on these things then go and start learning about monetary policy and then start worrying about what the hell is going on.

The International Security Forces-Afghanistan have got “no reports, no intel, nothing” on Patrick Mercer’s claims of the Taliban’s HIV Bombs

I wrote last week on Patrick Mercer’s bizarre claims that the Taliban were using HIV infected needles as booby traps and shrapnel for their improvised explosive devices.

Many other bloggers Septicisle, MacGuffin and Richard Bartholomew covered this story to (all recommended reading).

The Rumour Doctor dug a little deeper than I was able and discussed Marcer’s source with him.

“This is not a weapon as such,” Mercer said in a phone interview. “These are needles and razor blades which are put in position around probably dummy improvised explosive devices, so that anybody trying to lift one of these is likely to be scratched or cut.”

Mercer said he learned about these devices from British bomb disposal technicians training ahead of their deployment to Afghanistan. The technicians have been issued Kevlar gloves to counter the threat.

He could not say for certain whether the Taliban have used these devices.

“That wasn’t a question I asked directly, but I got the impression that these are certainly being employed by the Taliban, al-Qaida, etc.,” he said. “I’m not aware of any injuries that have been caused by it so far.” [Emphasis mine]

So unfounded was Mercer’s claim that the International Security Forces-Afghanistan had no idea “no reports, no intel, nothing” on Mercer’s alleged HIV bombs.

I remain highly sceptical on the likelihood of these existing. However, I am utterly convinced of the malfeasance of Patrick Mercer.

Something to delight Tim Wostall and discombobulate environmentalists

Tim Worstall frequently takes delight in pointing out that some of the anti-capitalist things some greens suggest would likely increase carbon emissions. So this ones for him.

Intensive farming bad? No, Intesive farming good.

The study included carbon dioxide and other gases such as methane emitted by rice paddies. It found that, overall, the intensification of farming helped keep the equivalent of 600 billion tonnes of CO2 out of the atmosphere – roughly a third of all human greenhouse-gas emissions between 1850 and 2005.

The emissions were avoided because the green revolution boosted crop yields – for instance by promoting hybrid varieties that had higher yields, and through widespread distribution of pesticides and fertilisers. This meant that more food could be produced without having to slash vast swathes of forest to expand farmland.

Charlotte Gore: Wrong, unsurprisingly

Lovely gal, nice to converse with on twitter, but this is dreadful. This one line leapt out at me like a torrid stream of faeces.

The Government, by its very nature, has no means of creating wealth itself.

To steal from Raymond Geuss she then allows that bald statement to lie flapping and gasping for breath like a large, moribund fish on the deck of a trawler, with no further analysis or discussion, and proceeds to draw consequences from it.

This isn’t a left-right dig either, its just simple common sense. In fact for this blog I will be wearing my classical liberal hat.

Lots of services which the state provides are not easily provided by competing private businesses. For example it is not possible for the law courts, the police, national defence to be provided by private actors. [1] These are services which are essential for a modern existence of any sort. They are best provided by the state because people can receive their benefits without paying for them and because you cannot have rival armies/police/courts defending/policing/judging over a given are of land.

So probably the first 20% GDP or so paid to the state, even under duress, for its services add value, almost without argument. You can remark that since Hong Kong and Singapore both survive with tax revenues at around 13% of GDP that its only the first 13% of GDP that add value and you may be correct. [2] But that’s a debate for another day, what we have established is that some state is good and makes us richer.

There are some objections which may be raised here. I hope to pre-empt some of these.

1. Some would argue that this isn’t the state creating wealth, but merely providing “conditions in which wealth can be created.” This is a contortion I’ve seen many right wingers adopt while grappling with the fact that the state has a use. This position has no logical foundation, wealth is about adding value and the described state provided services add value. A private company, Safaricom create conditions in which wealth can be created by making money transfer easier, but they are a private company, the question of why to count this as wealth creation and not that done by the state which is essential is never addressed.

2.The state does far more than that today, the state provides healthcare for example. This is more interesting, but it is still not an argument that the state does not produce wealth. At best, from this argument merely flows the proposition that without competition, success and failure, the state is producing less wealth than would be created in the private sector. It appears that Charlotte is almost making this argument at times, but from her above remark I can only conclude she’d reject this analysis.

Why remark on this?

Well, it worries me that deficit crazies like Charlotte Gore are winning the argument. The austerity she wants is on the way and it will have dreadful consequences, but nothing in her post allegedly “On Lending” addresses any of the real world problems it should to grant that victory. Charlotte Gore outlines in this post why capitalism is good, and describes it articulately, but then follows this by the foundationless brain blurt discussed above and concludes that since the government can’t create wealth, a premise she has not – and cannot – prove, all deficits are wrong.

The economy is not working as it should be. Confidence is dropping, monetary policy has become ineffective at the zero lower bound, businesses are not investing, banks are not lending (although this is improving), and the state can borrow incredibly cheaply. As I addressed yesterday, the crowding out of the private sector by the state which Charlotte correctly highlights is not our primary concern. Government borrowing is not going to depress private business as much as depressed demand will (see Krugman on this before commenting).

We’ll conclude with a few of her own words:

The point of this post is to attempt to tackle this idea that it doesn’t matter whether it’s the public sector borrowing money and spending it, or the private sector borrowing it and spending it – it’s all just cash and it all goes around just the same, creating demand for food and clothing etc. But there IS a difference, and that difference is everything. It is the difference between real growth – increasing wealth – and simply trading other people’s ability to create wealth in the future for short term political gain.

She has taken a concept lacking foundation in empirical reality, that the state cannot generate wealth or produce demand, mixed it with an ahistorical description of capitalism, not taking in the fundamentals of our current situation and failed at her original purpose.

_____

[1] I’m sure there’s others you might care to add; roads, electricity grid, drinking water and sewage infrastructure and so on, but today I’m wearing my classical liberal hat.

[2] These are city states in almost unique situations, I would not advise you draw policy advice from them without several caveats, bt that’s your call.

Polling companies are scoundrels

The YouGov poll for yesterday’s Sunday Times included this ridiculous question:

Do you agree or disagree with the following statements?

The government could save billions of pounds by eliminating unnecessary “non-jobs” in the public sector.

Agree 85

Disagree 6

Don’t know 9

Can you imagine a more loaded phrase than “unnecessary ‘non-jobs’ in the public sector”? I’m amazed that even 6 per cent disagreed. I mean, they might as well have asked people: “Do you agree with the state paying people to do nothing?” It would have elicited the same response.

From The New Stateman. Utter codswallop.

Dave, Nick and George: Crushers of optimism, enemies of business

I spotted this earlier but was at work and couldn’t comment, but its on Liberal Conspiracy via Sunny, and now I’m home.

What have the Lib-Con achieved in their time in office?

Business confidence among UK firms has seen its biggest drop since 1995 due to the government’s rhetoric on spending cuts, a survey suggests.

This leads Brad DeLong, admittedly a man not given to subtlety, to label them Herbert Hoover and Andrew Mellon, the men who helped turn the roaring 20s into the depression 30s.

At the moment monetary policy in this country is tight and is overwhelmingly unlikely to get looser. Our main trading partners are either subduing domestic demand by necessity or through choice.  Our domestic sector is still highly indebted and repairing its balance sheet.

However, at the moment the state can borrow cheaply and boost demand, running deficits for a year longer until the recovery is ingrained will not significantly increase the national debt but it could shave a percent off the unemployment figures.

Moreover, reducing deficits too soon could damage demand to such an extent that we are dipped back into recession, a nightmare scenario unless you’re Hayek or Schumpeter and wish to purge the rottenness from the system. Well you and I am that rottenness, and I think purging us is a dreadful idea.

Running a deficit in a situation where we cannot (will not) use monetary policy to stimulate demand will boost aggregate demand and help stop the economy slipping back into recession.

What would stop us running a deficit longer?

1. Well perhaps we would be unable to afford it, but that isn’t the case, as the markets are offering us very low interest rates on 10 year bonds and our average debt maturity at around 13 years gives us a lot of room to manoeuvre. The interest on our debt is high, but not onerous.

2. Government borrowing may crowd out private borrowing, meaning that inefficient public sector pet projects replace efficient private sector businesses. But we are not in normal times:

Under the kind of conditions we’re now facing, the main determinant of business investment is the state of the economy, as evidenced by the plunge in investment shown in the figure. This, in turn, means that anything that improves the state of the economy, including fiscal stimulus, leads to more investment, and hence raises the economy’s future potential. That is, under current conditions deficit spending doesn’t lead to crowding out — it leads to crowding in. In fact, you could argue that the worst thing we can do for future generations is NOT to run sufficiently large deficits right now.

3. Alternatively you can pontificate on intergenerational justice while shafting aforementioned generation.

The coalition are running the wrong fiscal policy for the situation. They are doing so through choice. Lots of metrics are pointing to this – interest rates, business confidence, the electorate didn’t mandate the cuts to be proposed.

When they write the history of this episode they will ask how we could have let them get away with it, and ask whether it was them or us who were more stupid.

EDM 191: REFUGEE AND MIGRANT JUSTICE CHARITY

Further to my previous post, here is the Early Day Motion [1] tabled by Caroline Lucas:

That this House notes that the legal advice charity Refugee and Migrant Justice (RMJ) is in danger of closing because it is facing a cash crisis because a large proportion of legal aid work is now paid upon completion, meaning payment can take anything up to two years; further notes that as a result the charity has a £1.8 million backlog of payments; further notes that senior legal and human rights experts, faith leaders including the Archbishop of Canterbury, Citizens Advice, Liberty and Mind all back the campaign to rescue the legal advice charity from the cash crisis that is not of their own making; is aware that RMJ is not asking for new money but simply prompt payment of legal aid by the Legal Services Commission, or failing that, interest-free loans by the Government to cover the gap; and calls for the legal aid payment system to be changed to ensure charities are paid promptly for their work.

[1] Paul Sagar is right about EDM’s in general, but I want to keep this on the radar.

Bugger: I have an eye infection

It is not particualrly unpleasant, but I wouldn’t wish it on anyone.

Excessive use of contact lenses following the loss of my glasses have led to a bacterial infection which I am treating with two types of eye drops, an antibiotic and a pupil dilator.

https://i1.wp.com/i1.allaboutvision.com/i/eye-drops-224x256.gif

This may either hinder blogging or inspire me, as the NHS was, as usual, an utter joy to behold at work.

Any sympathy is misplaced, as I shouldn’t have done all the thing I did two weekends ago that led me to lose my glasses.