Economics « Crash Bang Wallace

First the knighthood, now Fred Goodwin’s Wikipedia page gets it

markwallace | 1 Comment » Posted on January 31, 2012

It didn’t take long for the Wikipedia graffiti artists to get to work on Formerly-Sir Fred Goodwin’s page:

“Goodwin’s knighthood, granted in 2004, was annulled in January 2012, due to his excessive use of profanity in the company of the Queen. He was shot a few days later.”

Finally the Barnett Formula comes in handy – for allocating Scotland’s national debt

markwallace | 13 Comments » Posted on January 25, 2012

A lot of thought’s being put into the practical implications of Scottish independence – I suspect that if the country doesn’t become independent this time (which more English voters support than Scottish voters), it probably will in the next decade or two.

It’s the practical ramifications which are increasingly causing Alex Salmond touble. The problem being that the SNP likes to have its cake and eat it, too. Take fiscal devolution – when the TaxPayers’ Alliance proposed full fiscal devolution to the Scottish Parliament (an SNP manifesto policy), SNP spokesmen blew their lid because the report also called for an end to English Barnett Formula subsidies for Scotland.

So it has been with Alex Salmond’s plan for full independence – he wants to take as many powers and assets as possible, but leave the nation’s debts squarely on the shoulders of English taxpayers.

For example, he thinks that North Sea oil and gas should be allocated geographically (giving the Scots over 80% of the revenue) but national debt should be allocated on a per capita basis only (giving the Scots just over 8% of the total bill). This is particularly relevant when you start to consider where the debt and liability for RBS would fall in you took a geographical approach to where debt should be allocated.

Happily, someone on the Government E-petitions site has come up with an elegant solution. When we calculate the share of the national debt to be allocated to an independent Scotland, why not use the Barnett Formula?

Yes, is means each Scottish person would have 22% more debt than each English person, but if it’s fair for dishing the cash out then surely it’s fair for sharing the burden of our debts, too?

I’ve signed the e-petition here – I hope you will, too.

The benefits cap debate – a win for Ministers, and an economic fail for critics

markwallace | 11 Comments » Posted on January 23, 2012

The furore over Iain Duncan Smith’s proposed benefits cap was predictable, and Ministers have merrily sailed into it for two reasons – because a high profile fight on this topic brings them an electoral advantage, and because they knew the Left would swallow the bait in one great, unthinking gulp.

The idea that no household should get more than £26,000 in benefits – equivalent to a pre-tax salary of £35,000 – is overwhelmingly popular. British voters subscribe to a strong idea of fairness, particularly when it comes to the idea that working should be more rewarding than not working, and they have been outraged by numerous reports of large families living at no cost to themselves in huge, overpriced houses in particular.

The critique of the proposals coming from the Left, notably from Lib Dem Guardianista Tim Leunig, is fatally flawed because socialist economics fails to recognise that the economy is dynamic. You can’t change one input to the system without others shifting in response – both when macro market forces and micro human behaviour are involved.

The flaw comes when they crunch the numbers. Leunig’s Guardian piece claims to calculate that the benefits cap would leave people living on 62p a day. The most crucial element of his workings is that a 4-bedroom house in Tolworth costs £400 a week. That’s true right now, but it wouldn’t be the case once a cap has been brought in.

The truth is that some of the main beneficiaries of overly high benefits are private landlords. They may not get payments from the DWP direct, but they reap the cash anyway through inflated rents, secure in the knowledge that every time they put the price up, benefits levels are raised to pay them. This is a racket, exploiting the foolishness of officials in pumping more and more money out and the absence of taxpayer power to rein in this behaviour.

Tim Leunig is right that if rents were fixed as they are now then his hypothetical family would pay£400 a week. But rents aren’t fixed, they are fluid. If you remove a large amount of cash from the system then prices will fall. By arguing for the system to remain as it currently is, rather than accept a cap, this supposed “progressive” is effectively fighting the corner of benefit-farming landlords.

There are knock-on benefits to removing the artificial inflation in rents, too. If renting property out becomes less profitable, the desire and the financial means to buy-to-let will be reduced, helping to address the shortage of affordable housing that is so often highlighted as a problem.

This is why we can expect IDS to be intensely relaxed about this fight gaining so much publicity. When it comes down to it, he has public opinion and solid economics on his side.

#Fail to the Thief

markwallace | 3 Comments » Posted on December 07, 2011

So Thom Yorke of Radiohead appeared at Occupy London last night to play a gig in support of their aims.

Whilst most of what Occupy stands for is so vague it’s almost impossible to pin down – even when they try to do so themselves – it is perfectly clear they claim to be for the poorer “99%” and against the rich “1%”. In their world the 1% are responsible for all ills, their wealth should be redistributed and they are fundamentally immoral by simple virtue of their wealth.

But which group does Thom Yorke fall into? With over 30 million record sales worldwide, it’s hard to see how he is part of the 99%…

Or do their principles of class war not apply when it’s someone left wing who’s been raking in the cash?

Reasons for a referendum

markwallace | 2 Comments » Posted on December 05, 2011

One thing was always clear about the Government’s EU “referendum lock” – the EU’s defenders were always going to claim it didn’t actually justify a referendum. Whether they did it outright in the wording, or later in a tortured limbo around what that wording meant, is irrelevant.

So it has come to pass now that the first proposed treaty changes since the lock was passed into law have hoved into view. Nick Clegg has rushed straight out, his face painted blue with a delightful ring of yellow stars scattered across his cheeks, chin and forehead, to announce that proposals for fiscal union among the Eurozone countries are not eligible for a referendum as they don’t constitute a transfer of sovereignty from Britain to Brussels.

Underlying this is the argument being pushed by the Conservative leadership that, as Tim Montgomerie reported it, an EU referendum would “plunge Britain’s economy into chaos”.

But it is this latter argument which undermines the former.

As we can now see from the crisis hanging over us – a crisis that has emerged as a direct result of the Euro’s disastrous creation and the ongoing, eternal grind of ever closer union – losing sovereignty is not just about Brussels being able to directly overrule Britain. It is also about whether we are losing the ability to build a successful, sustainable economy on our own terms.

EU integration has made Britain more economically vulnerable to crises on the Continent, a problem which is compounded by the fact that it has also made such crises far more likely. At the same time as our exposure to EU risk has increased, the Single Market’s aggressive protectionism has forbidden us from diversifying by trading freely and fully with other economies around the world – particularly with the BRICs.

In effect, they have tied a weight to our feet, dragging us down into the ocean depths, and bound our hands, stopping us trying to swim upwards.

The decision by a core group of EU countries to integrate through a single currency has diluted our sovereignty by reducing the effectiveness of the measures the British Government might take to boost our economy. As we are currently seeing, you don’t have to be in the Euro to be screwed by its failure.

Can they seriously claim that fiscal union in the Eurozone – a step which is likely to bring down even worse disaster on all our heads – won’t have a similar effect?

We are tied to the Eurozone through our EU membership – as a result, their fate does affect our fate. That’s why we have a veto on these proposals for fiscal union. And that’s why the British people should get a referendum on whether that veto is used.

Mandy’s McAvity memory loss on the origins of the Euro crisis

markwallace | 14 Comments » Posted on November 15, 2011

Peter Mandelson has been industriously digging himself a hole over the Eurozone crisis. Normally a fervent debater and a nimble performer when it comes to picking his words carefully, he got a bit of a shoeing from Paxo on Newsnight last night.

It can’t have been comfortable for the Prince of Darkness, but there are further troubles ahead if he sticks with the line of attack that he has chosen.

We’re choosing to be outside [the Eurozone] and not showing up at those Councils and bodies where the decision-making and economic discussions of the Eurozone are taking place

The problem he faces on this one is a curmudgeonly, sociopathic Scotsman called Gordon Brown. Back when Brown was Chancellor he was notorious for not bothering to attend the meetings of ECOFIN – the council of EU Finance Ministers. When the group met, McAvity Brown more often than not was nowhere to be seen.

As the FT reported in 2006:

Gordon Brown, Britain’s chancellor of the exchequer, has not been to Brussels for a single meeting this year….Mr Brown has the worst attendance record, going to barely half the meetings since 1999. In 2004 he made it to a little over a third of meetings.

The difference between then and now is that while today’s Government are refusing – rightly – to take part in building a new Euro bailout package, which would be as expensive as it would be unpopular, back then Brown was skipping the very meetings which sowed the seeds of the current Eurozone crisis.

Around that table in the late 90s and the early years of the 21st Century a consensus developed that it was acceptable for the vast majority of Eurozone countries to brazenly breach the Stability and Growth pact, running huge deficits and piling up vast national debt mountains.

Now that is crashing down on all our heads leaving Britain, Europe and even the whole world to pay a heavy economic price.

Brown opted out of those meetings, passing up a chance to warn of the consequences of the Eurozone countries’ actions. Then, of course, Mandelson went on to help him limp on as Prime Minister for three miserable, costly years.

Does the good Lord really want to start this argument?

The EU’s solution seals its painful fate

markwallace | 2 Comments » Posted on October 27, 2011

Apologies for the lack of posts for the last few days – a switch of server combined with a busy week conspired to keep me away from the keyboard.

The biggest news, which cannot be ignored, is the so-called “solution” to the Eurozone crisis. As some have pointed out, it would be surprising if the EU’s leaders were even able to agree on a workable dinner menu for the summit, never mind a unifying solution to the vast economic crisis that they have created through their political foolishness and fiscal blindness.

So claims that they’ve got it all sewn up and everything is going to be fine should raise our suspicions. Lo and behold, as soon as you look at the plan the problems are clear. The BBC’s three-bullet summary of the package is as follows, with my comments in bold:

Banks holding Greek debt would accept a 50% loss

Forgive me for pointing it out, but Europe’s banks – and still less the rest of the world’s – are not run by the EU Commission or the premiers of member states. The precedent of politicians enforcing these losses in a laughably named “voluntary” deal is dangerous and will further deter international investors from backing EU ventures.

A mechanism to boost the eurozone’s main bailout fund to about 1tn euros (£880bn; $1.4tn)

Where is the money coming from? If as many suggest it will be from sovereign wealth funds from around the world, what financial and political price do we expect Saudi Arabia and China to demand in return for stepping in?

Banks must also raise more capital to protect them against losses resulting from any future government defaults

Yes, having enforced 50% losses on the banks who lent to Greece, the EU is now attacking them for not having enough capital. Again, where will the money come from? The Eurozone crisis has severely damaged global confidence in European economies and businesses, and we’re not exactly awash with credit at the moment. If the markets won’t bet their house on the dodgy nag which is the Eurozone, will we see Governments stepping in? If so, err, isn’t it Government indebtedness which is already the problem driving this crisis?

Just as worryingly, can anyone rely on Italy, Greece and other Eurozone flops to carry out the reforms needed to become competitive and shed their zombie economy status? Sure, they may be pledging to now, but they pledged to when they joined the Euro and signally failed to live up to their promises and treaty pledges.

Most disturbing of all, we are also seeing a trend amongst the EU elites – emphatically separate to the peoples of Europe – towards a “consensus” in favour of fiscal union. The architects of European integration have never been ones to let a good crisis go to waste, so behind their furrowed brows and mutters of concern there can be little down that plenty of them are jumping for joy about the prospect of Brussels siezing power over the budgetary affairs of 17 countries.

If you think the EU is undemocratic and bossy now, you’d be right – but this is a walk in the park compared to what will happen when the EU Budget Inquisition start stretching national Chancellors on the rack until they agree to obey the diktats flowing from Brussels.The protests and chaos in Athens will multiply and spread to other countries once Brussels starts to enforce its measures against the will of voters across Europe with a minimum of accountability.

Of course, the EU’s own accounts are famously full of holes, and fraud and waste are rife, so even if they get this central bullying power we can be certain they will fail to use it responsibly or successfully. There will be pain without any gain – a further recipe for disillusionment and disturbance.

Critics of the EU – including myself – have long said we should dismantle it carefully and responsibly before it tears itself apart painfully. This latest deal puts on the path to yet more economic misery, yet more antidemocratic abuse of power and yet more suffering for ordinary people. In its death throes, I fear the EU will harm a lot of people.

It’s time to get emotional about markets

markwallace | 6 Comments » Posted on October 17, 2011

Free marketeers have long faced a puzzling mystery. Despite priding ourselves on logic, amassing vast amounts of well argued evidence and indeed having the bulk of human history to call on in support of our case, we still struggle to win the political battle outright.

Indeed, it continues to be fashionable to be opposed to markets, to reject and deny the virtues and benefits of competition. The Occupy the London Stock Exchange protesters may be a motley bunch, and are apparently a bit too keen on Starbuck’s to maintain their “solidarity”, but for millions of people they have the dash and the perceived moral high ground, while the city workers walking past them to their desks emphatically do not.

Why is this?

Put simply, it’s because of the tension between the heart and the head. Armed with logic, statistics and evidence the Right thought for too long that it didn’t need emotive arguments. The closest analogy I can think of is the American war effort in Vietnam – their kit was so good, their helicopters so costly and their body armour so high tech that they thought the fact that the Vietcong had a stronger sense of morale and ideology than the conscript GIs wouldn’t matter. As history showed, they were wrong.

Humans are emotional beasts as well as thinking creatures. It’s not enough to know the science of making paints and pigments, or the mathematics of constructing a picture, you need to have the passion, imagination and vision as well in order to create a masterpiece that will stir the soul of the beholder.

Perhaps it’s because we were animals before we evolved to become civilised thinkers that emotion without logic succeeds in gathering popular support more often than logic without emotion. In a battle between the protesters on the steps of St Paul’s tugging at the heart strings in favour of the big state (despite the woeful historical record of the anti-market statism they support) and Excel-wielding wonks displaying the evidence in defence of a market economy, the former pose a serious threat in terms of public opinion.

Advocates of the market should continue to compile and deploy evidence, of course. It’s right and inherent to our views that we build our case on solid, thought-through foundations. But we need to speak from the heart and get a bit emotional about markets, too.

And there is an emotional case to be made.

It is the market that sets us free to do as we wish – to buy a book; to treat our loved ones to flowers or meandering adventures in the countryside; to aspire to and secure more for ourselves, our families or our neighbours.

It is the market that allows people to do the silly things that make us gloriously and touchingly human – for a close friend of mine to buy a Big Issue from every seller that she sees, leaving her struggling home with a handbag full of never-to-be-read, identical copies of the same magazine; to get that ill-advised and sadly mispelled teenage tattoo; to buy those green wellies with frogs’ eyes on the toes.

It is the market that gives its own critics the education, the technology and the freedom to seek to destroy it – the tents gaffa taped outside St Paul’s cathedral; the phones tweeting outrage against the mechanism that developed them; the Starbuck’s hosting a 50-yard queue of anti-capitalist protesters keen to warm their hands on a coffee in the October air.

It is the market that developed and provides the materials and the means for all of our great art to be created – from the straining fingers of the Sistine Chapel to the chaotic vases of Grayson Perry.

Most importantly of all, it is the market which acts as a ladder for uncounted people to climb inexorably upwards, out of the brutality, the muck, the misery and the disease that has for so long dogged human beings’ existence.

Poverty is deadly – sometimes swiftly, when an earthquake strikes a village built of mud bricks, but normally slowly, from the first breaths of smoke from an unventilated fire to the last struggle for a threadbare blanket to keep out the cold of winter. People say that wealth isn’t everything, but it is often a prerequisite to stay alive long enough to embellish just living with the things that matter, like family, personal achievement and happiness.

The steps of this ladder don’t wear out, and it is so high that we haven’t got within sight of the top yet. Billions of people are still far too far down it – but we should be clear and unashamed that it is the best way to raise them up, to allow them to pursue the glorious and the petty things that make life so beautiful.

Senior Civil Servants expecting five-figure bonuses

markwallace | 1 Comment » Posted on October 12, 2011

It never rains but it pours for the public finances. I gather that the senior ranks of the civil service right across Whitehall are currently having their annual bonuses agreed – with large numbers of them expecting to receive lump sum payments running into the tens of thousands of pounds.

It scarcely needs saying that with the deficit crashing ever onwards, the eurozone crisis at the door, junior civil servants losing their jobs, dire forecasts about the income prospects of ordinary taxpayers and unemployment continuing to rise, the prospect of paying five figure bonuses to well-paid mandarins at the top of Whitehall departments sticks in the throat.

Thanks to the recent improvements in spending transparency, we’ll find out how much of our cash is given to them, but only after it’s been handed over. The public who fund and are served by these departments will have no say in how generous their bonuses are, and will be left to howl in the wilderness should any of them appear to be excessive or undeserved after they’ve been paid.

Given the prevailing circumstances in the economy and the public finances, the very least these public servants could do to serve the public would be to voluntarily waive their bonuses this year. Ministers have already taken a pay cut, and tens of millions of people across the country have no bonus (still less generous gold plated pension) at all. Will Sir Humphrey chip in and do his bit?

Exclusive: EU official: The Euro’s existence is under threat, and we will screw the poor to save it

markwallace | No Comments » Posted on September 23, 2011

The political and economic disaster which is the Euro has reached new depths – as David Cameron noted in Ottawa yesterday “the problems in the eurozone are now so big that they have begun to threaten the stability of the world economy”.

Traditionally, the only place where logic, democracy and facts have never been able to penetrate when it comes to the glaring failure of the Euro has been the European Commission. It’s rare that they ever come clean about the EU’s dubious tactics and unheard of for them to even admit there’s a serious problem.

This morning, though, a European Commission official called Michele Calandrino was speaking at London’s City Hall as part of an EU Committee of the Regions Open Day, addressing an audience of local authorities and regional apparatchiks. My source tells me that first he confessed that:

European funding is an incentive for Member States to play the game at the European level

Which was a surprisingly frank statement in itself, given the long history of pretending that funding is allocated to target problems rather than to provide political incentives to “play the game”, ie hand over more and more sovereignty to Brussels. A confession of their dodgy dealing from the horse’s mouth.

The really fascinating bit came next, on the Eurozone crisis. The problems were so serious, said Mr Calandrino, that:

we are worried about the future of the Social Fund because of the need for fiscal consolidation to save the Euro

To translate the jargon, the European Social Fund is the main tranche of the EU budget targeted at creating jobs and providing skills training to the unemployed and disadvantaged. As well as being a large amount of money, it’s one of the EU’s posterchildren for how great Brussels is.

If the Commission thinks it may have to scrap the ESF “to save the Euro”, then they are evidently more concerned for the Euro’s future than they have previously let on. As far as I’m aware, the Commission has never previously confessed that the current crisis threatens the currency’s very existence. It’s a measure of how bad things have got that even they appear to be abandoning the pretence that the Euro will inevitably survive.

This confession is also very revealing about the EU Commission’s priorities – they would rather withdraw funding from the unemployed and poverty-stricken than abandon their disastrous vanity project. What a message to send.

« Older Entries

Tags