Ragging on Ritchie

The economic perspicacity of the Sage of Ely

I am also absolutely certain that we need rent holidays, but that these will represent an absolute loss to the landlords because they have the strongest lines of credit available to anyone in the UK economy.

Oh Aye?

The owner of some of the UK’s biggest shopping centres, Intu, has said there are doubts that it can survive unless it raises extra funds.

Its comments came as the firm – which owns Manchester’s Trafford Centre and the Lakeside complex in Essex – reported a £2bn loss in 2019.

The weakness in the retail sector meant Intu wrote down the value of its shopping centre sites by nearly £2bn.

The real problem here being that Snippa doesn’t realise that we’ve already got a system to sort through these sorts of problems. It’s called “the market”. Peeps will look through who owes them money, for what, and make decisions based upon the details of the circumstances. A bank isn’t going to call in one third, or a half or whatever, of its mortgages because peeps are two months behind on their payments as a result of self-isolating. It might well still call in that one that’s 5 months overdue because the borrower’s a feckless bastard. The baker’s not going to bankrupt the sandwich shop for non-payment of last month’s bread bill.

Everyone knows that a certain selectivity over who to pursue for debt is going to have to happen. And they – the peeps, the individuals – will do better at it than any government scheme. Precisely and purely because of the level of knowledge of the detail.

They’re using it as an excuse you know

Many people think that economic justice is a nice add-on to the climate fight. It isn’t. Without economic justice the fight to tackle the climate crisis will fail. That is because if the great burden of this transition is placed on the shoulders of middle-income and lower-income groups (and especially if the risks of an economically unjust transition materialise, as our second edition will show,) then majorities will not only start to oppose the changes — as the Gilets Jaunes protests in France have shown us — but they will also become prey to fake news and demagogues who seek to overturn the climate justice movement. Tax justice, economic justice, and climate justice must be joined at the hip.

Says it all really, doesn’t it?

The bit they’re missing being this. We just had a nationwide poll on whether we should be having that economic justice. The preponderance of those who took part decided that no, economic justice wasn’t what they wanted. Nor social justice. Because the parties proposing that social and economic justice lost the election, didn’t they.

So, insisting upon folding in that thing which people do not want to the treatment of climate change makes treating climate change less, not more, likely, doesn’t it?

Well, yes indeed

Whichever way looked at, the fact that on average hospitals have been undertaking only a little over a test per day each is staggering given the number of people admitted to hospital each day in the UK with respiratory illnesses, almost all of whom must have been considered at least potential coronavirus cases, and all of whom should have been tested as a result.

Epidemiologists say that extensive testing is the best way to beat coronavirus. The U.K. has completely failed to deliver it. And that was a choice.

That choice being made back in 1948 when we decided to have a Stalinist health care system. Never known to the the efficient manner of organising things.

The Sage is sage

Ritchie thinks the budget was a bad one. Ritchie notes that the markets don’t seem impressed either:

This morning’s chart for the FTSE 100 suggests that the markets are as unconvinced by Rishi Sunak’s budget as I was

That efficient markets hypothesis is true when the markets agree with the Sage of Ely then, eh?

No it ain’t you lying toad

The BBC has reported that:

Mortgage payments will be suspended across Italy as part of measures to soften the economic blow of coronavirus on households, a minister has said.

Laura Castelli, Italy’s deputy economy minister, told Radio Anch’io: “Yes, that will be the case, for individuals and households.”

Italy’s banking lobby group ABI said lenders would offer debt holidays to small firms and families.

This is, of course, one of the proposals I made here a few days ago for managing this crisis.

You said landlords should get stiffed for the rent. That ain’t the same as mortgage demands being suspended – not forgiven – for a bit.

Snippa’s claim now is that “I said something should be done, something different is, therefore I’m right!”

Spudda can’t even get sectoral analysis right

Technically this is described as the sectoral balances. I do not have time to explain this in great detail this morning: try this link for an explanation I did a while ago.

The sectoral balances are not some theory: they are simply an accounting identity. They say that in the case of a single currency (and for all practical purposes that is what the UK has, in the form of sterling) if one part of the economy, which we will call the private sector wants to save, then another part of the economy, which we will call the government sector, has no choice but borrow, most especially when that government is the creator of the currency in question. This is simply an accounting identity: double-entry will happen. The ramifications are, however, significant.

At the link – from his own blog recall – he shows us this:

Which shows us that there are three sectors, not two. Private (made up itself of household and corporate), government and damn foreigners. Even, the private sector – on net – and government both borrowing at the same time. Them damn foreigners doing the lending.

Which is pretty good really, isn’t it? OK, sure, having weird ideas about things is one matter. But being contradicted by your own evidence is something else, isn’t it?

You’ll be surprised whose analysis is incorrect

To be blunt, the social epidemiology of this is quite simple: there is a trade-off between how quickly we allow the virus to spread, and how many people die and what the economic impact of the epidemic is. We can go for saving people, or we can go for saving the economy, but we cannot go for both.

What you need to know is that the government is choosing the economy.

And at some point they should too. Because the economy is people. And if the economy crashes then people will die because the economy has crashed. The longer it crashes for the more people will die.

We are thus looking for the optimal number of people to die from each – or either – cause.

This is not rocket science, this is simple economics. But then that’s why Snippa is getting it wrong of course.

Do note that I’ve not said that the current trade off is the correct one – only that such a trade off exists and that we cannot have everything plus a pony. Nope, not even with coronavirus QE.

Interesting difference, isn’t it?

Mortgage payments will be suspended across Italy as part of measures to soften the economic blow of coronavirus on households, a minister has said.

Laura Castelli, Italy’s deputy economy minister, told Radio Anch’io: “Yes, that will be the case, for individuals and households.”

Ritchie, of course, said it should be rent, thereby screwing landlords.

Pick the logic out of this then

First, as I have long argued, markets have realised that stocks were horribly over-valued, come what may. That bubble has burst. The disconnect between real markets that were going nowhere and stock markets marching inexorably upwards has been broken. That needed to happen. The timing and the speed have both been brutal, but it was overdue. QE and the thinking of the pension sector – in turn driven by inappropriate regulation and the economic myth that it is actually possible for whole generations to save for their retirement when that is not true, because only real investment activity can achieve that goal, and savings and investments in this sense are almost entirely unrelated – have led to vast amounts of money seeking a home in the stock market, which has at the same time restricted the supply of available shares to buy. The result was a bubble, pure hype, and now a crash to which we have not as yet seen the end.

But, second, coronavirus is already going to hurt. Trade events and shows are not happening. Sporting events likewise. People are already losing money. In my own hobby, a big show scheduled for April is incredibly unlikely to happen. That’s a massive deal for the traders who were going to be there. It’s maybe an even bigger deal for the venue, the caterers and all their staff. The real losses are already happening. And whatever happens this will get worse as attempts to avoid risk grow amongst people at large. Of course, that isolation might just work for coronavirus. But the traders may not recover. And their employees are already in trouble.

New information arrives concerning the economy. A pandemic means that economic activity will be lower. Investment markets fall as a result.

This shows that markets don’t react to changes in information. That the efficient markets hypothesis is wrong in fact.

Sigh.

This is interesting, isn’t it?

The OECD needs to embrace radical reform to its country-by-country reporting standard

The OECD published the 79 comments it received on its consultation on the future of its version of country-by-country reporting yesterday.

I should make a confession now. One of those submissions is by me. I also signed two others, from Eurodad and GRI, because overall they made points my submission did not. I offer no apology; after all, despite the right-wing claims, I created country-by-country reporting as we now know it.

Country by country reporting, as we now know it, is what the OECD is saying that country by country reporting is. ‘Cuz, logically enough, what CbyC is is what the peeps who define CbyC is.

And as it’s possible to note here, given the complaints by Snippa, the OECD isn’t defining CbyC the way Snippa thinks CbyC should be. Therefore, the CbyC we’ve got isn’t the one that Snippa created, is it? For if it was he’d not be complaining.

The points I made can be simply summarised. They are first that CBCR cannot work as the OECD hoped because they got the technical accounting wrong in their standard, requiring aggregation by jurisdiction rather than consolidation. Aggregation involves double counting. That is never a good idea. The OECD has to get the accounting right now or its version of CBCR will never work as planned.

The OECD’s CbyC ain’t Ritchie’s. So Ritchie didn’t create it, did he?

Eh?

Markets are failing.

So says the Sage of Ely.

Summat bad’s happening out there in the real world. Markets are telling us that summat bad’s happening out there. This is failure?

Or a confirmation of the efficient markets hypothesis, that markets efficiently process information?

Ritchie says we should sell off the QE bonds

But the most important thing I want to note here is that given the level of concern that clearly exists with regards to security within the financial sector, the government now has a duty to respond to this crisis by providing the market with more bonds. What the markets are clearly indicating is a very high level of panic and when fear of this order exists then it is the job of the government to dispel it. It has just one way it can do that. It can underpin the risk in the market by providing the risk-free savings mechanisms that it alone can create, which are government bonds. Companies, individuals and pension funds are all desperate for these bonds at present, and with good reason: the alternatives that they face are highly risky, as is cash as far as they are concerned, because those who are panicking do not enjoy a guarantee that their deposits in our banks are safe. This is why they need bonds. And the only responsible thing for the government to do is to supply those bonds.

Great.

Government has £400 billion of those bonds parked at the bank of England. Time to sell ’em, eh?

Then every person in the market would know that they could have the security for their savings that they want. And simply knowing that would stabilise markets.

Will the government do this? I very much doubt it, because it’s not what governments have done. But it’s risk-free, responsible and vastly cheaper than allowing panic to grow and credit markets to be de-stabilised.

Yep. So, let’s do it.

Ritchie’s peer reviewed paper

Not very well reviewed then:

George S Gordon says:
March 9 2020 at 2:16 pm
Still working my way through the paper but I note that, unless I’m missing an explanation in the text, Table 2 appears to contain an error.

The 3 totals make sense, but only if NI contributions in the first column are £221bn.
I spotted this by observing that the row for NI did not add up.

Apologies (obviously), if I’ve missed something.

Reply
Richard Murphy says:
March 9 2020 at 2:25 pm
Damn….

Richard Murphy says:
March 9 2020 at 5:30 pm
It is in the press…too late for corrections….

Gosh

Richard Murphy says:
March 7 2020 at 2:20 pm
The likelihood is the U.K. death rate might double

That is a pretty staggering statistic

Note that’s it’s not some vague possibility if truly pandemic. It’s “likelihood”. 50k deaths a month that is.

This is colonic sourcing of assumptions isn’t it?

If only Snippa actually read some economics

Spudda’s prediction:

We face the risk of an economic downturn of almost unprecedented scale as a result. Of course, this may not happen, but the likelihood is that it will.

I am expecting the shortfall in government revenue that results from this to make the deficit of 2008 look to be of modest proportion.

The likely loss of GDP is at present almost impossible to estimate, but I am expecting it to be substantial.

An actual economist who has modelled the effects of a pandemic:

This ‘direct’ impact of the pandemic will reduce GDP in that quarter by a few percentage points. The precise number will depend on what proportion of the population that get sick, on what the fatality rate in the UK turns out to be, and how many people miss work in an attempt not to get the disease. The impact on GDP for the whole year following the pandemic is much less at around 1% or 2%, partly because output after the pandemic quarter is higher as firms replenish diminished stocks and meet postponed demand.

This is, once again, the usual Snippa problem. Which is to ignore that other people have already chewed through the problems that he’s starting at afresh. And that it would really aid his thought processes to go look at what these other people have worked out.

That is, not all economics previous to the Sage of Ely is to be disregarded. Instead there are interesting things to be known as a result of tens of thousands of clever people having chewed through a lot of scenarios over the past few centuries. That Spudda’s entirely ignorant of the conclusions they reached is only one reason why his own output is so miserably tuberous.

The coronavirus command economy

Choice is bad, d’ye see? People might gain what they desire:

It is, however, important to recognise two further issues. One is that we are already moving, very rapidly, towards a command economy being put in place. It has already been announced that supermarkets and the government are working together on a plan to ensure that critical food supplies survive, largely at the cost of reducing the range of products available. This is de facto rationing. And it is the suspension of the availability of that supposedly critical element of the market, which is choice. That choice is, of course, largely created artificially by advertising for the purpose of product differentiation in the interests of profit maximisation. In practical terms, we might, within weeks at most, see the suspension of the market dogma this has underpinned our society for decades, and this will be necessitated by the simple requirement that we survive. Profits will be trumped by necessity. That imperative will close down choice, and transfer decision making to a bureaucratic system, whether we like it or not. And, I stress, this will be done by a Conservative government.

The long term implications are not clear. It might be that this imposition will only last for a matter of weeks, in which case it will be seen as an aberration. I suspect, however, that this is a decidedly optimistic view: the return to normality once what have been thought of as normal conditions have been suspended might take quite a while to manage. Rationing after 1945 lasted for longer than it did during war conditions. Once established, a command economy may take some time to reverse.

And there are good reasons for thinking that might be the case. If this epidemic is anything like as bad as some suspect it might be then the social and psychological impacts will last a great deal longer than the physical threat will. There are already signs that some patterns of behaviour will alter. I rather strongly suspect, for example, that there will be much less business travel after this epidemic than there was before: people will realise that videoconferencing is, now, pretty good. We are already seeing large-scale business events cancelled: I suspect business shows and conferences will be consigned to history, and not many people will mourn that. And people are, apparently already booking more UK holidays: I suspect that this might the start of a significant change in travel patterns. Together, it so happens that these changes contributes to a green theme.

So too, though, does the enforced reduction in choice. A command economy does, as one of its objectives, place priority upon the elimination of waste. People might get used to this, and even welcome it. They might even accept the need for coordinated economic planning to counter the much greater threat that we face from the climate crisis much more readily after this epidemic than they would ever have done before it.

Have you grasped all of that? Firstly, command economies are, apparently, less wasteful than free market ones. This is news to anyone who has ever actually observed a command economy. It’s also not obvious that having your 1,500 calories a day supplied by only turnips is less wasteful than getting 750 a day from each of turnips and swedes. That is, there’s no obvious reason why choice is wasteful. Consumption is 1,500 calories a day, production is, that it’s not a uniform product doesn’t seem to add inefficiency.

But we also need to note the thing he’s really not grasped. Sure, OK, ignore all of the above and agree, choice is costly, in extremis we’ll put up with less choice then. So, what does that tell us? That we humans like choice, that when we’re not in extremis – that is, when we’re richer than just surviving – then we take some of that greater wealth in choice. Just as we also take some part of rising incomes in more leisure etc.

Choice, like health care, pensions, insurance, leisure, being a luxury good. As our incomes rise we spend more of our greater incomes on those things.

What does that tell us then? Peeps like choice. And that’s where Snippa is truly wrong. He insists that we’ve got to give up the very thing we clearly and obviously, by our behaviour, like and desire. Because, not for any reason, just because.