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January 2012

Ritchie in The Guardian

debt is not nearly as high as the Tories claim and the need for debt reduction not nearly as pressing as the Tories say

Who in buggery is saying anything at all about debt reduction?

The current game is about stopping the national debt from spiralling ever upwards out of control. It\’s about slowing the rate of increase of it, not actually reducing the level of it.

He\’s got confused again between the level of debt, a stock, and the deficit, which is a flow.

And people who get confused between stocks and flows really shouldn\’t be writing about matters economic for the national press. They should instead be revising their GCSE economics methinks.

F- Mr. Chakrabortty. See me after class

But this is to miss the big point. S&P and its rival Moody\’s have a power……What gives S&P and Moody\’s such immense power is not their brilliant analysis: it is simply the function they perform. Whether prime minister or CEO, if you want to borrow from bond markets you need a credit report to show investors…….It sounds boring and technical, which is why no one gets wound up about the credit rating duopoly…….Why should S&P and Moody\’s earn such vast sums?……. In my working life, the credit-rating duopoly……But not the agencies: since every borrower still needs a rating,……Rather than stick to obscure technicalities, the duopoly……

You do not have to have a rating to issue a bond.

It\’s hugely useful to have one of course. You\’ll be paying through the nose for the privilege of not having one. But there is no legal requirement to have one at all.

But the real proof of ignorance here is that he seems not to have heard of Fitch. You know, the third major ratings agency? The one that makes up the triumvirate. So that what we actually take is not the Moody\’s S&P or Fitch rating, but the two out of three one?

Plus of course there are thirty or forty more around the world, several of them having the same legal status inside the US as the big three (nationally recognised something or others).

To insist that it\’s a duopoly is simply to be ignorant of the world one is describing.

And as to this:

The obvious solution would be to take this public service into public hands. Let\’s have a ratings agency run by the UN, funded by pooled contributions from both lenders and borrowers. It should be the only one to have preferential access to data from corporates and countries. Let\’s make the ratings business a utility, rather than a semi-cartel that intimidates elected politicians and rakes in excess profits. It\’s time to break up the bullying double-act.

Is the man insane?

Sirisly? We\’re going to put Sarkozy, through the Security Council, in charge of France\’s bond rating?

Obama the US one, Osborne the UK?

Fuck me but that\’s nonsense.

Especially as those 30 to 40 other agencies would suddenly see their revenues soar as people turned to them for their views. And if they were banned, to the new companies that would replace them.

Man\’s a loon.

It would appear that, with the honourable exception of Larry Elliott most of the time, the chief qualification to write on matters economic for The Guardian is to be ignorant of matters economic.

So an independent Scotalnd would quickly go broke then

Taxpayer Scotland, which is linked to the London-based Taxpayers\’ Alliance organisation, estimates Scotland\’s debt could be as high as £189bn, even before taking into account its share of the national debt.

Adding in Scotland\’s £80bn share of the UK\’s £940bn national debt suggests it might face a £269bn burden, costing more than £10bn in annual interest payments.

What the actual debt burden would be would be a matter for negotiation, of course. But that\’s not actually the problem.

The Barnett formula hands 10p of every £1 the Government distributes to Scotland. To replace this money at present would require Scotland to borrow £7.5bn every year and Taxpayer Scotland says the country\’s annual deficit would be \”much nearer\” to 30pc of GDP than the 15pc calculated by the latest Government Expenditure and Revenue Scotland report.

\”Clearly, the present Keynesian overspend in response to the \’credit crunch\’ downturn is unsustainable, but even our normal year overspend of between 10pc and 15pc (depending on how you view the Barnett subsidy) is above the OECD average and, in our view, unsustainable,\” said the report.

They\’re running a 30 % of GDP deficit? And a structural one of 10-15%?

So, either austerity of Greek scales of heroic endeavour or they go bust in a decade.

All of which means that we English should kick them out as fast as we can. For it\’s our pockets they are currently draining, no?

Eastern Germany doesn\’t have laundrettes

This was something I found really rather odd in my recent trip to the \’Ore Mountains.

I did everything right of course, I\’ve done this turn up in a new country and get organised thing before. You\’ve no references, no contacts, no credit record, but you\’ve got to find a flat, rent it, get the phones in, all that stuff. The secret is to have cash. When the estate agent says, well, how do we know you\’ll pay the rent, just pay the rent in advance. In printed spondoolies. Works every time.

Pretty much everything else works the same way (except, in Germany, weirdly, the banks. You\’ve got to get your rental contract signed off by the town hall before you can have a bank account. This can only be done on Tuesday afternoons. I got the rental contract on Wednesday morning. Ho hum).

The other thing you have to do of course is find a good bartender. They know everything. You solve one set of problems one day and then, supping a pint or two at the cocktail hour, ply the barmaid with questions about how you do this, or where the cheap furniture shop is, or the method of providing parking spaces.

Which is where I learnt that eastern Germany just doesn\’t have laundrettes. Apparently.

Just odd.

How odd this is for a capitalist society

If you add together nonfinance executives, “financial professions”, real estate, and lawyers, you’ve got more than 70 percent of the total; plus some of the other categories are probably essentially business executives too. Basically, the top 0.1 percent is the corporate suits, with a few token sports and film stars thrown in.

Machine translation not quite there yet

Haniyeh said during the graduation ceremony of the first class of police academy in Gaza article: \’The institutions set up security on a national basis should remain a working incubator for any security in the future.\’

Haniyeh said: \’What we have built will not destroy, because the Palestinian people felt fruit construction, particularly by ending the security chaos, and the presence of police work for the home clean hands, tongue, vagina, grew up on the table Koran\’.*

Perhaps this system would work better?

* Spotted by David T.

Let\’s give the Queen a yacht

Yes, this is a good idea.

Michael Gove has brushed aside Britain\’s economic problems to propose the public donate a new royal yacht to the Queen as a mark of respect during this year\’s diamond jubilee celebrations, according to a confidential letter to fellow ministers.

Why not? At £60 million it\’s just under a £ a head.

However, this is a very bad idea indeed.

Gove ends his letter by suggesting that if insufficient taxpayer funds are available a private donation could be sought,

No. Taxpayer funds are not to be used in such matters. That would be a present from Ministers, who control the disposition of our money (although Ritchie would of course disagree, stating that it\’s rightfully the State\’s money to be used as the State desires), to the Queen.

A present from us to the Queen would be one that is given vountarily. That is, by public subscription.

My doubts about whether £60 million could be raised range from very little to none. It could in fact be done amazingly simply if there were a few KVOs to be handed out.

So, what we need is a banker willing to open an account into which little old ladies can deposit 10 pence, into which captains of industry can vie for a gong with a £100 k (LVO, the KVO being rather more expensive) here or there and someone who knows the second hand yacht market.

Anyone?

Err, no, he ain\’t

Below the breadline on Liverpool\’s workless estates

One-third of households are now on the dole as downturn forces some benefits claimants to survive on less than £20 a week

He just ain\’t being asked to survive on £20 a week.

He gets about £67 a week as jobseeker\’s allowance, but £15 is instantly deducted in child maintenance for the three of his five children who are under 16, none of whom live with him. Another £10 a week is also currently being deducted at source to repay a historic crisis loan that he was given by the jobcentre to tide the family over when he lost his job on another occasion about a decade ago, leaving him with just over £40 pounds. Out of that he is paying back a credit card debt of around £1,000, which he ran up when he first lost his full-time work 18 months ago, and he needed money to tide him over. (He went to his bank to ask for an overdraft facility to help him through that difficult time, and was told he wasn\’t eligible for one, but was invited to apply for a credit card instead.)

Bebb is paying this off at a rate of £33 a month, which he often finds very challenging. He spends £14 a week on recharging his gas and electricity accounts, so just under £20 is left for food, clothes, bus tickets and everything else. His rent is currently paid by housing benefit.

Note the housing benefit? There\’s also the council tax deduction, child benefit, free school meals and etc etc.

That he\’s got £20 a week cash in his pocket is not the same thing at all as saying that he\’s trying to survive on £20 a week.

But no doubt this number will run and run through the leftoid press. As ever, a variant of Worstall\’s Fallacy, refusing to acknowledge what is already being done to alleviate poverty.

So now the Lancet is publishing Tom Clancey

There we all were naively thinking the Olympics would bring pride, excitement and tourism revenue to London this summer. But what none of us has properly accounted for, according to six new papers published in Lancet Infectious Diseases, are the health risks to visitors of stampedes, heatstroke and mass infections.

Events ranging from Barack Obama\’s inauguration and Glastonbury through to the Hajj pilgrimage and football World Cups have all provided evidence that is now being used to minimise the health risks that will accompany the London games. A system called Bio Diaspora will be used, which tracks air traffic to help anticipate the global spread of diseases. The internet will also be closely monitored to spot early geographical evidence of \”disease activity\”.

As we all remember the plot of Rainbow Six is the deliberate introduction of a virus (some form of ebola?) into the crwods at the Sydney Olympics.

Good to see that the doctors are keeping up with fine literature.

Am I the only person to note that this is insane?

The Deputy Prime Minister will launch today a campaign for a “well-rewarded workforce”, saying that businesses owned by their staff are more dynamic and have higher morale.

He wants to encourage companies to follow the model of John Lewis, the department store group which is owned by its employees and distributes its profits between them.

Mr Clegg’s call for “responsible capitalism” will come as City firms are preparing to pay executives billions of pounds in bonuses, despite pledges from politicians to curb excessive pay and growing hardship among ordinary families. Bob Diamond, the chief executive of Barclays, is reportedly in line for a £10?million payout.

The banks are handing out part of the profits to the staff. This is bad. John Lewis hands out all of the profits to the staff. This is good.

Is Clegg (et al) really so fucking ignorant that he doesn\’t realise that a system of bonuses is equivalent to employee share ownership? Especially as many of those bonuses are in fact paid in restricted shares? In fact, I think I\’m right in saying that by law some part of bankers\’ bonuses must be paid in restricted stock. It\’s certainly how Bob Diamond gets a piece of his wedge.

Do we really have a Deputy Prime Minister who is that thick?

The Deputy Prime Minister will add that companies tend to be run better if workers have a stake in them.

“Firms that have engaged employees, who own a chunk of their company, are just as dynamic, just as savvy, as their competitors. In fact they often perform better. The 1980s was the decade of share ownership. I want this to be the decade of employee share ownership. We need more individuals to have a real stake in their firms, more of a John Lewis economy.”

One proposal under consideration is a “right to request” rule, which would give staff an automatic opportunity to ask their employer for shares.

Mr Clegg has asked Danny Alexander, the Chief Secretary to the Treasury, to incentivise companies by “[looking] at the tax arrangements for employee-owned firms”. A source close to the Liberal Democrats said: “Nick is pushing his Government colleagues for real, early, radical action on this.”

Whatever tax breaks they bring in, guess who are going to be the companies who dive in and take advantage of them?

Yup, the banks. For they already do this, don\’t they? Hand out wodges of equity to their staff each year. So if there\’s a tax break for handing out wodges of equity then the banks will structure bonuses to meet the demands of that tax break.

This is a tax break for bankers\’ bonuses.

Won\’t Compass, nef, Ritchie, all those who support the mutualisation of the economy, be happy about that?

Interesting story placement in the Mail

Now THAT\’S a concealed weapon! Inmate \’hides ten-inch revolver in rectum\’… but at least it was unloaded

\"gun\"

Michael Leon Ward, 22, of Georgia, was arrested after he was found speeding in North Carolina. Police later discovered a gun in his cell that they believe was smuggled in the man\’s rear. Police discovered the .38-cabibre revolver in the toilet of Ward’s cell after he claimed someone was trying to kill him …read

\’I\’ll sue Church of England if it bars me from being bishop,\’ says gay dean

\"Challenge: The Very Rev Jeffrey John, Dean of St Albans, has instructed an eminent employment lawyer to complain after being rejected for the role of Bishop of Southwark.

Err, yes, you are rubbish dear

Or buying a cup of tea at a motorway service station. (Unit price, what? Maybe 2p? Sale price? £2.75. I\’m a rubbish capitalist and can\’t do the sums but isn\’t that something like about 20,000% profit?)

No, that\’s not profit, no.

There\’s this little thing called \”overheads\” that have to be paid. You know, trivial things, like the building, the furniture, the equipment to make the tea. Heck if it takes 1 minute of labour to make a cup of tea then that\’s 10 pence of minimum wage labour right there.

Consider, for example, newspapers. This morning\’s Observer weighs what, 100 grammes (sorry, many years since I actually knew the weight of newspapers)? And at €500 per tonne newsprint that\’s 5 cent\’s worth of paper. We\’ll give you another 5 cents for the ink shall we?

The paper sells for £2 I think? So, why aren\’t you making a £1.9something profit on every copy? What\’s that? You\’re losing £30 million a year because there are more expenses to pay than just the paper and ink was it?

Yes love, you really are rubbish at not just this capitalism thing but basic numbers too.

British stupidity is alive and well among the criminal classes

Manchester \’mole gang\’ escapes with just £6,000 after 100ft tunnel heist

Gang may have been left out of pocket by having to hire expensive drilling equipment, say police

OK, so they dug the tunnel, got to the target and then found that there wasn\’t as much cash as they had thought. Diddums.

That\’s not the stupidity. This is:

Police admit they are baffled at the target given the obvious expertise and determination possessed by the criminals. Even when fully stocked, the cash machine can only hold £20,000.

Even if it had \”worked\” they\’d have been making minimum wage around and about. And risking jail for that is simply stupid.

Whining hippy on pancreatic cancer

However, it could never happen, and not because I\’m so enlightened, sensitive or any of the other euphemisms for \”whining hippie\” usually dumped on vegetarians. My conversion to flesh-eating couldn\’t happen because, frankly, I\’m not stupid enough. As in, I can read.

Analysis of more than 6,000 pancreatic cancer cases published in the British Journal of Cancer says that eating just 50g of processed meat a day (one sausage or a couple of slices of bacon) raises the likelihood of pancreatic cancer by a fifth. 100g a day (the equivalent of a medium burger) raises it by 38%, 150g by 57%.

Hmm. Age adjusted incidence of pancreatic cancer is 12 per 100,000.

So the eating of processed meats raises it to 18 per 100,000 or so does it? (Not really, as the 12 rate already includes those who eat processed meats but still….)

Ho hum, that\’s about the risk of dying in a car crash isn\’t it? Just one of those minor risks that confront us all, that have to be navigated on that route from cradle to the inevitable grave.

Why Ritchie is wrong. Again.

So we\’re told that social democracy is the only way to go now that we\’ve come to the limits to growth. And that Baumol\’s Cost Disease (which, amazingly, he actually gets right, or right enough) means that the State will have to expand.

However, two slight problems with his analysis.

The Guardian’s reported that Ed Miliband has said:

What has social democracy been about in Britain and in Europe perhaps since Tony Crosland? It is about tax and transfer social democracy. Crosland said ‘use the proceeds of growth to make society better and fairer’.

It was, I agree.

And it isn’t any more. That’s obviously true. That’s not because of the financial crisis. That’s because we have reached the limits to growth. It is not possible to exploit our planet at the rate we have been and survive as a race. Whatever the reason we come to accept that, it’s a fact.

It\’s not a fact that we have reached the limits to growth. Even Herman Daly, he of the steady state economy, doesn\’t say that. That\’s because as well as being an ecologist fruitcake Daly is an economist. Thus he knows, as Ritchie does not, what economic growth is. An increase in GDP (or GNP, GNI, GDI, any of the variants).

GDP is the value of goods and services produced.

So, let us, arguendo, agree that we have in fact reached the physical limits to growth in the making of stuff. We could even go further and agree with the Deep Greens, that we must place tight limits on the amounts of natural resources that can be abstracted from the biosphere. Even, if you really want to, go really deep Deep Green and say that we must abstract no new resources at all, simply live off what we can recycle.

Does this mean an end to economic growth?

No, of course it doesn\’t. Arguendo, again, we can accept that this severely limits the amount of stuff that can be produced. It doesn\’t though particularly limit the amount of services that can be produced. And it places no limit at all upon the value of what can be produced. The value can increase through the advance of technology: in two different ways.

1) We can find methods of using less of that limited stuff in each unit of what physical stuff we do make. Take, as they\’re rather fashionable things to worry about right now, the gold and tantalum coming from the Congo. Thirty years ago we layered that gold onto computer connectors like an ageing trollop slathering on the make up. 200 nm thick wasn\’t unusual. It would be a very high end component today that has more than 2 or 3 nm.

So, out of our available and recyclable gold we can make 100 times the computer boards that we could 30 years ago. Tantalum is a similar story. Around the turn of the millennium capacitors on mobile phone boards used perhaps a gramme of Ta each. Now they\’re perhaps 5 or 10 milligrammes. We can make many more capacitors out of the sweated misery of a militia oppressed Congolese. We have had, clearly and obviously, economic growth as a result of technology advancing even if we were to say that resource use must be limited, or even that abstraction of resources must cease entirely.

2) We can invent new things to do with our limited supply of resources. Invent, say, aspirin. As anyone who drinks knows this is an addition of value.

And this is what Daly himself says about it all. That we have indeed come to the limit of the resources we can abstract but this does not mean the end of economic growth. A steady state economy is one in which resource use is static but economic growth continues as technology advances.

Thus any argument that begins with \”we have reached the limits to growth\” is wrong. And any argument that depends upon the statement can safely be dismissed out of hand. For even if it were true that we had reached limits to the amount of physical stuff we can transform, we have not reached the limits of how to transform and thus add value. And as GDP is a measure of value added, as we continue to find new ways of adding value thus we continue to have increases in GDP: economic growth.

So that part of the argument is complete cock.

Then there\’s this, which is also complete cock but for a different detailed reason even if the same overall one: that Ritchie simply doesn\’t understand economics.

This is where we are now. As a matter of fact real wages in many parts of the private sector have risen over the last 30 or 40 years because of increases in productivity because that sector is fundamentally focused upon producing products or commoditised services that can be easily packaged and sold using technology. On the other hand, a great many of the services supplied by the state, whether they be healthcare, education, support for those in need, one-to-one advice, and so on, cannot be enhanced in this way. You cannot teach a class a 50 minute lesson in 30 min and you cannot do a 10 min consultation with a patient in 7 min without some significant compromise on the quality of service supplied occurring. Productivity gains in a great many of the activities undertaken by the state will therefore always, and inevitably, be low.  The claims of those who argue that these services are inefficient as a result and should be privatised as a consequence are just absurd: they’re simply done in real time one to one, and that’s a fact that will not change unless, of course, we want lower standard services (which privatisation does, invariably, deliver as a result).

He\’s got part of Baumol\’s work right. The Cost Disease part. But he\’s entirely ignorant of the other part, the work on invention and innovation. Invention, using Baumol\’s terminology, is the creation of spiffy new things. There\’s not a lot of difference between public and private, planned and market, government and corporate, performance in invention.

Innovation is the spread of these spiffy new things out through the economy so that people can do old things more spiffily, do spiffy new things. Here, public, planned and government perform abominably. Corporate and private don\’t matter all that much: it is market that works best. That constant struggle to find new ways of doing things, new things to do, from which one can gain filthy lucre on which to gorge, is the best thing we\’ve ever found to produce innovation.

And of course, innovation is what leads to productivity growth and thus that economic growth that yes, even within strict resource constraints, we can still have.

All of which leads us to, and I\’m sure you\’ll be incredibly surprised about this, exactly the opposite conclusion that Ritchie has reached. Yes, many essential services are currently supplied by the State. Yes, increasing productivity in services is more difficult than it is in manufacturing. And markets increase productivity better than planning or government does (there are sensible and serious economists (Krugman, P) willing to assert that the Soviet Union, as an example, did not manage to increase factor productivity at all in its entire existence. All growth came from the consumption of more resources.).

Therefore we must convert the current planned, government, provision of services into market based provision (with government financing if you so desire) because that is the way we know how to increase innovation, thus productivity and thus make our children richer than we are.

Oh, and innovation in services? Remember that aspirin, boon of the drinking man? That replaced the comely maiden bathing your forehead with a damp cloth as a cure for a hangover. Innovation in health care by converting a service into a manufactured product. Happens all the time that sort of thing. Which is fortunate, given the shortage of maidens in our modern society. And the desire of many to have the no longer maidens doing a different form of servicing quite possibly during or after the drinking but before the hangover.

It is precisely and exactly Baumol\’s Cost Disease that means we desire market based provision of such services.

Which is the opposite conclusion that Ritchie came to but then you knew that was going to happen right from the start, didn\’t you?

 

No, no it doesn\’t

Population growth is, of course, partly responsible, but so is growing affluence, which, especially in India and China, is increasing the demand for meat. It takes 8lb of grain in feed, for example, to produce 1lb of beef.

This is one of those minor Americanisms that really irritates me.

It is true that if you grow a cow on a feed lot then you get that 8:1 ratio.

However, if you grow a cow on pasture then you get a ratio more like 0:1.

And there\’s an awful lot of pasture out there that cannot be ploughed up to grow grain but is just great at growing grass for cows to eat.

And while this isn\’t entirely true it is generally so: lots of American cows are on feed lots, few European ones. So why do we keep quoting this American number when it\’s simply not true for us here?