I hate arbitrary destruction. But Tony Blair's sound-bite about crime summarizes a rational approach to the riots.
Which is just by way of preamble to some well-deserved mockery, of Theresa May for the completely wrong prediction in her remarks to a police conference nearly a year ago "The British public simply don't resort to violent unrest in the face of challenging economic circumstances", and of Nick Cohen writing in The Observer two days ago "No Riots Here", for his spectacularly poor timing.
Tuesday, 9 August 2011
Sunday, 7 August 2011
What's gone wrong with the economy
The simple answers, along the lines of "the bankers did it" are wrong. The highly technical answers are confusing at best. So here's my attempt at making sense of it.
1) The global economy is in an unstable state. Firstly because the USA has been running a large negative trade balance since the late 90s (so has the UK). Obviously this can't go on forever, and the longer it runs for the more strained the system becomes. And secondly because the concept have having independent countries sharing a currency - the Euro - can work only if there's a sufficient degree of economic convergence between them. The Maastricht Criteria were designed to ensure that would be the case, but they haven't proved sufficient, even for countries which, unlike Greece, didn't lie about having met them.
2) The USA (and UK) enjoyed strong growth for ten years up to the banking crisis (with a blip when the internet bubble burst). This growth was fuelled by a credit boom - bankers found new ways, such as mortgage-backed bonds, to recirculate money. Under some measures, this was an increase in the money supply, under others it was an increase in the velocity of circulation of money, but either way it gave us more money to spend. Monetarists, looking at the Equation of Exchange, will tell you that that will encourage inflation, but instead the Chinese (and others) kept prices down by selling us more stuff cheaper. See (1).
3) The banking crisis brought the credit boom to an abrupt halt. Governments could compensate for it by increasing the money supply - Quantitative Easing - but they haven't done it on anything like the scale that would be necessary. It takes courage they haven't got to take such unprecedented steps, but it took none to sit back smugly while the credit boom raged and the good times rolled.
1) The global economy is in an unstable state. Firstly because the USA has been running a large negative trade balance since the late 90s (so has the UK). Obviously this can't go on forever, and the longer it runs for the more strained the system becomes. And secondly because the concept have having independent countries sharing a currency - the Euro - can work only if there's a sufficient degree of economic convergence between them. The Maastricht Criteria were designed to ensure that would be the case, but they haven't proved sufficient, even for countries which, unlike Greece, didn't lie about having met them.
2) The USA (and UK) enjoyed strong growth for ten years up to the banking crisis (with a blip when the internet bubble burst). This growth was fuelled by a credit boom - bankers found new ways, such as mortgage-backed bonds, to recirculate money. Under some measures, this was an increase in the money supply, under others it was an increase in the velocity of circulation of money, but either way it gave us more money to spend. Monetarists, looking at the Equation of Exchange, will tell you that that will encourage inflation, but instead the Chinese (and others) kept prices down by selling us more stuff cheaper. See (1).
3) The banking crisis brought the credit boom to an abrupt halt. Governments could compensate for it by increasing the money supply - Quantitative Easing - but they haven't done it on anything like the scale that would be necessary. It takes courage they haven't got to take such unprecedented steps, but it took none to sit back smugly while the credit boom raged and the good times rolled.
Standard & Poor
The US politicians put together a last-minute agreement, but S&P has rightly downgraded their the US credit rating anyway - a rating of AAA means not just that you can pay your debts but also that you will pay your debts.
However, in the short to medium term I expect this downgrade to have little or no effect on US bond yields. Why should it? The arguments for selling US bonds apply more powerfully to US equities, and if you sell equities (as the market has been doing with some vigour) you have to put the money somewhere.
Incidentally, I think the share sell-off has got more to do with European government debt than the USA's. Some European countries are not going to be able to pay.
However, in the short to medium term I expect this downgrade to have little or no effect on US bond yields. Why should it? The arguments for selling US bonds apply more powerfully to US equities, and if you sell equities (as the market has been doing with some vigour) you have to put the money somewhere.
Incidentally, I think the share sell-off has got more to do with European government debt than the USA's. Some European countries are not going to be able to pay.
Wednesday, 27 July 2011
Full Faith and Credit
As things stand, the US Treasury is going to run out of money next Tuesday, and the USA will no longer be able to pay its bills. There is a cap - currently 14.294 trillion dollars - on the amount of debt the Treasury can issue, which is preventing it from borrowing any more money. It needs agreement in Congress to raise the limit, and that agreement has not been forthcoming, because some Republicans - enough to block progress in the House of Representatives - are unwilling to agree unless they get their own way on absolutely everything. Increases of the limit usually happen about once a year, and approval has been used before for political bargaining, but never to anything like this extent.
There's been some discussion of the notion that if the cap is not raised, since the Executive is going to have to ignore some of its instructions from Congress, it might as well ignore the cap. Obama says his legal advice is that he can't do that, but speculation continues...
I think it more likely than not that some sort of a deal will be reached just in time. If it is not, I would expect the Federal Reserve to find a way to "print" electronic money to keep things going. And if that fails, they will prioritize debt payments, so the US will not default on its bonds (though it would default on its obligations to employees and pensioners).
Nevertheless, the bond markets are not going to take this lightly. Bond investors care very much whether they are going to get paid back or not (and credit ratings are no more than a guide to that, so the possibility of a ratings downgrade is not the whole story). The fact that powerful politicians are willing to play chicken with the USA's ability to pay its debts will already have affected the market's confidence.
As it happens, US Treasury bond prices have not fallen. Investors might be somewhat shaken by what's going on, but they can't think where else to put the money - the global financial system would be rocked by any sort of a US default, and US Treasuries would probably remain a relatively secure investment, especially compared with anything else denominated in dollars. But that could change. At some time in the future, the US is going to find the markets demanding higher yields because it knows that US politicians don't take paying their debts that seriously.
There's been some discussion of the notion that if the cap is not raised, since the Executive is going to have to ignore some of its instructions from Congress, it might as well ignore the cap. Obama says his legal advice is that he can't do that, but speculation continues...
I think it more likely than not that some sort of a deal will be reached just in time. If it is not, I would expect the Federal Reserve to find a way to "print" electronic money to keep things going. And if that fails, they will prioritize debt payments, so the US will not default on its bonds (though it would default on its obligations to employees and pensioners).
Nevertheless, the bond markets are not going to take this lightly. Bond investors care very much whether they are going to get paid back or not (and credit ratings are no more than a guide to that, so the possibility of a ratings downgrade is not the whole story). The fact that powerful politicians are willing to play chicken with the USA's ability to pay its debts will already have affected the market's confidence.
As it happens, US Treasury bond prices have not fallen. Investors might be somewhat shaken by what's going on, but they can't think where else to put the money - the global financial system would be rocked by any sort of a US default, and US Treasuries would probably remain a relatively secure investment, especially compared with anything else denominated in dollars. But that could change. At some time in the future, the US is going to find the markets demanding higher yields because it knows that US politicians don't take paying their debts that seriously.
Thursday, 7 July 2011
Mobile Phone Hacking
There's a furore about mobile 'phone hacking by agents of the News of the World. What reports do not make clear is that none of this has been tapping according to its usual meaning of covertly listening in on telephone conversations. What's happened, at least in every case that's been reported so far, is that voicemail messages have been illicitly accessed.
Once you have a 'phone number there are two ways to get unauthorized access to its voicemail. One way is to discovered the 4-digit passcode usually used for security. In the past mobile 'phones had a default passcode, which many users never changed - this has been abolished by most or all providers in the last few years. Or users may choose an easily guessable passcode, or it may be possible to persuade the service provider to reset it for you (date of birth, mother's maiden name: this sort of check is not very difficult to defeat). The other mechanism is that many mobile 'phones allow you to turn off passcode checking for when you call the 'phone from itself. This relies on caller ID to determine the number you're calling from. And caller ID is quite easy to spoof - various websites offer this as an inexpensive service.
I'd advise anyone to assume that voicemail messages are not private. (I hate voicemail anyway. I almost never listen to it. If you want to tell me something when I'm not there, use SMS or email.)
Incidentally, I was watching the Tour de France yesterday when an advert came on promoting a product that spies on SMS messages. I believe that this is software to be installed on an internet-connected smartphone, which thereafter sends information including SMS messages to a website where you can see it.
Once you have a 'phone number there are two ways to get unauthorized access to its voicemail. One way is to discovered the 4-digit passcode usually used for security. In the past mobile 'phones had a default passcode, which many users never changed - this has been abolished by most or all providers in the last few years. Or users may choose an easily guessable passcode, or it may be possible to persuade the service provider to reset it for you (date of birth, mother's maiden name: this sort of check is not very difficult to defeat). The other mechanism is that many mobile 'phones allow you to turn off passcode checking for when you call the 'phone from itself. This relies on caller ID to determine the number you're calling from. And caller ID is quite easy to spoof - various websites offer this as an inexpensive service.
I'd advise anyone to assume that voicemail messages are not private. (I hate voicemail anyway. I almost never listen to it. If you want to tell me something when I'm not there, use SMS or email.)
Incidentally, I was watching the Tour de France yesterday when an advert came on promoting a product that spies on SMS messages. I believe that this is software to be installed on an internet-connected smartphone, which thereafter sends information including SMS messages to a website where you can see it.
Wednesday, 8 June 2011
The NHS and VAT on drugs
In the UK, drugs administered in hospital are exempt from VAT. But, as the result of a fine distinction drawn by the VAT tribunal, the same drugs administered by a nurse in a patient's own home are zero-rated.
There is an important difference between VAT exemption and zero-rating. Healthcare providers are charged VAT at the standard rate (currently 20%) on the drugs they buy. If their use of the drugs is zero-rated, they can reclaim the VAT they've paid. If the use is exempt, they can't.
Some chemotherapy drugs are very expensive (this is unrelated to production costs: rather the patent-holder is trying to recoup the drug's development costs from relatively few sales). So consider the effect of this VAT charge on a drug that is sold for £2000+VAT per dose. If the NHS administers the drug itself, on an outpatient basis, the cost to it is £2000 plus £400 VAT plus some nursing and bed space costs, say £2450 altogether. If a third party provider such as HAH administers the drug in the patient's home, the cost might be £2000 plus £100 for a nurse plus £100 profit for the provider, say £2200 altogether. Not surprisingly this sort of saving is attractive to NHS managers, and home treatment is increasingly being offered as an option for patients on chemotherapy.
However, from the point of view of the British state, the costs are much less attractive. If the NHS administers the drug itself, the state is in effect (via the NHS budget) paying £400 to itself (except that it has to give a few pounds of that to the EU, which is funded partly out of a levy on VAT revenues). So the net cost to the state is not £2450 but about £2050. The state is actually £150 worse off with the home treatment option.
Some patients on chemotherapy prefer to be treated at home, so the money is not entirely wasted. But it's extraordinary that resource allocation is being determined not by consideration of how best to spend the money but by a quirk in the VAT laws.
There is an important difference between VAT exemption and zero-rating. Healthcare providers are charged VAT at the standard rate (currently 20%) on the drugs they buy. If their use of the drugs is zero-rated, they can reclaim the VAT they've paid. If the use is exempt, they can't.
Some chemotherapy drugs are very expensive (this is unrelated to production costs: rather the patent-holder is trying to recoup the drug's development costs from relatively few sales). So consider the effect of this VAT charge on a drug that is sold for £2000+VAT per dose. If the NHS administers the drug itself, on an outpatient basis, the cost to it is £2000 plus £400 VAT plus some nursing and bed space costs, say £2450 altogether. If a third party provider such as HAH administers the drug in the patient's home, the cost might be £2000 plus £100 for a nurse plus £100 profit for the provider, say £2200 altogether. Not surprisingly this sort of saving is attractive to NHS managers, and home treatment is increasingly being offered as an option for patients on chemotherapy.
However, from the point of view of the British state, the costs are much less attractive. If the NHS administers the drug itself, the state is in effect (via the NHS budget) paying £400 to itself (except that it has to give a few pounds of that to the EU, which is funded partly out of a levy on VAT revenues). So the net cost to the state is not £2450 but about £2050. The state is actually £150 worse off with the home treatment option.
Some patients on chemotherapy prefer to be treated at home, so the money is not entirely wasted. But it's extraordinary that resource allocation is being determined not by consideration of how best to spend the money but by a quirk in the VAT laws.
Wednesday, 4 May 2011
Against AV
My friends who express a view are campaigning for a Yes vote on the referendum question:
Before I say why, a note on nomenclature. The current system is widely known as "First-past-the-post" ("FPTP"). This name is illogical - what post? The name would apply better to multi-member STV where there really is a threshold of votes to pass. But I've had a debate with myself and decided to use the initialism anyway, under protest. Moving on...
The arguments (in italics) for AV, in descending order of persuasiveness, are:
In contrast, Nick Clegg said of AV in an interview during the 2010 campaign: "I'm not going to settle for a miserable little compromise thrashed out by the Labour Party". He went on to argue for "AV-plus", a system proposed by the Jenkins Commission in 1998
What's going on here? Why did Clegg propose STV in his manifesto, argue for AV-plus in an interview, then accept this miserable little compromise thrashed out by the Conservative Party? My guess is that the manifesto simply followed long-standing LibDem policy - STV is what any reasonable person would come up with if not troubled by complexity and if unconcerned about party political advantage. But Clegg's motivations are different: AV-plus is the system that in many electoral scenarios would most favour the LibDems, and hence the system least likely to be acceptable to a coalition partner. This last point gave Clegg another reason to demand it - Brown was bound to refuse it even as a question for a referendum, and Clegg loathed the thought of a coalition with Brown. Cameron refused it too, of course, but Clegg likes making compromises with the Tories.
This is all too shabby for me. I disagree with Nick.
At present, the UK uses the “first past the post” system to elect MPs to the House of Commons. Should the “alternative vote” system be used instead?(or, if you're Welsh:
Ar hyn o bryd, mae’r DU yn defnyddio’r system “y cyntaf i’r felin” i ethol ASau i Dŷ’r Cyffredin. A ddylid defnyddio’r system “pleidlais amgen” yn lle hynny?)I plan to vote no.
Before I say why, a note on nomenclature. The current system is widely known as "First-past-the-post" ("FPTP"). This name is illogical - what post? The name would apply better to multi-member STV where there really is a threshold of votes to pass. But I've had a debate with myself and decided to use the initialism anyway, under protest. Moving on...
The arguments (in italics) for AV, in descending order of persuasiveness, are:
- The Conservatives are almost unanimously against.
Good point. I may not be able to stomach agreeing with them after all. - Minority candidates can run without damaging the prospects of other candidates they somewhat agree with.
True. But the electorate has got used to voting tactically under FPTP - AV will eliminate the need for tactical voting - first choice preferences will tell us what people really think.
True. If we want to know the real level of support for minority parties like the Greens and the BNP, this is a way to find out. I think this is a minor consideration. - AV is more proportional than FPTP.
Yes, in allocating seats that is likely to be true. But not in allocating power - hung parliaments greatly increase the influence of any party in a position to choose the government. - AV is fairer than FPTP.
Is it? Why is it fairer to elect the least unpopular candidate who manages to avoid elimination along the way (AV) rather than the most popular candidate? - Even if you don't like AV, this is your one chance to move towards a system you do like.
Which is more likely - a vote against AV and a subsequent opportunity to adopt a better system, or a vote for AV with further reform later? I think the former: if AV gets the LibDems in they won't want to change it. But if we get another hung parliament in the future under FPTP they'll want to try something else.
My view is that whereas FPTP encourages electors to lie about what they want (i.e. to vote tactically), AV encourages politicians to lie about what they want, because their aim is to avoid offending anyone. Do we want blander, more devious politicians?
The clinching argument against AV is that no one is genuinely in favour of it. The LibDem 2010 manifesto said (pp87-88) they wanted to:
Change politics and abolish safe seats by introducing a fair, more proportional voting system for MPs. Our preferred Single Transferable Vote system gives people the choice between candidates as well as parties.This is a policy I support. In this system candidates can say what they really think, and voters can vote for whom they really want. Multi-member constituencies give more people the chance to be represented by an MP they want.
In contrast, Nick Clegg said of AV in an interview during the 2010 campaign: "I'm not going to settle for a miserable little compromise thrashed out by the Labour Party". He went on to argue for "AV-plus", a system proposed by the Jenkins Commission in 1998
What's going on here? Why did Clegg propose STV in his manifesto, argue for AV-plus in an interview, then accept this miserable little compromise thrashed out by the Conservative Party? My guess is that the manifesto simply followed long-standing LibDem policy - STV is what any reasonable person would come up with if not troubled by complexity and if unconcerned about party political advantage. But Clegg's motivations are different: AV-plus is the system that in many electoral scenarios would most favour the LibDems, and hence the system least likely to be acceptable to a coalition partner. This last point gave Clegg another reason to demand it - Brown was bound to refuse it even as a question for a referendum, and Clegg loathed the thought of a coalition with Brown. Cameron refused it too, of course, but Clegg likes making compromises with the Tories.
This is all too shabby for me. I disagree with Nick.
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