An interesting commentary on the state of business in Russia

Vladimir Yevtushenkov, one of Russia’s richest men, has been placed under house arrest on accusations of money laundering.

The arrest brought accusations from the fallen oligarch Mikhail Khodorkovsky, released from prison by Vladimir Putin last year, that the move was linked to Kremlin interest in Yevtushenkov’s oil assets. Rosneft, the state-owned oil group, dismissed Khodorkovsky’s comments as “absurd”, on Wednesday morning.

Yevtushenkov, who is worth $9bn (£5.5bn) according to Forbes magazine Russia, was arrested late on Tuesday. The billionaire is the chairman and largest shareholder of Sistema, a conglomerate whose board members include the Labour peer Lord Mandelson.

Sistema controls Russia’s largest mobile phone operator, MTS, the oil company Bashneft and other lucrative assets. The accusations relate to Yevtushenkov’s acquisition of Bashneft, one of the few Russian oil producers that is not under state control.

Sistema said it considers the accusations baseless. Shares in Sistema collapsed by 28% in the first half hour of trading at Moscow’s MICEX stock exchange on Wednesday.

No, leave aside guilt or not, likely being a bad’un or not. And the real point being that the first question on everyone’s lips was, “What the fuck has he done to piss off Putin?”

Which tells you rather a lot about Russia Today really…..

The Murphmonster’s latest insanity about economics

In that case then I think it worth explaining just why I find free market economics so frustrating. Fundamentally this is because of the absurd assumptions that underpin the logic of those who adhere to these beliefs. Saying that, many of those who do so will, I am sure, say that what follows represents beliefs they do not personally recognise. I hate to disillusion them, because the reality is that all this will reveal is that they are the unwitting slaves of some far from defunct economists because what I will describe are the assumptions that underpin the vast majority of economics journal papers in the UK, including those that result in the policy prescriptions of almost all free marketeers (including, depressingly, on tax).

So what are these assumptions? You can give and take a little on these, because once you get above about eight there is some overlap or substituitability between them, but each is common and worth noting. I should, in fairness, add I started with a list from here, but expanded a little as I thought appropriate. Free markets to work require that there be:

Many sellers each of whom produce a low percentage of market output and cannot influence the prevailing market price.
Many individual buyers, none has any control over the market price
Perfect freedom of entry and exit from the industry. Firms face no sunk costs and entry and exit from the market is feasible in the long run. This assumption means that all firms in a perfectly competitive market make normal profits in the long run.
Homogeneous products are supplied to the markets that are perfect substitutes. This leads to each firms being “price takers” with a perfectly elastic demand curve for their product.
Perfect knowledge – consumers have all readily available information about prices and products from competing suppliers and can access this at zero cost – in other words, there are few transactions costs involved in searching for the required information about prices. Likewise sellers have perfect knowledge about their competitors.
Perfectly mobile factors of production – land, labour and capital can be switched in response to changing market conditions, prices and incentives.
No externalities arising from production and/or consumption.
Markets that clear, which requires that for all sellers there is a buyer.
Markets that reach a state of equilibrium i.e. there is an optimal outcome to economic activity.
Rational expectations, which means that people accurately forecast statistical expectations and all errors are random.

Well, we might argue about a few of these. Rational expectations for example really doesn’t mean that. Only that people are not systematically biased in what they think the future might bring. And the point is not so much to insist that markets only work if they do think this way as to examine whether the point it true or not. Also worth noting that this is the basis of Keynes’ ideas on the origins of the business cycle too. It’s not a new or “free market” idea.

Coase in part won the Nobel for pointing out that externalities can, but only in certain circumstances, be dealt with in a purely free market with the appropriate property rights. And everyone else, from Marshall through Pigou onwards has pointed out that the right thing to do about them when this isn’t possible is to incorporate them into market prices. This is the argument both for a carbon tax (negative externalities) and public subsidy of basic research (positive externality of a public good).

Which brings us to his complete misunderstanding of markets that clear. This doesn’t mean that there is a buyer for every seller. It means that prices change so that markets clear: at £10 each there’s not a buyer for every seller of lovely fresh pears, at 1 pence each there’s too many buyers for willing sellers and at some number inbetween the market clears as the willing supply and willing demand becomes equal. Our biggest problem being that we’ve no way at all of determining what that market clearing price is without using the market as a whole as our model. Which is why, when we’ve those externalities, we’ve got to change the price through either tax or subsidy and then let the market deal with it, find that market clearing number. This is why Stern concentrated on working out the damage from emissions: once we know that (whatever you think of the answer he came up with) then we can tax at that rate and then the market clears giving us the correct amount of emissions.

At a slightly less detailed level he’s describing the simplifications that we make to build a model. The vast majority of what happens next is relaxing one of more of those simplifications and seeing what happens to the model. There’s reams and reams of papers on oligopolistic competition, imperfect information, bounded rationality and all the rest.

Which brings us to the next point at again a higher level of abstraction:

As I have said, you can argue that one or two extra conditions can be added to this list and that a couple may overlap. It does not make a lot of difference to the outcome because the fact is that all these conditions need to exist simultaneously if markets are to provide optimal outcomes for the economic organisation of society. If any one of them fails then because of the simple application of chaos theory and the power of small numbers the outcome from leaving markets to themselves are wholly unpredictable.

Dunno what the hell that chaos theory and small numbers stuff is about. But he’s not getting the real meaning of “optimal” here. The real meaning being “as perfectly perfect as anything can be”. And there’s not a single economist out there who wouldn’t agree that there are times when a pure market solution, only a pure free market solution, might be in this sense sub-optimal.

It’s at exactly that point that the argument then gets interesting. When we bring in things like public choice economics (essentially, the people who make, enforce and administer laws are greedy thieving bastards like the rest of us), bounded rationality (the people who make, enforce and administer laws are just as ignorant as the rest of us) and so on and so on then we want to ask the extremely important question. OK, so a pure free market outcome is sub-optimal. And is whatever we get from the ignorant musings of a retired accountant from Wandsworth optimal? Or sub-sub-optimal?


What a bloody good idea

A pop-up restaurant event selling dinners requested by prisoners on death row is under pressure to shut before it even opens after a barrage of criticism.

The event, called Death Row Dinners, was due to open in trendy Hoxton Square, East London next month – charging customers £50 for their ‘last meal’.

But organisers are now reconsidering their plans after an online backlash.

Chefs were to cook ‘a five course feast of their culinary twists on some of death rows most interesting and popular last dinners’, according to a statement from the organisers.

It adds: ‘Prepare to be charged, sentenced, searched and frisked.’

The event, which is set to run for a limited number of nights, was promoted with pictures of men, apparently prisoners, with menus around their necks.

OK, they’ve loaded it with a lot of pretentious tosh. But the basic idea is absolutely fabulous. You’d make a mint full of money running that in the US….

Polygamy is not illegal in the UK

Studying for a PhD in engineering at Cambridge, she might not seem like a prime candidate to enter into a polygamous marriage.

But that is what Nabilah Phillips did, dropping out of university to become the second woman married to businessman Hasan Phillips who has since acquired a third wife.

Yesterday it emerged that Mrs Phillips, from North London, is among thousands of Muslim women entering into such relationships which are illegal in the UK but allowed under sharia law which permits men to have four wives.

Bigamy is illegal: being legally (or, as it works out, trying to be legally) married to more than one person at the same time. But that’s not what happens here. There’s one legal marriage (or perhaps none) and a series of religious only marriages.

And the law says nowt about which sky fairy is allowed to determine who you decide to bed or live with.

Polygamy isn’t legal: there’s no legal recognition of the relationships for example, no claims for benefits as a married couple etc. But it’s also not illegal either. Probably best described as alegal. You know, like so many things in life, there’s no special provision in the law for it either way. Also known as freedom and liberty.

Why have we allowed the stupid to colonise the media?

Research from the Social Mobility and Child Poverty Commission bears this out: far from becoming a meritocracy, Britain’s professions are still a closed shop for those from more impoverished social backgrounds.

Sigh, she means the opposite of course.

Research from the Social Mobility and Child Poverty Commission bears this out: far from becoming a meritocracy, Britain’s professions are still a closed shop to those from more impoverished social backgrounds.

So much for having those with post-graduate degrees doing the subbing then, eh?



On the subject of John Oliver

Seen a couple of YouTube clips of his stuff. And while perfectly fine as comedy my immediate reaction was that I know why he’s working in the US.

His act is simply warmed up Ben Elton. We’ve seen it all before over here. Even to the accent. Parents are Scouse, he’s a Brummie, educated in Bedford then Footlights at Cambridge. With that background you’ll only end up with a Mockney/Estuarine as a deliberate part of the act.

Can’t say I was greatly impressed. Elton Lite doesn’t really cut it for me.

So Ritchie declares Keynesianism dead

He simply doesn’t know enough to be able to plug together his various brain spasms, does he?

It makes no sense to raise tax for its own sake: that process would simply take money out of the economy for which a government was responsible to make everyone worse off (which is also why running budget surpluses is also quite illogical).

At the heart of the idea of Keynesian management of demand in the economy is the insistence that that is exactly what the government should do at times.

We’re familiar with the idea that the job of a central banker is to take away the punch bowl just as the party gets going: that is, that as a boom gets going then interest rates should rise so as to temper that boom. This is the flip side of lowering interest rates in slumps. Pretty standard guide to monetary policy.

What Ritchie’s not getting is that Keynes (who was a very good monetary economist indeed) said exactly the same thing about fiscal policy. Sure, in the slump you increase the gap between government spending and the amount it takes in in tax. Increase the deficit, get fiscal expansion and boost aggregate demand. But note that this policy also has its mirror image. As the boom gets going then government should reduce that gap. And if the boom has steam then that gap should become positive: fiscal policy should become contractionary when there’s a real go go economy.

Yes, this includes “borrowing to invest” and all of the rest. And it’s not just implicit in Keynes it’s explicit. It’s not that running a budget surplus is illogical: it’s that Keynes actually requires it to happen at times. One of those times being 2003 to 2007 of course but that’s just me being mean.

The real point I’m making here is that if you declare yourself to be in favour of Keynesian demand management then you have, at the same time, insisted that a budget surplus is something that government must run at times. Because that’s how you do demand management.

And the problem with Ritchie is that he didn’t stay awake in his economics lectures so he’s entirely ignorant of how the subject pieces all of these things together. And do note that none of the above is neoliberal, neoclassical, free market or anything that he might disapprove of. It’s absolutely straight done the line, middle of the road, Keynes.

The man’s simply ignorant.

Danny Dorling’s spouting bollocks again

To be in the top 1% of earners in Britain today, a couple with no children would need a minimum income of £160,000. A single person can enter the 1% with a little less, while a couple with children would need more.

Hardly any GPs are paid enough to take their place in the top 1% any longer, despite the last decade’s huge hike in their pay; their incomes have been far outstripped by those of the financiers above them.

Bit weird. GPs are on £112,000 or so, aren’t they? (looking it up, 103,000 for average GP partner in 2011/12) making a married GP couple comfortably in that top 1%. And yes, assortative mating has meant that there are a number of such couples out there.

I have a proof copy of the book this is drawn from and I’ve not written a proper review of it on the grounds that it’s filled with howlers like this. At one point he actually tries to tell us that the average cost of health care in the US is $110,000 a year or something (running from memory there). Seems not to understand that while it is expensive they do have “insurance”.

It would help if Scotland knew what the Swedish model was

A go-alone Scottish economy is viable – but would it be any better?

Scots may dream of a Swedish-style state but, lacking concrete plans, Ireland is the likelier model

People generally get this wrong. And it’s reasonably important that they get it right instead.

Both Sweden and Ireland are more free market, more capitalist, than the UK or US. This is why both places work in their different ways. Just look at any of the listings of economic freedom: more free trade, lower corporate and capital taxation, less regulatory intervention into the economy.

The differences between the two aren’t in those basic economic structures. Sweden layers a high tax, high redistribution welfare state over the top of that. As does Denmark, which as Scott Sumner points out is, absent that welfare state, probably the most capitalist and free market economy on the planet, even including Hong Kong.

Ireland doesn’t do that tax and redistribution thing. Which is fine, that’s a political choice.

But that’s also why Scotland just ain’t ever going to follow the Swedish or even Nordic model. Because the polity of the country simply doesn’t believe in that free trade and capitalism bit. They want the high tax, high redistribution: which is fine, as I say, that’s a political choice (even if not one I like nor one I’d want to live under). But they don’t want to have the liberal economic order which makes it possible.

Thus they’d be fucked of course, Venezuela on the Clyde here we come.

That Swedish model relies upon the vigour of the free market and since Scotland doesn’t understand nor want that then they can’t have the Swedish model.

Well, yes, but….

When our children and grandchildren look back at the Sun’s page 3 (for I have no doubt its days are numbered) they’ll see it in much the same way as we watch the casual sexism in Mad Men now. It will seem embarrassingly anachronistic. I know this because it is embarrassingly anachronistic now. It exists in an era where women build and fly planes, debate in the UN, run businesses and generally demonstrate that they are more than the sum of their parts. Page 3 is a relic of a bygone era, but it’s still here.

Sure women are more than the sum of their parts. Just as men are more than merely their dicks. But just as men still have dicks (and still think with them at times) so do women still have parts.

Parts that are specifically designed (hmm, evolution doesn’t do design but you know what I mean) to get men thinking with their dicks. There is no other explanation for the female breast.

That women do “build and fly planes, debate in the UN, run businesses” is just great. But quite why that means that we should stop being a mammalian, viviparous species, why we should stop acting like one, is a little beyond this bear of little brain. Nice wing line there! Super barrel roll, that speech was delish, stunning profit line: whoa! titties!

If that last were all that’s said then one could understand the ire. But it ain’t, is it?

And if women didn’t know this, and play to it, there’s be no explanation for the boob job, would there? And that’s not limited to the cosmetic type either: how often do you see the justification for reconstruction after cancer surgery and the like being “but it’s part of who I am as a woman”?

OK, if that’s true, and as a society we say that it is for the NHS pays for such out of our tax money, then in this society titties are indeed part of being a woman. So what the hell’s the problem with celebrating all aspects of humanity and femininity, not just some?

Yes, Hillary will run, Yes, Hillary will win….

…the Democratic nomination.

The two biggest factions of the Democratic Party — let’s call them pragmatists and idealists, or Clintonites and Obamanistas — have all but acceded to her presidential nomination two years in advance, although Maryland Governor Martin O’Malley and others will be testing her for weaknesses over the coming months.

And how I’d love to see her go down to a grand defeat at the actual election.

I’ve no objection to a female President (not that it’s my country, but) but seriously, this particular woman? Yech.

However, the rather more difficult question is which Republican could actually beat her? They’re not exactly stuffed with talent these days, are they?

Oh fucking great

FRANKFURT— Deutsche Lufthansa AG LHA.XE -1.55% pilots plan to walk off the job on Tuesday, the latest in a series of strikes over retirement benefits at Germany’s flagship airline, the pilot union said on Monday.

Pilots represented by union Vereinigung Cockpit will strike from 0700 GMT to 1500 GMT on Tuesday at Frankfurt Airport, Europe’s third-busiest airport. The strike will affect long-haul flights, the union said.

Guess which bloody numpty is flying, on Lufthansa, through Frankfurt, on Tuesday?