Is it me?

I am unwilling to take complete responsibility for this, but it is a hell of a coincidence…


Just to remind everyone that while I am no spring chicken, pretty much all my friends and I have more or less no idea what economic growth feels like. Nada. Zip. Our entire working lives have been spent in a depression. That can’t be healthy, even for somebody like me who has spent the whole time employed.

In some ways I think it may be salutary. In J K Galbraith’s The Great Crash he argued that financial regulation wasn’t what kept American finance stable after the war, it was the psychic scars of the Great Depression. While our elitehave got off scot free, the little people will have learned a valuable lesson that you don’t have to be a bad person to suffer.

In many more ways, this is anything but salutary, Just reading The Great Crash is a much easier way to teach the same lesson. Likewise, us little people already suffer, it is the elite (politicos, journalists, financiers, central bankers) who need to have their face rubbed in their failure not us.

This post is really just meant to remind all the “grown ups” around here that young people (…and I ain’t as young as I was when I started this blog) don’t really know, in the lived experience way, what the hell you guys are talking about.


It isn’t about the money, it’s about sending a message

Some people think that there is some useful grain of truth in Mitt Romney’s claim that 47% of Americans are taker and pay no income tax.

There are those like Matt Yglesias who use it as an opportunity to point that yes, America taxes its poor people less than it used to. This is a good thing.

There are those like Mark Thoma point out that because children can’t have jobs and old people have retired many people cannot pay tax. This is an inevitable thing.

There are those like Ian Cowie who are just lying arseholes that have used this claim to suggest poor people are thieving, layabout scum, who don’t deserve basic human rights. I’m not even exaggerating! Read on.

Is that libel? I’m not sure of the finer points of the law, but this…

There can be no doubt that substantial numbers – on his estimate, nearly half – of electors who decide how a democracy spends its money no longer make any financial contribution to the taxes it must raise to do so.

…from his latest column is a demonstrable fucking lie. 47% of Americans pay no income taxes for a number of reasons. Most importantly some of them are too old or too young. Less importantly, rather than tax people and pay them benefits, America just taxes poor people less. Beyond all this, there are taxes other than income taxes. Loads of them – federal, state and local – and it is a lie, not mere misdirection, to say they don’t exist. Does that qualify him as a liar?

He continues, in vile, petulant fashion. After blithely proposing that voting be restricted to those that pay at least £100 in taxes a year, in an effort to place himself somewhere to the right of Attila the Hun, he offers two exemptions:

All pensioners would have automatic eligibility to vote because of the fiscal contributions to society they are likely to have paid earlier.

The same exemption could be extended to all mothers because of their contribution to defusing the ‘demographic time-bomb’ of an ageing population.

His implying that there are ways to contribute to society in ways other than paying income tax have left me shocked, shocked! Shocking or not, I think his treatment of women as walking uterine bomb squads qualify him as an arsehole.

So anyone who knows libel law: have I covered my arse?

That was all preamble and throat clearing. Something to show the world that I am still not adverse to playing the man not the ball when its fun.

The main take away from Ian’s piece isn’ t the tax folklore at the end, or the knowingly incorrect statistics, or even the misogyny. The important point is this.

Ian Cowie knows that income tax isn’t the only tax, he’s not a fucking idiot, and yet he pretends that it is for a full 1000 words. I don’t have evidence he’s not a fucking idiot, but he has written for the Telegraph for close to two decades and (when I’m not trying to be funny) that indicates he isn’t a total fucking idiot. He knows.

He also knows that one of the reasons a somewhat surprisingly small proportion of people don’t pay income tax is because they are old. He admits as much, as quoted above. By a small stretch of the imagination, of which even Ian’s puny intellect must be capable, he might have guessed that a lot of people don’t pay income tax because they are young. Despite all this he proclaims:

Bearing in mind that one of the rallying cries of America’s founding fathers was “no taxation without representation” is it really so unspeakable to ask whether some link between representation and taxation should be restored?

Ignore what he says, that he is indignant that some people don’t pay a particular tax. That hasn’t inspired him, he hasn’t come to a new realisation courtesy of Mitt Romney’s glaring insight. He’s publishing almost the same article he published in 2011, which made Paulvery angry. He hates poor people.

There might be reasons to have everyone paying part of a tax, just so they are involved in the bureaucracy of it so they gain some local knowledge of it. I don’t think it is a particularly strong argument, but it has some merit.

There is no reason for asking lots of people to pay some portion of some specific taxes so they look like they have “skin in the game” so it looks like they are being both represented and taxed. People like Ian Cowie don’t care. They hate poor people.  The fact that some poor people don’t pay income tax isn’t a reason for their hatred, it is merely a nail on which to hang their opinions.


PS The article cited should seem familiar. Because about 90% of it was published under Ian Cowie‘s name in 2011 and made Paulvery angry. The original post, which Ian rehashed for 2012, was originally inspired by a post from 2010 from Dominic Hobson.

PPS Post dedicated to Thomas Byrne, who inspired it.

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.

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 FoxFox 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.


[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.

The Fed shows Mervyn’s replacement what’s necessary

The US Federal Reserve really delivered today. Its chairman Ben Bernanke announced QE3, but with very big differences to other QE operations. This time QE is open ended. For the first time they are signalling what they want to happen instead of signalling what they will do without specifying what they want to happen. This is almost exactly the sort of thing which needs to happen in the UK.

The most important part of monetary policy is manipulating expectations. Current policy signals future policy. The sum of future policies is several times more important than current policy, hence what current policy tells us about the future is far more important that how current policy mechanically effects us now.

For example, when investing in a structure of piece of machinery that will last decades today’s interest rate doesn’t really matter, what matters is an assurance of healthy demand in the medium term. It is that signal of healthy demand that is monetary policy maker’s greatest tool. The Fed are beginning to behave like that is true.

Mechanically, QE is very similar to the normal monetary policy mechanism. Normally, the central bank tells markets where it wants interest rates to go and they go there. Chuck Norris doesn’t need to hurt anyone to clear a room, he just tells people to get out. A central bank is like that, except with printing presses not bench presses. QE should be the same, mechanically, as normal policy but it has been something of a failure in ending our stupor. It has failed because the world’s central banks are very good at signalling with interest rate moves, but very bad at signalling with QE.

That has now changed.

Today Bernanke announced that the Federal Reserve would purchase $40bn of agency mortgage backed debt every month. In previous rounds of QE they announced how much they would buy, but not what they expected to happen. This time the language has changed.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.  In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Strongly expansionary policy produces a rapid recovery which produces expectations of tight policy, which prevents policy from being as effective as expected. There is a reflexivity problem in monetary policy which Yglesias explains well: Success begets failure.
The Fed are trying to get round that by saying a recovery won’t change their mind straight away. They aren’t saying exactly what they want to happen, they’re too cryptic for that unfortunately, but they are saying they will not tighten policy at the first signs of recovery. This sounds minor, but look at the leap in the stock market:

No, the stock market isn’t the labour market, but stock markets move quickly and labour markets don’t, and stocks liked the news. Bear in mind as well, that stocks were higher on the strong expectation that policy would become looser. Policy turned out even looser than expected, hence the jump.

If Mervyn King’s replacement – I’ve given up on Britain’s Worst Central Banker – can do something similar, he could be worth £250bn to all of us. All he has to is follow Bernanke’s lead and convince people he is serious about helping people.