Ragging on Ritchie

Oh Dear God. Again.

Richard Murphy says:
April 6 2021 at 3:51 pm
There has been some testing

Pfizer works best it seems with 3 week delay. Extension seems to provide no gain and maybe loss of effectiveness

AZ seems to provide a gain by being delayed more than three weeks. 12 weeks seems not to have been tested.

But the decision was political and not medical. Jabs in arms mattered most

We’re in the middle of a pandemic and you want to extend the vaccine testing period by nine weeks? Or just get the damn thing out the door when the results are good enough?

Myself I’d call that a medical decision but then what do I know, I’m not The Fat Controller.

Oh Dear God, Tosser is Tossing

The point I am making is a simple one, but essential. If a great deal about our society, way of working, travelling and interacting is going to change – and I think it is – we need to get our thinking straight in what this means and embrace the uncertainty it creates.

This is, of course, entirely true.

Apparently, 88 per cent of 4,600 people surveyed wanted to spend most of their time working from home.

It is, unfortunately, not possible to know what the data on this question might have been before coronavirus. No one asked in the same way because no one really took this option seriously in the way that they do now.

What I do know is that I was on Ely station last night when the 16.45 (or thereabouts) out of Kings Cross arrived. In my long experience this was a packed train before March 202o. Last night it was almost empty. Things have changed.

An entirely valid observation.

Then comes the tosser bit:

I see no evidence that the government is anywhere near doing this.

Well, what would a sensible government do?

I think the state will have to do a great deal more in coming years, and if the private sector denies it the resources it requires to meet need then tax will increase to restrict market based activity so that public need is met.

Not that.

So, to recap. Recent events have meant that society is about to change. We do not know how. Take the work from home, not commuting thing. Some will change their behaviour entirely. Some will change it not a whit. Some portion of the peeps will change it a bit. We do not know the proportions.

We cannot even ask people because we know that expressed and revealed preferences are not the same.

Hmm, so, what do we do then? Well, we let people get on with it and see what happens. The answer, that is, will be emergent from individual decisions. That is, you know, free markets.

At which point the P³ wants to raise taxes because summat?

We cannot plan for unknown change because it’s unknown. Therefore we must plan for it?


Third, there is the problem of determining what tax charge is to be considered. Deferred tax has to be ignored. It is quite literally made up and is, of course, never paid, so it must be discounted, entirely. But what we also know is that historically the current tax provision in most accounts is also overstated. I first noted this in 2006 and more recent evidence suggests that the trend continues. Companies over-provide for their current tax and then release their provisions when their tax avoidance proves to be effective. So the tax provision in the accounts of a company for any one country may also not be the right basis for determining an acceptable effective tax rate by jurisdiction.

Is cash paid the right basis, then? It may be, but critically this has to relate to a year rather than be the sum paid in a year. This will take time to calculate, and be subject revision.

Isn’t the second paragraph just saying that we do in fact have to use some measure of deferred tax?

Something of a big ask

That something else seems to involve a continuing acceptance of coronavirus. There is no elimination strategy of any sort now apparent.

It’s not just the ignorance of the costs of trying to eliminate a pandemic disease. Eliminate rather than control to an acceptable limit that is. It’s that, well, umm, how?

Do we actually have an example – a non-vaccination example perhaps – of how to eliminate a pandemic disease?

Let us test a Ritchie assertion

First, there is oil. That is yesterday’s news. Have they not heard of the fact renewables are now the story? And it just so happens Scotland has more renewable energy per head of population than any other country in Europe. It is already 97% renewable in electricity. It will become well over 100%. So, first, it will export to a desperate England, and second, it will become an absolute hub for businesses with high energy consumption who need to make that green which can only be done in a location with an excess of renewable energy.

OK, cool. So, we have a test industry available for us here, aluminium smelting. The embedded electricity inside one tonne of aluminium metal is perhaps $800 worth. The production method is – largely, and just to be simplistic about it – to run electricity through aluminium oxide until you’ve got aluminium metal.

The global aluminium industry does in fact operate according to Ritchie’s assumption. You do place the smelter right by the cheap electricity supply. You make the aluminium oxide (alumina) where you like, nowadays usually near the bauxite source. The you ship that alumina to where the electricity is nice and cheap. Quebec for example, or Iceland, or the Russians used vast plants out in bits of Siberia and so on, the Pacific Northwest for the Americans. Or, in the UK case, Scotland – although we also went a bit odd and did it a bit on Anglesey by building a nuclear plant there.

In fact, the industry generally works on the idea that you figure out where ‘leccie can be generated cheap, you build the cheap ‘leccie generator then you build the aluminium smelter. Which is why Gupta now owns one near Lochaber or somewhere.

So far the P³ posit is entirely correct. Except – and there’s always an except, isn’t there? – you do this with hydro plants. Because they’re continuous.

If you use an intermittent ‘leccie source to do this then when it mitts then you have some very expensive pots of half melted aluminium that you have to throw away. The pots themselves that is, the things you do it in, not just the oxide to metal transition that is half done.

Scotland’s vast renewables resource is wind and possibly wave and or tidal – intermittent sources. The Greens aren’t going to allow dams all over the place.

This is not absolutely true of every high ‘leccie usage process but it is more broadly true. The very fact that you want lots of it leads to requiring continuous, not intermittent, supply. Which is a bit of a bugger for those expecting high usage industry to turn up in a windy Scotland….

Hoo, Boy, how to entirely miss the point

Robin Stafford says:
April 1 2021 at 11:19 am
Can I recommend this talk on complexity economics by J Doyne Farmer of the Santa Fe Institute

When PSR mentions the ‘chaos’ of the rugby field you might be even closer than you realise. The mathematics used by macro economic modellers is fundamentally unable to deal with the complex, chaotic systems of human behaviour that lie behind economic ‘systems’. Meteorologists and ecologists have understood this for decades as have a very few economists, notably Steve Keen. Also Eric Beinhocker, a regular at Santa Fe, whose book Origins of Wealth should be on the reading list of anyone interested in non mainstream economics.

By accident I did a project on chaotic systems using the maths of chaos and non linearity, 50 years ago… has always struck me that most phenomena of interest and pretty much all human behaviour are non-linear in nature and hence chaotic. However most people find the idea of non linearity counter intuitive – especially accountants! COVID has shown how most people struggle even with exponential behaviour.

Richard Murphy says:
April 1 2021 at 11:47 am
Agree with all that

Steve is a rare exception, which is why he has been kept outside the fold

Yes, economies are very complex, even chaotic systems. Which makes them very hard, impossible even, to plan.

At which point all the people who insist that they should be the ones to plan the economy agree. You know, all the people who entirely misunderstood Hayek and the Pretence of Knowledge, which is that economies are very complex, chaotic even, and thus very hard if not impossible to plan?

Leaving us with the only calculating engine we’ve got, the economy itself?

Whoo, Boy…….

The Vines and Wills article suggests two major changes in direction. The first, following Blanchard, is to partly reverse the microfoundations hegemony, by allowing models or parts of models that don’t include microfounded models routinely back into the top journals. The second is to focus on models that allow more than one long run equilibrium.

That’s Wren Lewis. About which the P³ tells us:

The two claims being discussed are so absurd it is staggering that they need be considered. What is being said is not that the macroeconomy is, in fact, simply the aggregation of the microeconomy, although that, of course, would be wrong in itself.

Err, no, that’s not what microfoundations says. It is obvious and clear that the total economy is indeed the aggregate of individual economic actions. Rather, microfoundations says that you should only be modelling the macro as that aggregation – this may or may not be true.

What is being said is that macroeconomics must be based on microeconomics or it is not considered suitable for discussion in peer-reviewed journals, whilst it also almost always assumes that there is one optimal solution to all economic problems.

Equilibrium and optimal are not the same thing. We know this from Keynes’ own macroeconomic ideas. That, for example, an economy can, via recession or an absence of demand, end up in a non-optimal equilibrium. If this were not true then there would be no point to boosting demand in recession. For the economy would not stay in that depressed position because there is only the one possible equilibrium, right? And we’re also stating, by recommending the demand stimulation, that at least one of those equilibria is non-optimal.

When Spud does things like this I do start wondering what people like Wren Lewis go on to think of him for doing so. Such immense missing of the point must grate at least at times, right?

Let me address the two issues, separately, and then together. Firstly, the presumption that there must be a microeconomic foundation to macroeconomic theory is simply to say that macro must be based on the critical assumptions that underpin micro that are intended to ensure that it can deliver mathematical solutions to problems too complex in reality to be subject to sensible mathematical analysis.

So, macro must presume perfect knowledge of both the present and future, perfectly competitive markets where no one participant can influence prices, perfect access to capital that is available to all who want access to it, and of course an absence of externalities.

No. You can, even using the microfoundations idea, still model those micro bits however you’d like. Which doesn’t, usually at least, assume perfect knowledge of the future but still. You can use oligopolistic competition in your micro if you like.

And before anyone says both macro and micro can manage deviance from these assumptions, of course I know that. But the point is it considers any situation where such things do not exist to be deviant.

Err, no, not deviant. It’s called relaxing an assumption in the model. You know, the very reason we use models. So that we can examine the impact of just the one change at a time, holding our other assumptions constant?

And the reason is linked to the second issue Simon challenges, which is the general requirement within macroeconomics that models be built where there is just one optimal or equilibrium scenario.

Optimal and equilibrium are not the same thing.

The question is what is more useful? Is it macro, based in micro, that is rigged to always suggest pure marker solutions to problems, because that is all it is programmed to deliver,

Except, of course, those entire libraries stuffed with books showing where pure markets don’t work and need steering, guidance and even entire replacement.

There’s one question here

Re the Biden plans we’re told:

Third, nor has anyone said anything about the substantial multiplier effects of such spending which likely mean that this package will more than pay for itself. Again, why not?

If that’s true then why is there a national debt?

‘Ee’s at it again


I noted an article on inflation risk in the FT by someone called Andrew Parlin. To describe him as an inflation fetishist would be fair, but at least he had the honesty to lay bare his fear. He said:

[A]n entrenched inflation such as we have not known in decades and the need to slam on the brakes through aggressive rate tightening [is the risk that exists]. Given how inflated asset prices are, the bust that would follow would probably be unusually severe and protracted.

What he is suggesting is that there aren’t just isolated examples of excessive risk-taking on the basis of asymmetric betting right now, but that the entire financial market is currently built in it. Asset values are, as he is honest enough to admit, utterly distorted. The distortion has been created by low interest rate policy, linked to low inflation.

There is an inverse relationship between both low interest rates and inflation and financial asset prices. If financial assets pay broadly steady returns but interest rates fall asset prices rise to approximately equate the two. If inflation is also low then there is an extra boost for asset prices as lower risk discounts need not be applied. Both situations have existed for so long now asset prices are seriously over-inflated.

Parlin’s naked fear is that this situation might reverse if there was to be inflation, and that to prevent that asset price crash then the real economy must be sacrificed, in his view. Unemployment, austerity, and small-town corporate failures must all become the norm to maintain orderly asset pricing, even when it is recognised that those prices are seriously over-inflated.

Leaving aside questions of desirability (because it is patently undesirable to do this) and necessity (which is doubtful, as the inflation paranoia on display is not based on real-world risk, but on textbook ones instead, and the textbooks are wrong) what Parlin is saying is that financial markets are one entire asymmetric risky bet, all premised on the idea that interest rates will stay low in perpetuity. That may be true. But, when everything else in the economy has to be sacrificed to making good on that bet it is clear that the risk has moved from being routine to asymmetric. In other words, it can only continue to be justified by the perpetuation of the bet itself. That is the logic of the Ponzi, or pyramid selling scheme, of course. And that is where the whole of financial markets are.

The actual quote:

First, the risk-reward of his experiment is wholly asymmetrical, skewed hugely to the downside. If Powell is right, it is unclear what the reward will have been. The downside, however, is incalculable: an entrenched inflation such as we have not known in decades and the need to slam on the brakes through aggressive rate tightening. Given how inflated asset prices are, the bust that would follow would probably be unusually severe and protracted.

That is, the point being made is entirely the opposite. If – if – we allow inflation to rip then the cure will be horribly expensive. So, let’s not allow it to then, eh?

OK, so what’s he missing?

Accounting is a logical subject. Certain rules can, therefore, be expected to apply to accounting disclosure. If they do not then it is reasonable to ask why that is the case. One such simple arithmetical rule is that if the opening balance of corporation tax due has the current tax charge added to it, and the amount of tax actually paid in the year is then taken off the resulting figure, then the balance remaining should be the tax due at the end of the year.

Well, maybe tax law changed? Say, people provisioning for CFC companies in the EU then Cadbury happens and they don’t have to? Just as an example.

My assumption is that the triùir ollamh has made a simple mistake because this is the P³. But what is it?

Snippa’s snippy at times, inne?

March 29 2021 at 8:34 am
When sailing, I have flown an EU flag instead of a Red Ensign for the 3 years. Seems to get a better reception.

Matt says:
March 29 2021 at 9:43 am
So you happily fly the EU flag without protest yet you moan when others fly the Union Jack? What hypocrisy

Richard Murphy says:
March 29 2021 at 10:24 am
You do realise that a yacht has to be flagged, I presume?

Atcherly, some do know that:

The most senior position for a flag on a vessel is reserved for the Ensign – this is as close to the stern of the vessel as possible. The Ensign shows the country of registry of the vessel and indicates its nationality. A UK flagged vessel must wear her ensign as required by the Merchant Shipping Act, which includes when entering or leaving a foreign port and on demand. It is recommended that the ensign is worn at all times in daylight, especially when near to or in sight of land or another vessel. A UK registered vessel should wear the national maritime flag, the Red Ensign, unless entitled to wear a special Ensign. Wearing anything other than an authorised Ensign is a violation of British and International Law.

The EU flag don’t qualify…..

Well, yes, this seems logical

The reports appear to emanate from the Bank of England. Almost all indices are, apparently, moving better than expected. Given that some think I am a doom-monger I thought I should note the fact.

Doing so does not change my opinion on the risks we face. That we are getting better at lockdown is unsurprising. It would be surprising if we were not. And treat me as cynical if you wish, but I rather strongly suspect that the relatively small improvement that is being celebrated could be entirely engineered within the ONS by them simply assuming that large parts of public services, like teaching, remained productive during this lockdown when during the first lockdown it was assumed that they were not. How much has really changed then is hard to tell.

As the ONS said, schools output fell as kids weren’t going to school. Now that schools are reopening then schools output rises. So, therefore, does GDP.

This all being part of why the UK’s GDP fall was greater than everywhere else’s of course. Because ONS was the only stats agency that did include the fall in state output…..

Apparently the government of a country shouldn’t use the national flag

Three things irk.

First, the national flag is not the Tories’ to appropriate for their own use.

Second, to suggest that it is, as they imply, sows division on this issue, which cannot be helpful in any way, unless division is their aim.

Third, the instruction that the UK nation’s own flags must be flown subordinate to the Union Jack is an uncouth indication of continuing colonial intent.


Proving Chesterton right

I rarely mention issues relating to faith on this blog. There is good reason. Like many, I was long ago alienated from the conventional religious interpretations of Christianity

Does explain so much of what he does believe, doesn’t it? When a man stops believing in God they don’t believe in nothing but in anything….

We supposedly venerated the angry protestor in this story. And yet we have not learned to listen to those who oppose corruption, oppression, inappropriate profiteering and the powerful who gain as a result of those abuses. Instead, those with the power to abuse still seek to criminalise those who righteously protest.

Like, perhaps, that we should consider the Tax Justice warriors as being like Jesus entering Jerusalem….

We actually have evidence on this

With respect, in this particular case that is nonsense. Prima facile, using offshore is about tax evasion until proven otherwise, in my opinion.

The Panama Papers didn’t uncover much UK tax not being paid. The Luxembourg Facility had only one, named and known that is, user, Dame Margaret, Lady Hodge, who entirely and absolutely paid all the tax due already and anyway. The Swiss Banks information exchange showed unpaid tax to be about a tenth of what even Osborne was expecting, let alone the La La numbers from the tax justice crowd. Vodafone owed no tax on that Luxembourg stash.

We really don;t have that much evidence of these large numbers for tax evasion….

That new pension investment paradigm

This is at the P³, not by:

It is a mistake to seek to understand a new paradigm with reference to concepts belonging to another. The current paradigm concerning investment places “valuation of assets” at the centre of its thinking. No investment is undertaken without first trying to calculate what it would be worth when sold at some future point. It is built on the foundations of asset trading – in other words “investment” as speculation on the future value of an investment as a “financial asset”. Our pension funds and how their capital is invested are governed by this failing paradigm.

The EDP investing paradigm is not in the least bit concerned with calculating a value of the investment as a tradable asset since the motivation for it is not to sell it – the motivation is to maximise the cash flow generated by the investment and liquidate it only where the enterprise which is the subject of the partnership fails to deliver the revenues that were planned for at the outset. Whatever can be realised by liquidating the enterprise in such a scenario cannot be calculated in advance – it is just a factor within the overall risk profile attached to this form of investing. The EDP proposition does not pretend that there is no risk – of course there is – but it is enterprise based risk rather than financial market and tradable asset price risk – such risks are generally well understood by folk who know how to run a business. That means that the current population of “asset manager” and other financial intermediaries are not equipped to fulfill the roles that EDP investing will demand.

The value of the asset is that net present value of the future cashflows. So what is this about new paradigms?

Although, of course, the P³ is going to have problems accepting the net part there.

Clearly the man never buys a round

That I can recall I have never had £50 note. To be honest, I can think of no need for one. And if I had such a need I can also think of no reason why two £20 notes and a £10 note would not do just as well.

I very strongly suspect most readers of this are in a similar position. Even recalling the colour of a £50 note would challenge most people (it’s red). So why do we have it when it is used so little?

By far the best justification for the £50 note is that it makes illicit activity – from drug dealing to tax evasion – so much easier. Any other use it might have is incidental, in my view, to that purpose.

£50 is, these days, perhaps 10 drinks. A decent round or a good breakfast. Thus we know who is BillyNoMates around here.

Or even, the populace finds that £50 notes are useful, government at least tries to produce what the populace finds useful….

What is it that makes markets?

The FT message is, in that case, that markets are significantly more optimistic that the UK is over Covid than they are that the EU is. I would, of course, describe that as misplaced optimism. I am not alone. As the FT also notes in the same article, this is sentiment and not fact, and sentiment might be misplaced,

Quite so, it is differences of opinion that make markets. Which is why we use them of course rather than having a King Spud who tells us all what to do.