Updates on ResPublica

Since the last post has had some interest, and has guided me to a number of others, I thought I would share some with you.  First, thanks Anthony for the Tweet, and it is only right to point out his post on new models of ownership, which (I think) seems to draw on thinking related to “commons” in giving ownership a role:

Last week’s Labour movement column argued that the left should properly acknowledge the importance of ownership in distributing power more equitably. Here is an opportunity to develop new forms of ownership that can be engineered towards reducing our impact on the environment . . . Each community (based on local authority area) could establish an environmental cooperative. . .  . The objective of the cooperative would be to reduce that community’s carbon emissions by say 10% within five years.

“Each community could establish an environmental cooperative”.  I would just want to focus on that.  ‘Could’ or ‘will be made to’?  Do I have to join up with other Putney people? If so, Anthony has bravely argued that to deal with Global Warming we will need quite a lot of coercive behaviour.  What are the penalties for not?  But if it is not compulsory, then can it really deal with this very real emergency?

I think this is John Lewis again.  Some – nice – people may adopt other forms of ownership/’reinvent the firm’.  But if this is not widespread, the effects will be marginal – interesting to readers of Prospect, but not worth a massive Westminster policy launch.  Or it will be coercive and illiberal – ‘you may want to form a shareholder company dedicated to profit but we will not let you’.

Michael White: always very shrewd about noticing purely political aspects.

Cameron needs a flourishing range of centre-right thinktanks from which to pluck handy ideas at will; all recovering oppositions do . . . Will ResPublica’s new brand of civic conservatism be the answer ‑ or just another intellectual bubble? Blond’s stint at the ex-Blairite, pro-localism thinktank Demos ended abruptly: he may not be a team player . . . Politicians need intellectuals on tap, but the Cameroons are prudently keeping a safe distance. The Tory leader will not stay long tomorrow.

Paul Bickerstaff gets to the point:

Agency workers won’t be too enthusiastic about Phillip Blond’s bland plans for them to become part of a classless, asset-owning society   Nor, I suspect, will these exploited agency workers have too much time and energy left over to join Blond’s Time Banks (the things they still call LETS, another product of the 1980s, and another pleasing venture which failed to achieve critical mass impact).

No. They’d rather have the money.

How awfully individualistic of them.

I think this is Sunder at Fabians: I like the Blond on blond theme (Blond going against Thatcher).

In other news, I don’t think CentreForum research will ever get mentioned by Larry Elliott.  His piece touches on stuff thoroughly covered by A Balancing Act and Slash and Grow.  But instead it talks about Policy Exchange.  Ho Hum.  But this is the sort of context their history lesson (see yesterday post) needed fisking with:

The reason the UK grew after 1931 was that sterling was the first currency to come off the gold standard, and took advantage of a big devaluation to cut interest rates to 2% by early 1932, where they remained virtually unchanged for 19 years. Britain also threw tariff barriers around its colonial possessions; it was the combination of depreciation, cheap money and imperial preference that caused the recovery.

Finally, not all is rosy: Dubai, going down the tubes? A very interesting story I would love to cover in more depth, but I’m busy working out how much the Bank has overpaid for Gilts.  I have gone there three times on holidays, and always wondered: who is going to actually live in all these buildings? So, anyone feel like buying the World?

 

The Launch of ResPublica

I was lucky enough to be invited to the Launch of ResPublica.  Honoured, indeed, if one is to count honour by the number of popping photographers’ bulbs and the sheer groaning mass of Westminster Bubble people crowding into a fine room at number 1 Whitehall.

Phillip Blond’s new think tank has not really done anything yet, but everyone seems enormously excited about it because of its supposedly close to David Cameron, who was there to set it going with a few warm words about compassionate conservatism.  Interesting, Phillip started off with “Thanks, David – we have received our orders”, causing more than one observer to string together words like “charitable status”, “political neutrality” and “Smith Institute”.

So what does this new approach actually consist of?  From the speech and pamphlet, there seems to be

• a fair dose of miserabilism about the present (“The state has proved incapable of saving its own citizens from debt and servitude.  Yes, we are not free, we are slaves

• a lot of fairly typical “Capitalism has failed” stuff, including the perennial “why can’t all companies be like John Lewis”.  As Demos, centre left think tank, have also recently discovered in a mission to “Reinvent the Firm”.
• A repeat of that ill-proven trope, the “Social Mobility has Failed us All” thing.   Somehow, with university participation rates climbing to 40% from 2-3% post War, this is the “state destroying the structures of working class advancement”.
• Oh and – wait for it, wait for it – localism. Yes, it now seems likely that only David Walker and Ed Balls will be left denying the Political Truth that making everything local will fix everything
• The prognosis: “rebuild society from the bottom up through civil association”.

I am going to ask a really churlish question.  How?

• “the associative state can create a new type of capitalism by creating norms and building trust” and therefore cutting down on transactional costs that stem from us having this wrongful picture of an individualised self-interested man.

I am running out of time.  I have sent the excellent and too-self-deprecating Rosie off to read about The Ownership State to see if there is anything really to it.  Just some quick criticisms now:

If you counted the isms, it would rival Jon Cruddas, I am sure, and match him for lack of specific ideas.  You can’t make a political manifesto out of “make every company like John Lewis”, even if it could work for oil, cars, restaurants, construction, and so on and so on.

How does a state change the norms of 60 million people? Oh, and more, because we have porous borders. This sounds either patronising, controlling, overly idealistic or just platitudinous, depending on what it actually involves.   Ed Balls style lessons in citizenship and trust, perhaps, with compulsory ethics class at uni?

What is the proof that transactional costs are what is holding back the economy?  it is a nice theory, but Douglass North et al have generally proven that Western institutions drove down transactional costs – this is why we are not enjoying African-style Civil society at present.

There is some arrant nonsense.  What does “wealth is not simply an economic category, it has a moral import” mean?  What does “markets laying claim to plenitude” mean? A market is not a Thing that Lays Claim to anything.  It is a way of buying or selling . . .   This is not actually meaningful.  It is like saying “chairs don’t have opinions that are blue yesterday evening”.

So, I politely await some evidence that this amounts to anything – on some early signs, it doesn’t even actually make sense in parts.  If this is right, and it all dies down in a few years, I find myself rather disappointed in the sheer cynicism of the Tories in associating with it.  It sends out a signal saying “we think.  We care”.   But I can’t see what exactly it will add to a precise, costed, political programme in the difficult years ahead.  Perhaps I will be proven wrong.  Given the throng at the event today, I ought to hope so.

PS.  When you try googling “slave whipping”, I found this amazing offer:

Not sure what Policy Exchange are adding here . . .

. . . though that will not stop the Telegraph following it, slavishly.

I’m afraid I’ve only skimmed Policy Exchange’s latest attempt to convince us that government spending really doesn’t have any useful economic effects. The theory section on page 25-27 seems to imply that:

• insufficient demand is never a problem unless financial markets are broken
• Ricardian equivalence is a proven fact that stops public spending working, ever, in normal conditions
• very little needs to be said of the zero bound constraint on monetary policy.

Given all these, and the evident bias, it is difficult to expect much from the voluminous history-description that follows, in terms of the endless macroeconomic debate about the efficacy of fiscal stimulus.   Since they start with bad theory, there is likely to be some bad history. Moreover, the point about macroeconomic analysis, surely, is that it is fairly context-specific.  Asking what happens on average is pointless if there is a crucial difference to this situation. The rule “Don’t throw buckets of water over people’s heads” is a pretty good one, on average.  But not “if their hair is on fire”.  Ditto “cutting back on public spending boosts growth on average” and “but not if we are threatened with deflation and the banking channel is f***ed”.

So in how many of the situations they examined were the interest rates needed minus 6%? Oh, none?  Thought so.

This is really 101, and over the Atlantic, where the debate is really raging, pretty standard stuff. So I am not tempted to use a couple of hours reading it.  To snark at just one bit of the theory section:

households will understand that if the government borrows extra today, it will have to raise taxes tomorrow to pay off that borrowing. In anticipation of those extra taxes tomorrow, households will save extra today

NO. (a) Households do not anticipate like this. If so, why did they spend so much when Brown was borrowing too much earlier? They would be magic-balancing-creatures, forever calibrating their consumption for long run fiscal equilibrium (b) when the economy is far below capacity, government spending can provide INCOMES that enable people to spend and save.  As has been endlessly pointed out, since the beginning of time.  Imagine an economy where 30% are unemployed.  The government comes along and promises to do some spending – build some homes, say.  Do the people with their incomes from this get all worried and not spend it, because of the taxes that might arise in 10 years’ time? No.

And this is a terrible explanation for why Keynesians think as they do:

it is precisely the denial that Ricardian equivalence applies in such cases that motivates the belief in Keynesian stimulus can work

No.  A belief is not motivated by a denial.  Keynesian stimulus is motivated by a combination of commonsense and inspiration about how economies operate in deflationary, sub-capacity situations.  This sentence is the logical equivalent of “my belief in gravity is motivated by a denial of the existence of levitating elves”.

It is deeply tedious to keep bringing this up, so once more I refer to the far more vicious blogs of American geniuses similarly frustrated.  In his musings on an intellectual train wreck, Brad De Long writes:

There is nothing illogical or inconsistent about the economy being in a state in which aggregate planned expenditure is greater or less than income. Today’s Chicago school would know this, had it not forgotten all of monetary economics from David Hume on.

Policy Exchange seem keen to join the Chicago School. What I can’t understand is the determination to have the SAME economic policy regardless of circumstances.  Facts. Change.  In 1-2 years’ time, I too will clamour for fiscal restraint.  LIke Martin Wolf, I want a plan, but just not to have it implemented until it is safe.  Now let’s move on*.

If there is a redeeming feature to this dip into pre-Keynesianism, it is that they seem to have done some work on the political problems of spending cuts.  But in many ways, what is far more interesting than “Policy Exchange don’t like fiscal stimulus” is “Mervyn King won’t ALLOW fiscal stimulus” – which is what he effectively said yesterday.  Who is in charge of fiscal policy?  The Bank.  We need an Independence of the Government bill soon.

Other news: Vince has fleshed out the National Infrastructure Bank idea.

I thought Charles Dumas’ letter to the FT was excellent:

the idea that the UK (and presumably the US) should have run fiscal surpluses in 2004-07, “saving up for the next crisis”, neglects the fact that a balanced overall policy to promote full employment and low inflation would have then entailed lower interest rates (and probably exchange rates) than we had. An even more extravagant housing boom would have resulted, with greater upward distortions in house prices and consumer debt than the “fools’ paradise” (Dr Weale’s words) that actually occurred.

The FT has a useful breakdown and scoring of the Government’s many small financial interventions.

Finally, for light relief, Don Paskini STILL thinks that asking people questions about how to fix the financial crisis is in any way relevant. The Don still thinks that democracy fixes problems.  Quite apart from some of the ideas being really bad (CAP interest rates = Welcome Loan Sharks), and others really tired (“Educate in Financial literacy” is up there with “Spend more efficiently” and “no more wars”), and everything optimistic-statist (yes, a ‘charter for responsible lending’ should fix the mess), you have to ask: why are we asking citizens, as if this is all a political matter?  Why does putting “citizens” in front of something make it suddenly wise and efficient?

I want the centre-left to do well.  This sort of platitudinous talk-to-ourselves is going to go precisely nowhere – but make the participants feel important for a few minutes.

*(not moving on) If you want further, confusing but brilliant reasoning for how investment now can determine saving later, this blog of Andy Harless is wonderful. It proceeds with this assumption: all income is instantly saved.  You then have a decision how much to dissave – the residual is saving.  The dissaving is what gives someone else an income to save.

Write novels if you’re old, pop if you’re young

Time for off topic.  I’ve said all I want to, or anyone could read, about fiscal timing.

I am an obsessive user of the iPod, eternally grateful to leave behind those barbaric days of  mix tapes and minidiscs . As well as podcasts (Guardian, BBC comedy, that sort of sad middle-aged stuff), I am always looking for the Next Favourite Track, that wonderful uplifting moment when you realise you are going to love a 2-15 minute piece for ever. (except, of course, you won’t).

From my point of view, the trade-off is worth it if I listen to 10 pieces of rubbish for every hit.   I probably buy 10 tracks every other day, most of them classical, on the strictly impartial advice of the InterWeb and its Lists.  It is well worth ploughing through half of this for example to find that sublime slow movement from the Beethoven’s 5th piano concerto.

So I was deeply, sadly excited to see that the Times was adding to its 100 best books (for which read, novels) of the decade, and 100 films, with the 100 best albums of the Noughties.  This is seriously useful: posterity is a wonderful filter.  Thanks to posterity, most of us would not have heard of a mediocrity like Salieri (without that movie).  A lot of pointless ploughing through anonymous works is thereby saved.

But I don’t like the Times list.  Instant posterity is clearly nowhere near as reliable.   My first, most obnoxious reason, is this.  There are too many old people on it.   Here they are:

Neil Diamond Paul Simon Johnny Cash Paul Weller Paul McCartney David Bowie Brian Wilson Bob Dylan Madonna Bruce Springsteen Richard Hawley

Now, before you get cross (whoever YOU is), hear me out.  I loved some of the defining work of the people above.  I thought Dylan the equal of any other poet – until I read some other poetry.  But now I have to admit that I don’t like anything he has done since 1974.  And it’s because Pop is different from those other arts where the practitioner becomes better with age.  Shakespeare, clearly, got better.   His thoughts became more complex, his range of references wider, and so on.  So too can classical composers grow.  Beethoven’s last symphony is generally rated the best, as are his wonderful late string quartets. And in many professions – I would offer politics – I seriously doubt the ability of the early practitioner to make judgements as fine as in later life.

Now look at the history of pop.  Would anyone honestly have heard of Paul McCartney if he had started in 1985, with “Spies like Us”?  Or the Rolling Stones, with that dreadful song about rocks and a hard place?  No, of course no.  Ditto all the names up there.  Pop is overwhelmingly about adolescence.  Its lyrics, for what they are worth, are pathetically adolescent. When pop tries to be profound or clever, it is embarassing.  It is not meant for that.  It is meant to be overthetop, vainglorious, pretentious, and not worth 20 minutes of a university course.

The people who compiled the Times list clearly take it too seriously, because they want to to be so much more.  This is their life, after all.  Part of this need is a desire to think that pop talent exhibits some sort of continuity, an ability to mellow and deepen with age and experience – like the other great Arts.  But it obviously is not so.  Great pop bands mature incredibly quickly, and then suffer an embarassing long afterlife, an endless second-act-angst.  It’s like someone who makes everyone laugh once at a dinner party, and then launches into longer and windier anecdotes.  Get your coat.

Of course, they never get their coat.  The Arctic Monkey’s last album was full of painfully obscure and dark lyrics, lots of poetical preachiness: ‘a more experimental, darker sound and even bleaker subject matter.’.  Sorry, but that is not what got us buying those wonderful early songs, so honest and witty about chippy underachieving mid adolescence.   The same has happened to my favourite band, Gomez.

I don’t know much about the Times’ more obscure choices, at least 30 of which I had not heard of.  I can’t rate rap, and had always hoped Ali G or the Conchords would do for it what I had hoped Spinal Tap would do for heavy metal.  I am not pretending I have more knowledge than the Times’ experts.  This is their life after all.  But one thing that is certain is that their combination of obscure and old has pushed away some amazing bands:

• Noah and the Whale – just that first album
• Gomez
• Razorlight, again the first album, if only for the gloriously pretentious “in the City”
• The Fratellis, again the first album. Chelsea Dagger must have been the most used track on the telly
• Florence and the Machine
• Dirty Pretty Things, both albums.  Barat is clearly the genius of that combination.
• The Killers, for God’s Sake.  All three albums, but they clearly deserve some recognition for writing the best song of the decade. (scandalously used by David Cameron).
• Badly Drawn Boy – the first 3 albums at least deserved a place.  Like Nick Hornby I am affected by A Minor Incident.

I am sure I could go on.  So could you.  I would like to add one more.  It is easily my favourite album of the decade, from one of the best TV shows, and just about the only one I am (currently) sure I’ll still listen to in 10 years’ time.   Because pop is meant to be like that.

By taking pop too seriously, the Times have missed the point of it entirely.

Have the Conservatives had a change of heart?

The front page of the FT decided to lead on an apparent volte face on the part of David Cameron.  “First Cameron Budget would focus on growth”.   I would like immodestly to remind readers of  Slash and Grow:

It may seem odd to urge a future government to care about economic growth . . . If the next British government proceeds upon the basis of deficit reduction before growth, it risks achieving neither.

Yes, clearly that did it.  Oh, it might have been this poll instead. Laura Kuenssberg had implied that they were getting polling data suggesting the Slash Hard Often and Deep strategy was not selling as well.  Do they really change their minds that quickly?  Have they become more bullish, like the Bank in its recent projections? And (third question in a row), if the Tories are now more bullish, does this mean (a) they think they don’t need to cut as much, because growth will deal with the deficit or (b) they have to cut faster, because, as Buttonwood points out, growth means that companies will start wanting your money instead. **

Reading smaller print, it is not so easy to detect a Conservative change in course. What he says is that the first Budget should be about ‘getting the deficit under control’.   He then says ‘it should also be a Budget that goes for growth’.  Yes, and icecream, and world peace.  But faced with a choice , what will it be? That is a rhetorical question, because politicians never face hard hypothetical choices. If you said to a politician “If you had to throw either your mother or wife out of a burning hot air balloon which would it be?”, and they said “The mother”, then the headline would be “Politician wants to throw his own mother to her death”.  So it is with fiscal choices.

There is an interesting (to me) difference between fiscal and monetary policy.  It is that fiscal policy benefits from being planned, whereas monetary policy can undermine its own intentions that way. If the Bank announced that it would stick rates up to 5% in 3 years’ time, and we believed them, then current money demand would rocket/investment would crater.  The long-term interest rate curve would wiggle like a snake dropped into hot oil. Whereas being told that in 2011 or 2012 the government will start hurting benefits, pension entitlements, and hospital building?  Probably not the same effect. In fact, a credible fiscal tightening might lower rates.

Duncan thinks Cameron is still in “big state problem mode” and that he is obviously wrong, and believes in some daft 1930s logic called “Loanable Funds”. But the IMF’s Global Stability Report had similar logic about demand and supply of credit.  It may not apply this year: it may next (see also Ben at the Indie).

On another subject, Conservatives already are in power in townhalls everywhere.  Which is why this headline is also worrying:

“Tory town halls less likely to allow new homes“.

Do you know one thing we definitely need?  New homes. Ask Tim.

What if there is a hung parliament? asks Rick .  A popular Tory view is that a hung parliament spells death to our credit rating.  His verdict is fairly hawkish:

If the Tories were the largest party, but didn’t have a majority, they should proceed as if they did. Draw up a 5 year plan to cut the deficit, with tax rises and spending cuts, phased in. Then put it before the House and defy the others to vote it down, given that it would be very clear to all involved what the market reaction would be to a failure to confront the issue.

But Hamish McRae goes too far in trying to imagine a world in which the idea of the government setting fiscal targets is as anachronistic as their setting interest rates.  There are irreducible intergenerational, political social choices about investment, public versus private goods, current versus future generations, and so on.  When monetary policy is normal, it ought to be person-blind*.  Fiscal policy is never person-blind.  Politics, not technocrats.   See Fiscal Rules.

I think one reason we are not as desperate about the end of fiscal stimulus in this country is that our unemployment has surprised on the good side.   Even Alan Blinder talks of the Fed ‘failing in its mission’.  Whereas Charles Goodhart says “mission accomplished“.

In a typically excellent post, Brad DeLong argues that the size of Goldman’s bonuses are not much compared to the upside of further fiscal stimulus.  So why does the former stop us doing the latter? However, I would point out that the size of the various investment bank bonus pools is NOT insignificant in comparison to the capital shortfall of banking.  If bonuses in this country were all invested in core banking equity, they would be much better placed to lend to the normal businesses that need it.

David Smith seems to be coming over to the idea of a state-owned bank investing in seed and other capital.  Duncan should be pleased (link). Civitas were behind the event he attended.

UPDATE: what a sorry, waffly long post.  I’m sorry.  And I never mentioned Catherine Ashton.  Damn

*of course, right now you could make a case for the monetary stance to be suiting the asset-rich above all, but that is another argument.

**OK, not the whole market, but I have a feeling for what will change my mind about investing elsewhere.

Question to you, um, curious people

I am a bit mystified, and to be honest, depressed, by quite how much the traffic to this site can be boosted by containing a few frankly sordid search terms.  I am talking about this:

This is not the most popular blog by any means.  But writing a really bogstandard post, that contained the words “Catherine Ashton” and “Jewish Conspiracy”, led to it busting its recent records by a long way.  In a funny postmodern way, the post was written observing a similar phenomenon at another Liberal blog, Schneider Home.

Not because I write insightful or witty posts about, um, fiscal or monetary policy, heaven forfend.  No, because a good quarter of the people arrived searching for some combination of:

Baronnes Ashton or Catherine Ashton

and

Jewish, Jew and Conspiracy.

Half of today’s readers are reading that bogstandard post (some just googled Catherine or Baronness Ashton. But most included the conspiracy stuff).

And I want to ask a simple question: why?  Who are you people?  What are you searching for?  Do you have some sort of crazed theory?  Does it link the Baronness to some sort of plot to take over Blighty from Brussels?  Does it involve the Elders of Zion? Are you amongst that tribe of people who think that there is some connection between 9/11, the Moon Landings, the assassination of JFK, the Rapture, and the way Elvis is definitely not dead?

Or is there some sort of innocent explanation?

Will one of you do me a favour?  Please, if you have arrived here after Googling* as above (I don’t want to keep writing it), then could you enter a comment below explaining it?  Don’t be ashamed – you’re not alone . . .

*and I don’t want to investigate this by googling the same things.  This adds momentum to Internet theories.

Counterintuitive thought of the week: this isn’t the worst debt mess since the War

I promised, without any reason, not to talk too much about what was said at the Financial Times party.  But surely Martin Wolf’s speech doesn’t count?  I mean, he was talking to a room full of journalists. And I thought it was a speech worthy of one of his million-click articles, and contained many points that Martin he might well make in print, about the future of macroeconomics, the unsustainable size of finance, whither the world, etc.

It is one statement in particular that I want to pick up on, however.  This is that the cost of the financial crisis lies behind only the Napoleonic War, First World War, and Second World War. Now, I think these statements are important, because they inform the social-justice debate that will break around our heads during the next ten years.  Who pays for this mess? is not going away. But I want to take issue with Martin’s statement.  It’s not true that this episode sticks out in such an obvious way.

First, look at this graph.  You will want to call me a fool.

Just eyeballing, the various 1776-1815 wars added about 150% of GDP debt.  WWI added over 110%.  WWII, before we had recovered from that, stuck another 140% on.   And now, sure enough, we look like going from 35% or so to 95% or so – 60%.  A clear fourth place?

But hold it a mo. Imagine your friend has told you they’ve just taken on debt of 2 times their salary.  Are they mad?  Well, it depends on the terms.  If its a morgage at 4%, then no problem.  If they have maxed out credit cards at 25%, then it’s a big problem.

The same applies to historical increases in debt – and taking into account the higher interest rates that other episodes have left us with, I think the various crises from the mid 1970s actually rank with this one.  The reason is that Dennis Healey (clearing up after Barber) and Howe (clearing up after Healey) had to pay really high rates for borrowing – well over 13%.   Furthermore, they did it at the same time as inflation was about to be beaten.  This last factor is of enormous importance – because by beating inflation, you also decimate your ability to harvest big revenues from booming nominal GDP.  An economy with NGDP rising at an average rate of 16% (like late 1970s) finds debts much less burdensome than one with the rate cratering down to 5%.

Here is how I have done my calculations.   I look at how much debt will have increased over the crisis period.  For 1975-83, debt went up from £52 to £132bn, or £80bn in total.  I estimate the average interest incurred: 12% in the case of that period.  Then I assume that the government repays that debt in a straight line over 15 years – around £5bn per year.    I then work out the net present value of the debt, discounting the future payments using a discount rate equal to the average growth rate of NGDP over the next 15 years.  For 1983-1998, I make this 8%.    I then calculate how much the discounted future burden of payments related to this debt compare to the GDP in 1983.

This is what I get:

Outstanding amount of inherited debt	Interest cost	Capital repayment	Disc fac	NPV of this
£80	£9.60	£5.33	1	£14.93
£75	£8.96	£5.33	1.08	£13.23
£69	£8.32	£5.33	1.17	£11.71
£64	£7.68	£5.33	1.26	£10.33
£59	£7.04	£5.33	1.36	£9.09
£53	£6.40	£5.33	1.47	£7.99
£48	£5.76	£5.33	1.59	£6.99
£43	£5.12	£5.33	1.71	£6.10
£37	£4.48	£5.33	1.85	£5.30
£32	£3.84	£5.33	2.00	£4.59
£27	£3.20	£5.33	2.16	£3.95
£21	£2.56	£5.33	2.33	£3.39
£16	£1.92	£5.33	2.52	£2.88
£11	£1.28	£5.33	2.72	£2.43
£5	£0.64	£5.33	2.94	£2.03
£0	£0.00		3.17	£0.00

The net result?  The cost of the seemingly paltry £80bn incurred during the shambles that followed the government losing control of its finances in the 1970s was about 35% of 1983’s GDP, if you assume that from 1983 things were back under control.

Returning to our current figures, what has been the cost?  Well, debt was projected to increase from about £600bn in 2008 to about £1400bn in 2014.   Some of this is held against assets: banking equity etc, but I’ll take £800bn as the debt that we were forced to take on as a result of the crisis*.  The interest costs I estimate at 4.5%, and nominal GDP growth for the next 15 years to be 5.5%.  As of 2015,  NGDP will be about £1800bn.

Here are the workings:

Outstanding debt (bns)	Interest cost	Capital repayment	Disc fac	NPV of this
£800	£36.00	£53.33	1	£89.33
£747	£33.60	£53.33	1.06	£82.40
£693	£31.20	£53.33	1.11	£75.95
£640	£28.80	£53.33	1.17	£69.95
£587	£26.40	£53.33	1.24	£64.36
£533	£24.00	£53.33	1.31	£59.17
£480	£21.60	£53.33	1.38	£54.35
£427	£19.20	£53.33	1.45	£49.86
£373	£16.80	£53.33	1.53	£45.70
£320	£14.40	£53.33	1.62	£41.83
£267	£12.00	£53.33	1.71	£38.25
£213	£9.60	£53.33	1.80	£34.92
£160	£7.20	£53.33	1.90	£31.84
£107	£4.80	£53.33	2.01	£28.98
£53	£2.40	£53.33	2.12	£26.34
£0	£0.00		2.23	£0.00

The net present value of the debts works out at £793bn, or about 42% of the GDP we will have to help us pay for it.

What do I conclude from this? (the clock is ticking, so sorry for the rush).

• the ‘cost’ of the increased debt we will have to bear from around 2015 when it might hopefully be stable can only be partially understood with reference to the absolute amount
• Once you take into account that foolish Bennite debts were incredibly expensive in the light of subsequent NGDP growth slowing down (I like to use Tony Benn as the proxy for every overspending minister in the mid 1970s.  Throw in Barber if you find the partisanship offensive), the cost of us really losing control from that period was in the same ballpark as the loss of control now. Particularly if you assume that the government will claw back more from banking sales.
• And even more if you assume that the government over 1975-83 raised money selling assets, so its increase in debt was probably much higher than £80bn
• BUT – and I hope this is a ‘but’ that Martin Wolf would agree with – this time the debt has had a purpose.  We have had public sector debt increases in order to support a necessary, inevitable** and potentially calamitously chaotic private sector deleveraging.  This time, the debt has produced a return: a level of future GDP that would have otherwise been much lower (see Richard Koo on Japan) . . .
• . . .whereas what did we get for that loss of control in the 1970s?  A government really crowding out business; state ownership of catastrophically inefficient enterprise; the putting-off of necessary structural reform.

Government spending cost us money in the 1970s, and made the economy less effective.  It did not support spending, because we were closer to supply capacity – it was not a demand-recession.   It was incurred at massive cost to future generations -10-13%.

This time, it has stopped our economy collapsing, and in that sense has been a wonderful investment.   So, while we will be having headaches in Westminster for years and years to come, no-one should regard our future debt burden in the same light as that one in the past. If you were to pick periods of mismanagement to rank above this one, I would definitely choose the 1970s (and the unnecessary 1st world war).

Though we still have a lot to blame the City for: on the subject of which, I need to read Martin Wolf’s latest column.

Apologies for the rushed nature of this column: it was conceived of and written in 1 hour, exactly.

UPDATE:  I am not sure whether I was right to include capital repayments.  Of course, debt has to be repaid, so it seems to make sense. I think it is right to, because otherwise you end up with the debt incurring high interest costs for ever.  If you just look at interest costs, the 1970s were way more expensive than now

*of course, debt was projected to rise anyway to £800-900bn  but since I can’t find similar projections in a rush from the mid 1970s I will take all the increase as what matters.

** with hindsight.  I didn’t go short myself.

Extraordinary fact . . . about Catherine Ashton (via Schneider Home)

Catherine Ashton seems to have been made the EU Foreign affairs person, whatever the phrase is.   Now, you are wondering who she is.  Without James Schneider’s post, I would not know either.  Personally, I don’t have as much of a problem with her being unelected: what sort of an EU election would it have been anyway?  Indifference piled on indifference, squared, and with a lot of xenophobia thrown in for flavour.

In fact, it reminded me of the very entertaining convolutions that used to go on in 19th century Britain, where Canning, Lords Russell and Melbourne, Peel and Wellington, Derby, Palmerston and all their ilk would manouevre, often with utmost reluctance, around the poisoned chalice of the Premiership, bringing together all sorts of funny coalitions.  I actually think it had more of democracy about it, in a weird way, than asking millions of people who have barely heard of Belgium, let alone a man called Van Rompoy.

But what was most interesting about James’s post was what he discovered about why his blog post was so popular.  Firstly, least surprising: people don’t know her, and his blogpost helped.  Good.  Go there if you googled and ended up here instead.  What was more amazing was that people were actively searching for “jewish conspiracy”.  What the hell is it with conspiracy theorists?

UPDATE: Yes, it is happening here too.  Who are all you people?

Search Engine Terms

These are terms people used to find your blog.

Today

Search	Views
catherine ashton jewish	14
catherine ashton	12
catherine ashton jew	9
is catherine ashton jewish	3
freethinkingeconomist	2
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“catherine ashton”	2
“catherine ashton” jewish	2
conservatism – thatcher and cameron	1

The Isms of Cruddas

Worth a new post, this.  I get really annoyed with far out thinkers who only really prove that they can name check other far out thinkers.   This is from a Jon Cruddas article. I am not sure the article told me the first thing about, ooh, improving the world.  But it proved that Cruddas had read his thinkers.

Isms	Thinkers he wants to namecheck
Neoliberalism                         (bad)	Erik Erikson – pyschoanalyst
Orthodoxy                              (bad)	Keir Hardie – saint
Radicalism                               (good)	Sylvia Hardie – fan of Hardie
Hobbesian Utilitarianism  (bad)	Morgan     – biographer of Hardie
Materialism                        (bad)	Robin Cook – modern saint
Socialism                             (good)	Tennyson – poet
Idealism                            (good)	Dilke – social radical
Social conservatives     (bad)	Will Hutton
Feminism         (good)	Richard Reeves
The creed of fraternity and equality (good)	Philip Collins
Radical socialism of Merthyr Tydfil	Mark Garnett –philosopher
Chartism (good)	Green, Hobson, Hobhouse, Tawney, Cole, Laski – good liberal socialists
Ethical socialism (good)	G A Cohen
The politics of progressive alliance (good)
Muscular secularism  (bad)
Radical individualistic liberalism (bad)
Collectivist social liberalism (good)
Fleshed out liberalism (good)
Hollowed out liberalism (bad)
Atomistic individualism  (bad)
Liberal socialism (good)
Neoliberalism (bad)
I don’t think I even got through the whole article

Hungover from a party at the FT, I turn to the FT

I was honoured to be invited to the annual party at the FT, where Martin Wolf regaled us with an interesting and wide ranging speech, and floating amongst the canapes and red wine were just about every impressive economist and journalist I had half heard of in the last 12 months.  Plus a certain Chancellor of a particular Exchequer, giving nothing away. It was very interesting, and I will treat it as Chatham house, for my convenience, because 6 glasses of wine later, I am not entirely sure what was said.  Except:

• I can find no-one who is against QE.  Everyone imagines the no-QE counterfactual would have been worse
• I myself am beginning to row back a bit from my Slash and Grow? views, and said as much to Rupert who advises G Osborne.  Fact is, it may be unlikely, but it is still the right aspiration.  Politicans express aspirations, rather than Plan A to Z in descending order of likelihood.  Don’t get me wrong: I still think they are nuts to try cutting immediately.  But you can’t prove it just by saying “this has never happened before”.  People know that- we’ve been on a 30 year binge after all.   What I am still uncertain of is: if the economy weakens, will they go all ‘Lady’s not for turning’ on us?
• I did not find many people willing to agree with me that Ed Balls is a good bet at 30-1 to be the next Labour leader.  But I know good odds. He s joining the mad war on fiscal arithmetic (see his Seeking £2.6bn on Spending).  Iain Dale (who is apparently some sort of blogger), wonders what he is up to, tracing his weaving and bobbing on this issue.  What I think he is up to is aligning himself with that part of Labour that may decide the future leadership: the part that thinks fiscal arithmetic for all future years is optional.   Alistair Darling is having a go at him, according to the FT
• I feel strangely confident in the country’s future, because I saw a lot of bright people from across the spectrum chatting amicably.

Other FT stories.  Obviously the fiscal responsibility act is a pointless noisy political gesture. Read “Fiscal Rules OK“.  There is no way that fiscal policy can be bound by (a) rules written a while ago or (b) unelected bureaucrats (if you want the Tory alternative)  I like the quote from the FT leader:

The fiscal bill is the most egregious example of the government’s use of aspirational legislation, seen also in the child poverty bill and the draft bill on international development spending. These efforts to impose policy goals on a future government by statute bring the law into disrepute.

Not everything about recession is bad news.  There is a flood of elder teachers into the profession.

I love Brad DeLong’s graphical explanations for why fiscal policy may still be better than monetary policy.  But Economist Blog Free Exchange is probably right that the monetary levers still have more political capital.  AS BDL himself pointed out (see my blog before): getting more out of Congress, even if it makes perfect economic sense, may not be easy.

As for the UK … if Dillow is right, the government has already bucked at the fence of promised higher spending .  But the trouble is that monetary policy IF it can work is not committing to the right measures: permanent money increase.  There are real divisions in the  MPC as to the right next steps.  Is that good?

The OECD’s growth projections are going up, but are still nowhere near the Bank’s.  I have a pet theory: is this the Bank’s belated attempt to prove that it will do anything - including lie about what it thinks of the future – in order to boost demand?

Having enjoyed Paul’s attack on Left economic illiteracy, I was glad to read a sceptical take on Cruddas’s communitarianism. I once tried to count the ISMs in a Cruddas article, and gave up after 20.  What would you do? rather than which isms are you in favour of? should be yelled from the floor at all these characters.

UPDATE:  The Isms of Cruddas: worth a second post.

Bill, I can’t read law.  Explain why this document changes the political reality of regulators taking on booming financial firms.