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June 2010

You know the Bolivarian Revolution is toast when….

Most economists attribute Venezuela\’s soaring inflation to loose monetary policy, exchange controls, devaluation and anaemic domestic production, dynamics that show no sign of abating.

\”The government has boxed itself in with a misguided policy mix of rampant spending and price and foreign exchange controls that has resulted in a growing output gap and galloping inflation,\” said Patrick Esteruelas, of Eurasia Group political consultancy. He added that the government, unwilling to risk austerity measures in the run-up to September\’s congressional elections, was deflecting blame. \”It has found it highly convenient to persecute private food retailers.\”

Venezuela\’s authorities disagree. They say private firms are cheating customers with unjustified price rises that are driving 30% inflation, Latin America\’s highest. Food prices are rising even faster, at 40%. According to Chávez, it is part of a plot by US-backed \”fascist oligarchs\” to destabilise his leftist experiment.

\”Do you know why capitalist prices are so high? Because they are thieves, stealing from the people. Don\’t let them trick you,\” said the president during a TV broadcast last week. He promised to crush speculators and lower prices in what he termed an \”economic war\”.

….

But problems are mounting. In the name of \”nutritional sovereignty\” the government seized 6m hectares (about 15m acres) of farmland, expanded cultivation and set up socialist co-operatives. Results are poor: beef, sugar, coffee and fruit production plunged. Grain and rice output initially rose, but fell last year.

When even The Guardian is running reports on how socialism makes the food supply go tits up then yes, you\’re toast.

Not the greatest of arguments

There may not be a nation in the world that needs high-speed trains more than Canada does. We\’re a big country, with long, boring highways between our lonely cities…

Large, sparesly populated, places are probably the last place you would want to build high speed railways.

Interesting point about benefits

Not the one The Guardian Leader meant to be making of course.

The government announced benefits would no longer be pegged to the overall cost of running a home, but merely the cost of shopping. Everyone knows that the cost of housing tends to rise faster than that of baked beans, so the exclusion of rent and mortgages from the calculation all but guarantees that benefits will be squeezed every year.

But \”benefits\” which are now to be pegged to the CPI rather than RPI aren\’t the benefits that pay for housing, are they?

Housing benefit, mortgage interest payments or social housing are the things which pay for housing. Benefits such as Jobseekers, Income Support and so on do not pay for housing because it\’s those others that do.

Thus it seems entirely logical that those benefits be tied to the inflation rate in the goods they\’re to pay for….and not the higher inflation rate for housing which they do not pay for.

Well, that\’s this blog shut down then

In this essay, I argue that neither non-economist bloggers, nor economists who portray
economics —especially macroeconomic policy— as a simple enterprise with clear conclusions, are
likely to contibute any insight to discussion of economics and, as a result, should be ignored by
an open-minded lay public.

And to a large extent he\’s right.

Although I shall avail myself of the let out offered by that insistence upon macroeconomics….something I generally point out that I don\’t do.

There are a few basic things which can be said: comparative advantage, incentives, tax incidence and so on. And you\’ll find that most of the economics in this blog is of those rather basic things.

So, as I say, I\’ll take the get out there….now, can we think of any people who do not merit the allowance of such a get out?

Fighting words

It would appear that the tax cut multiplier is larger than the government spending multiplier.

And that thus the correct method of creating fiscal expansion, of boosting AD, is to cut taxes, not raise spending.

Perhaps the most compelling research on this subject is a very recent study by my colleagues Alberto Alesina and Silvia Ardagna at Harvard. They used data from the Organization for Economic Cooperation and Development to identify every major fiscal stimulus adopted by the 30 OECD countries between 1970 and 2007. Alesina and Ardagna then separated those plans that were in fact followed by robust economic growth from those that were not, and compared their characteristics. They found that the stimulus packages that appeared to be successful had cut business and income taxes, while those that evidently did not succeed had increased government spending and transfer payments.

Fascinating stuff from the Fabian Society

The impact of George Osborne\’s emergency budget on the poor has been revealed in a study that finds the country\’s least well-off families face cuts equivalent to 21.7% of their household income. That means they will be hit six times harder than the very richest by the coalition\’s deficit-cutting measures.

The study, the first to fully account for the impact of deep future cuts in public spending, comes as world leaders meet in Toronto to discuss the global economy. Treasury figures have only considered tax and benefits because the impact of spending cuts had not been modelled. The Institute for Fiscal Studies said that this was \”perhaps the most important omission in any distributional analysis\” of government austerity plans.

Now economists working in conjunction with the left-leaning Fabian Society have created a model that gives a quantitative account of cuts for the first time. The study assumes that health spending and international development spending will be protected, as stated in the budget, and that spending cuts will be equally distributed across the other government departments. It concludes that the poorest will be by far the biggest losers in the drive to move Britain back into a budget surplus by the end of this parliament.

According to the study the poorest 10% of households, earning under £14,200, will see a cut equivalent to more than one fifth of their income.

Unfortunately, I can\’t see the report online. However, I can see a slight logical problem with what they\’re doing here.

Yes, I accept that \”the poor\” get more use out of public spending than the rich. Similarly, that a cut in public spending will affect the services enjoyed by the poor more than those enjoyed by the rich. So I\’ve no problem with the basic idea that a cut in spending will impact upon the consumption of the poor more than it will upon the consumption of the rich.

For that is what they\’re saying.

OK….but we don\’t normally talk about the inequality of consumption between the poor and the rich. We normally talk about the inequality of incomes between the poor and the rich (post tax and post benefit of course).

If we do start to talk about the inequality of consumption then we have to acknowledge the value provided to the poor by the NHS, free at the point of consumption education, social housing and so on. Which, as Matthew Taylor points out at the RAS blog (somewhere) actually doubles the \”income\” of the poor if we measure by consumption rather than just straight income.

And this is indeed what the Fabian Society is talking about: the effect the cuts in public spending will have upon the consumption of the poor. Which is absolutely fine, except that in doing so you have to actually lay out what is that consumption of the poor: for example, using the Taylor rule of thumb, the bottom 10% do not have an income of £14,200, they have consumption of £28,400.

Think, just for a moment, of a household on either housing benefit or social housing in the centre of London. That\’s £20k at least of consumption right there.

It is this consumption that is being cut, not the income. So it isn\’t a 20% cut in income of £14,200, it\’s a cut of 20% in consumption of £28,400…..

Which is at one point simply a logical problem that the report has to overcome and I wonder if it does.

However, if this point is properly laid out then it becomes more of a political problem. For let us carry on and say that consumption inequality is measured properly: the level of inequality in the country has now fallen rather a lot, has it not?

Similarly, if we now all agree that the poorest 10% have consumption of £28,400….umm, actually, that\’s more than median household income, isn\’t it?* Umm, no, but it is around and about it.

So, now let us rephrase the question to be asked of Johnny Q Public.

\”Do you think that chav scum benefit scroungers should get the average living standard for the country for doing fuck all?\”

I think we\’d get a righteous mob determined on pulling down the welfare state if it were asked that way. Which is really why I think the Fabians are on dangerous ground trying to assess figures in this manner: they would make clear to the people who actually have to pay for all of this quite how much they are paying for.

I\’ve said before that I\’ve no doubt my fellow Britons are quite happy to cough up for a welfare system, for a safety net. But the more they hear about quite how much is lavished upon those who do nothing to earn it, quite how generous that welfare state can be, the less public support the current system is going to have.

Seriously? Someone doing nothing gets the same standard of living as someone working hard full time?

Nah, fuck off mate.


*Didj\’a see what I did there? I did they same thing they do: compare consumption to income but the other way around. If they can why can\’t I?

As in the comments, here\’s the paper.They don\’t lay out their model but they give us a hint of how it works.

Basically, they\’ve looked at govt spending and seen who actually uses of gets it then mapped this over the income distribution. Yes, of course, the poor get more consumption out of that spending than the rich do. Obviously.

They then go on to say that the cuts are £34 billion but the NHS and foreign aid are ringfenced. Umm, current spending is about £700 billion isn\’t it? NHS £120 billion, aid £7…..so we can say that the spending not ringfenced is £570 billion? Roughly?

So a £34 billion cut in that spending of £570 billion they say leads to a £1,344 cut in consumption by those bottom 10% households. That\’s what they lose in public services.

Seems reasonable enough: there are 25 million or so households in the country so the 10% at the bottom are losing 2.5 million times £1344 each which is £3.36 billion….close enough to 10% of the cuts given the level of accuracy of numbers that I\’m using. (Umm, given that we would expect these cuts in services to impact upon the bottom 10% the most heavily, I\’m wondering how they make their sums add up. Because on the top 10% of households the cut in services is only £1,135….so how does the sum of the ten deciles lead to the full amount if the most losses to a decile is only 10% and the loss in every other decile is less than 10%?)

Right. However, we shouldn\’t stop there. What they\’re also saying is that the rest of the spending (they used a flat line approach as no one knows what the actual departmental cuts will be yet) is also distributed in the same manner. So, the poorest 120% of households also get £570 billion minus £34 billion times 10% divided by 2.5 million.

£21,440.

That\’s the value of public services that each household in the bottom 10% gets each year. Add this to the £7,000 in income they get (if £1,344 is 20%, then income is £7,000….although that looks like an extremely low number indeed for household income. Benefits alone will be more than that.) And the bottom 10% of households are on a consumption package of £28,000 a year.

At which point it\’s very difficult indeed to say that we have any poor people at all in the UK.

Which is, as I say above, something of a problem for those like the Fabians who would insist that we do.

More thoughts: shouldn\’t have taken NHS out of the above, so consumption of public services is in fact £26,000 a year in the poorest 10% of households.

Bottom line to take away: Everyone\’s consumption basket is now higher than household median income.

We have no poverty left in the UK.

Very sensible idea

Mr Duncan Smith, the MP for Lord Tebbit’s former parliamentary seat of Chingford, disclosed that ministers were drawing up plans to encourage jobless people living in council houses to move out of unemployment black spots to homes in other areas, perhaps hundreds of miles away.

The former Conservative Party leader said millions of people were “trapped in estates where there is no work” and could not move because they would lose their accommodation.

The proposed scheme would allow them to go to the top of the housing list in another area rather than lose their right to a home if they moved.

Quite how well it will work is another thing, but the underlying thought is eminently sensible.

There\’s any amount of research which shows that having too high a level of home ownership produces a higher unemployment rate. For it means that the labour force is less mobile: it takes time and effort to sell onoe house and buy another,. Renting is much more flexible.

However, the response to such research is often: therefore we must have more social housing. But social housing is even less flexible than home ownership. It\’s near impossible to get high up the lists in an area when or if you move there anew.

So, making access to the social housing list portable ought to reduce that unemployment level.

Seriously?

The free towels? That evolved from an idea to attract more tourists by attaining spa status for the city’s public pools, which have seawater and sulfur baths. For accreditation under certain European Union rules, however, a spa has to offer free towels, so that became a campaign slogan.

You what?

The government of 500 million people has taken it into its head to write rules about whether a spa must offer free towels or not?

Can we leave yet?

On those vile cuts to the education budget

Our Man:

In other words, to achieve this goal is equivalent to increasing the school starting age to 11. That’s ludicrous.

But even more absurd is he idea that the teachers and teaching assistants who lose their jobs will have to then sit on the dole watching the children of this country go uneducated when there is nothing at all – I stress no reason whatsoever – why hey should not enjoy the education they deserve.

He\’s taken his data from this FT piece:

Under Labour, education became one of the fastest rising budgets in Whitehall. The budget has almost quadrupled since 2004, paying for a big expansion of teachers and the creation of teaching assistants.

A 25% cut in the current planned expenditure would mean that the budget would only be 3 times, rather than four times, what it was in 2004.

Now I\’m not a great fan of the current education system, this is true, nor of the one we had those 6 years ago to be honest.

But I am fairly sure that in 2004 kiddies still went to school around their fifth birthday, not their eleventh. So I\’m pretty sure that with three times the budget they\’d still be able to make plasticine snakes at 5 rather than 11.

Now there is an important point here, over and above the raggin\’onRitchie.

Whine about \”the cuts\” all you like: I\’ll start taking such whining seriously when y\’all start comparing the post cuts levels of spending to to the pre-spluge levels. Not only compare them to the levels left by the drunken sailor from Fife.

Actually, perhaps there\’s someone with greater data retrieval and charting skills than myself (shouldn\’t be tough).

Can we have a graph which shows spending levels from 97 to 2000 say, simply upgraded for inflation, through to 1012/3 or so? And on that same chart, see spending levels as they actually were and are planned to be after the cuts?

I don\’t actually know but I strongly suspect that….we\’ll find that planned expenditures for a couple of years ahead are pretty much on that straight line and actual expenditures will show a huge ballooning over it and then he cuts bringing it back down to the straight line.

In fact, here\’s a little start.

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Note that this is real terms, adjusted for inflation to 2005-2006 levels.

The current proposals are that we chop something like £100 billion off that. Ignoring inflation from 2006 to today that means we\’re trying to get spending back down to about, umm, 2005 levels.

We\’re not, in fact, trying to have a bonfire of public services. We\’re just trying to reverse the past five years of drunken sailoring.

Remembering Johnny Turk in Korea

So we\’re 60 years on from the start of the Korean War. The Glorious Glosters, General MacArthur and all.

And, of course, the Turks:

Red Chinese soldiers attacking a ridge line near Waewon last week were shocked to come face to face with swarthy, fiercely mustachioed Turks howling down upon them with bayonets fixed. In this and other Turkish bayonet charges some 200 Chinese were killed, and soon stories of the Turks were spreading like a tonic along the U.N. line.

The Turkish brigade (5,000 men) is led by Brigadier General Tahsin Yazici, who likes to twit British war correspondents with such remarks as, \”Yes, I remember your General Townshend well. We took him prisoner at Kut-el-Amara [in 1916].\” Last week Yazici\’s smart, tightly disciplined Turks were thrown in to hold the line the R.O.K.s abandoned east of Kaechon. Estimated Turkish casualties at week\’s end: 500. A U.S. doctor said it seemed that a Turk waited until he had at least three wounds before he reported to the medics.

After 48 hours of concentrated action on the shoulder of the Red Chinese wedge the Turks were short of food and ammunition, fighting with knives and fists, hurling stones at endless waves of Chinese attackers. Yet U.S. tanks that went forward to rescue trapped Turkish units found the Turks preparing to attack. Ordered to pull back from positions where they were surrounded by the swarming Chinese, the Turkish commander replied in amazement, \”Withdraw? Why withdraw? We are killing lots of them.\”

In or out of the EU is one thing: damned glad they\’re inside NATO though.

Lordy Lean, you\’re still wrong!

Renewable energy typically employs at least three times as many people per dollar invested as fossil fuels

You continually trot out this point as if it\’s a benefit.

When, of course, jobs are a cost, not a benefit, of such plans.

Get with reality can\’t you? Having more people producing energy means that we have fewer people available to produce everything else….making us poorer.

Tom Harris MP

Via Obo, this.

Tom Harris MP meets the bureaucracy that he and his friends have spent the last few decades imposing upon us all. And he doesn\’t like it, not one bit.

The British civil service, eh? Makes you proud.

Yes my luvver, that\’s exactly why we don\’t want our lives run by them: or you either.

Somewhere there\’s a press office missing its idiot…..

Ritchie\’s new gig

This is a nice little bit of, umm, well, I\’m not quite sure what to call it. Reverse astro-turfing? Product placement? Argument from authority?

Anyway, it\’s a nice little bit. Ritchie has, as us devotees know, got himself a column at Forbes.com.

As a U.K.-based accountant and economist

Well, yes, ahem…..

Now of course there is some cachet to being published in Forbes. One is basking in the reflected glow of such wonderful writers as Virginia Postrel for example.

And of course such cachet can be used, as the TUC\’s Touchstone blog does:

Further coverage included Richard Murphy on Forbes.com:

See that? It\’s not just Our Dickie, the man we employ, writing on some blog somewhere (or in one of the reports that we pay for) it\’s Mr. Murphy and he\’s in Forbes!

Isn\’t that special and important?

So, what actually is the business model at Forbes.com? Felix has a go at it here:

He’s right about this: Forbes is doomed if it thinks that running vast amounts of PR drivel (the flacks are already salivating) is any way of building a successful website.

What\’s that? PR drivel you say? And Felix also links to this at Techcrunch:

That Forbes.com will soon be opening its doors to 1000s of unpaid contributors….

Oh, so this isn\’t rigorously edited, carefully chosen, commentary then. This is for the \”look at me! I\’m in ur intertubes\” crowd.

There are almost not enough words to describe how wrong-headed this move is: Forbes’ online editorial standards are already in the toilet and Dvorkin has just yanked on the flush. Not only will this new breed of hacks add thousands of pages of self-promotional, unedited (Forbes simply doesn’t have the resources to monitor thousands of contributors) drivel to Forbes.com but….

Is he talking about someone we know?

But Ritchie will no doubt carry on writing there, some will apply greater weight to his maunderings because, hey, look, they\’re on Forbes and the rest of us, well, we\’ll still know that our Ritchie is special and important, won\’t we?

To borrow a phrase from the Septics, short bus special.