1.  Failing to read up on blogs for a week leaves a person precisely 0% less informed.  I should do that more often.

2. I’ve been asked by a few people what I think of the Conservatives’ National Insurance proposals.   Now, you will recall I was confused about how they were funded.  And like David Smith I don’t get how this has not struck a hammer blow against their repuation as the great fiscal hawks, defenders of Britain’s cherished AAA-ness.   This is what Smith writes:

Let us be clear. Had the chancellor announced in his budget that he was forgoing £5.6 billion of the planned revenue boost from raising NI in April 2011, making up the lost receipts with additional and unspecified efficiency savings, he would have been pilloried. So how did Osborne get away with it?

He goes on to ponder three possibilities.

My view is this: if they didn’t like the NI rise, and thought it was the worst of all tax rises to fund a deficit (because you can always raise some sort of tax), they should have leapt up and said so in December, when it became policy.  If they had the stones, they should have announced there and then that they preferred VAT, and put some real blue water between them and the Labour party.  The delay, during which they fumed about the deficit, did nothing to make their position more credible.   But I do think economically the Tories’ position stacks up.   My criticism all along has been that obsessing on the deficit, regardless of what is done to cut it, makes no sense: not when the gilt market is quiescent and the deficit is quite obviously not crowding out anything.   Their position should have been:

“We think the deficit needs to be tackled.  But this does not mean any kind of spending cut, any kind of tax rise.  To raise NI takes deficit-fetishism too far, and we the Conservatives will strain every ligament* to undo it, rather than taking it as a fact.  Because if you hit growth and employment, you end up hurting your debt position anyway”.

I think this is where the Tories are now – and where I suspect Darling would have wanted to be, too, preferring a VAT rise, which I think is more efficient, quicker, and where the regressive effects can be compensated through benefits.  So the Tories have a coherent policy, but one that they utterly confused by acting as if nothing was more important than deficit reduction.   Once again, they blew a chance to construct a decent economic attack on Labour – but perhaps the campaign gives them a second chance.

3.  Bond Vigilantes are not worried about a hung parliament.  Read the whole post.

The critical thing about the UK election from a bond (and currency) investor’s perspective is the resolving of uncertainty over the future of economic policy. This is where the Liberal Democrats can increase or remove uncertainty and thereby extend or remove the UK risk premium based around the election. I think the latter alternative is the obvious political choice. . ..  the one thing that Clegg can not do (despite being Born to Run?) is ask the electorate to vote again, because as the weakest link he would be eliminated if the electorate was forced to choose between the other two parties in traditional two party British political fashion, resulting in the Liberal Democrats losing seats and influence. Therefore a hung parliament is not likely to lead to further indecision, and delaying of policy implementation, but like a clear victory, even a hung parliament should provide a catalyst for change, and a collapse in risk premiums that could benefit both Sterling and the Gilt market.

4. Hat Tip to LeftOutside commenting here on the Martin Wolf Austrian Economics discussion.  The best answer is by Brad James DeLong.

5. While on Brad’s site, this graph should remind green miserabilists that not everything goes in the wrong direction.  John’s comment is classic.

Now I shall be attempting (see this Map) to do Nagens down to Scanisnas, up to Mutta, down red 23 up to La Siala, then after doing 10 as a warmup, trying black 26 onto blue 27 down to Fuorcla.  Then, the big decision is: coffee at Vorab or Crap Massegn?  Tough one.  Now you know where to send the heli-ambulance.

*the first analogy that came to mind.  I hope it is not bad luck

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11 thoughts on “Musings from near a mountaintop

  1. “If they had the stones, they should have announced there and then that they preferred VAT, and put some real blue water between them and the Labour party”

    I remember Ken Clarke doing exactly this at the time. Such a pity that the Tories didn’t pick him as their shadow chancellor. Would have resulted in a proper debate.

  2. They can easily fund it by cuting government spending. Brown made the alternayive completely transparent by attacking the Tories for not wanting to cut jobs but instead being prepared to cut “schools, hospitals” etc.

    Minor as this roll back is it it shows the Tories preferring reduce the state sector & increase the productive sector, while Labour wish to increase the state sector, even beyond the present 53% of the economy & reduce the wealth producing sector. And the LibDems refusing to be drawn. showing how economically, illiberal illiterate & irresponsible they are.

    In fact increasing this tax will destroy the tax base & will certainly not increase the take by £6 bn & may well do so by a net negative amount.

  3. VAT is slightly progressive anyway, because many necessities are zero- or reduced-rate. (One of the criticisms of the VAT cut, which I shared, was that it benefited the rich the most.) What really baffles me is Brown’s continued ability to get away with claiming that the Tories want to take money ‘out of the economy’, when he’s proposing a tax rise to the tune of the same amount.

    1. His ability to get away with stuff is because we economists are not doing a good enough job. Hands up.

  4. “Failing to read up on blogs for a week leaves a person precisely 0% less informed. I should do that more often.”

    The first stage of blog withdrawal is denial.

    The second is rage.

    The third is acceptance.

    The fourth is inevitable relapse.

    There is no escape. Only pain and burned retina.

  5. 1. How do you know it’s left you “0% less informed”? Where’s your control?

    2. I’m not sure I agree with what you think the Conservative position could have been, if they’d been smart (stretching that word to its limit). Remember, the NI rise comes in in 2011. The Tories deficitphobia makes them want to cut spending this year (50 day emergency budget blah blah blah, nvm what they advocated during the recession). How is a NI rise next year the end of the world, but spending cuts this year not? I don’t think there’s anyway to make their NI policy consistent with their spending policy.

    Plus, if NI is so important to them, why are they also promising to cut corporation tax, taxes for married people and inheritance tax (have I forgotten anything?).

    Oh, I agree on VAT, but you may be interested to know that Nick Clegg has been telling Nick Robinson of BBC fame that “our plans don’t require VAT rise”, and having a big anti-Tory VAT bombshell poster campaign launched as well.

    5. Unfortunately, as I understand it, those gases are relatively short lived gases. Once you stop emitting them, they quickly go away. CO2 is not like that. It hangs around for hundreds of years.

    And that’s if you get the political consensus to act.

    Anyway, here’s a nice long piece by Krugman on climate economics which you might enjoy:

    http://www.nytimes.com/2010/04/11/magazine/11Economy-t.html

    1. Alex, I think your timing points are good, though the Tories seem to have decided on a particular line, i.e. “If it’s waste, it can’t be boosting the economy” – a supply side argument for a demand side problem. You might argue in a Ricardian way though, and say that timings don’t matter: companies anticipate next year’s bill, employees next year’s lower wages . . . not sure what I think of that

      And I was not implying that these gases are down, so therefore C02 will be fixed. But just that the 1980s had some things worse than now, environmentally -no matter what the scale of the challenge.

      Clegg probably doesn’t need it to be in HIS plans – whoever he works with may hve it in their plans, and plans change during minority government negotiations.

      1. Sorry, didn’t intend to imply that you were implying that about CO2. I agree that the “MOTHER EARTH SHE’S DYING!” miserabilism is silly, I was just putting that graph into the context of the challenge we face over the coming decades. You don’t have to be as far out as James Lovelock to know that unfortunately it’s going to be a lot harder than reducing Sulphur dioxide etc. Didn’t mean to imply that you thought it would be as easy.

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