So, my decision a year ago to stake my life that house prices wouldn’t fall by more than 20% in 2008 appears to have been vindicated. That’s just as well. And I’m still projecting house prices from Jan 2008 – Dec 2012 to outperform the base rate (OK, the base rate cuts have helped with this one…)
When someone buys a country’s government bond, the government needs to pay it back on a specific date. If the government refuses to do so, there will be a total collapse in international confidence in the debt of the country and of all its banks, companies and residents, a currency crisis, and generally a wide range of Very Bad Consequences.
When someone works for a country’s government and is told they’ll get a nice fat pension, the government can decide to not pay it. This will upset the person who works for the government quite a lot, and might be perceived as somewhat unfair. However, the consequences for the country’s ability to borrow, invest and trade in international markets are non-existent.
Therefore, anyone who counts public sector pensions as a liability faced by the UK government in the context of the current financial crisis (generally as a way of saying ‘ooh, we’re nearly as bad as Iceland’ – Nadeem Walayat, this means you) either doesn’t understand what they’re talking about, or is trying to mislead their audience into thinking things are much worse than they really are.
A commenter at CiF, against all odds, cites some relevant statistics:
Financial services which – some people fondly believe – is “all we do nowadays” made up only about 5% of the economy at their height, (rather less now, methinks), whilst industry accounts – according to that CIA thing everybody else seems to be quoting from – for 23.4% of GDP.
In Germany, by contrast, industry makes up a massively larger 31.1% of GDP. (With France a measly 20.6%, the US an even more measly 19.8%, and mighty Japan, at 26.5% only 2% bigger.)
The Bill Emmott piece on which he’s commenting isn’t at all bad, either. Although the total, ruinous collapse of the dollar next year is going to be the major story…
Mark Wadsworth highlights a new political survey called Take The Quiz. Along the lines of the utterly pointless Political Compass, but slightly more worthwhile [*], it takes (paraphrases of) manifesto commitments and other policy statements from the major UK-wide [**] political parties, and asks you to pick the one you most like / least dislike on a given topic.
Oddly enough, I’ve turned out 63% Labour, despite opposing many if not most of their actions. I think this is primarily because the other parties are even more ridiculous on economic/tax issues, which were the ones I flagged as ‘most important’.
For example, on question 4, ‘what should we do about university fees’, Labour is the only party who’s answer isn’t about abolishing the eminently sensible principle of making people pay a small contribution towards the education that massively enriches them (whilst still retaining a large government subsidy for said education, more than reflecting its benefits to society). For Question 6, ‘how should Britain tax its workers?’, all the options are moronic:
1) Britain should phase out VAT and instead introduce eco-taxes.
2) We should replace council tax with a local income tax. This will be fairer and help pensioners.
3) Our tax system is the 2nd most complicated in the world. Introduce a simple flat tax system instead, which would take 4½ million people out of tax altogether. No tax on minimum wage.
4) We should cut council tax for pensioners and boost pension savings.
5) We should keep the current tax system as it makes public expenditure more affordable.
2 is the most stupid idea ever, and almost in itself stops me voting Lib Dem – at the moment, income is taxed too much and wealth too little; council tax (along with inheritance tax) is a very half-hearted but at least positive step to redress the balance. The core assertion in 3 is almost certainly a lie, and while simplifying taxes would be a good idea, a flat tax is a really quite grossly blatant piece of letting off the rich (equally, having a system of two or three marginal tax rates administered by PAYE that kick in at income thresholds would be no more complex than having one – in both cases, all you need to do is feed your total net pay into a computer and it can work it out. It’s the credits, exceptions, top-ups, and suchlike that cause the complexity). 4 is also stupid, given that the current generation of pensioners are the best-off generation of people ever to have lived (and most likely who ever will), as they were the ones lucky enough to live to an average age of 80 with a guaranteed pension system based on an average life expectancy of 65.
1 isn’t a terrible plan in theory, but it’d be impossible to implement (domestically you can raise the price of CO2 permits, but you can’t sanely assess the carbon footprint of every imported product without destroying trade). 5 is almost completely incoherent, and is presumably Labour policy, but manages to be the least ridiculous of the alternatives available.
The picture is similar across the other questions. Probably the stupidest options of all are for Question 16, ‘Should the age of retirement be increased?’:
* Yes – retiring at 65 isn’t sustainable. The retirement age should eventually rise to 70.
* No – 70 is too old to continue working in full time employment.
* People should have the choice whether or not to continue working if their health is good enough.
This is akin to a man with his hair on fire asking the question ‘should my hair be on fire?’ – perhaps in an ideal world it wouldn’t be, but it is, and there’s no real room for debate. A pensions system can only work when the age of pay-out is the median age of death. Raising the pensions age to 70 might help, but we’d also need to raise rates of smoking, alcoholism, obesity and dangerous sport among our seniors in order to get life expectancy back down to sustainable levels…
So yeah. If you wonder why people don’t vote, if you wonder why I laugh at anyone who suggest there’s innate value to democracy (I support representative democracy because it’s empirically less bad in the medium term than everything else we’ve tried, but the suggestion that it has any moral worth in itself is just bizarre), and most importantly if you wonder why some people still hold their noses and vote Labour despite its obvious ineptitude, corruption and nannyism, then this look at the reality of UK parties’ policies will both help and utterly depress you.
[*] the best ever such survey was conducted by the late Chris Lightfoot, who used empirical data to determine which attitudes are *actually* correlated among members of the public, rather than taking an undergraduate political philosophy framework and pretending that it correlates to real people’s real beliefs. He discovered that the Political Compass is, indeed, nonsense – the most important set of correlated beliefs are “we should hang ‘n’ flog people, politicians are crooked bastards, screw Europe, the poor and immigrants, and cut taxes” (and their opposites, obviously), mirroring stereotypical left-right splits completely. The only other set of correlations with any significance were “we should have free markets, less tax, be more like America, and invade Iraq” (this was in 2004), I guess reflecting the Economist vs Jacques Chirac…
[**] well, GB-wide.
This Wired piece about some techies who discovered a major flaw in the DNS systems that underpin the Internet, and co-ordinated a mass surreptitious effort to fix it, is worth reading if you like That Sort Of Thing.
However, there’s one aspect of it which strikes me as utterly bizarre:
“The first thing I want to say to you,” Vixie told Kaminsky, trying to contain the flood of feeling, “is never, ever repeat what you just told me over a cell phone.”
Vixie knew how easy it was to eavesdrop on a cell signal, and he had heard enough to know that he was facing a problem of global significance. If the information were intercepted by the wrong people, the wired world could be held ransom. Hackers could wreak havoc. Billions of dollars were at stake, and Vixie wasn’t going to take any risks.
Andreas Gustafsson knew something was seriously wrong. Vixie had emailed the 43-year-old DNS researcher in Espoo, Finland, asking to talk at 7 pm on a hardwired line. No cell phones.
Gustafsson hurried into the freezing March evening—his only landline was the fax in his office a brisk mile walk away.
But mobile phones are protected by fairly hardcore encryption. While it’s theoretically possible to break GSM encryption, there’s no evidence of anyone actually having done so outside the lab, and the effort required to do so would be immense – while criminal gangs could muster the technology and expertise required, it’s extremely unlikely anyone in advance would realise the commercial importance of a few geeks calling each other up. CDMA encryption is harder still to break. On the other hand, tapping or bugging a landline is a trivial effort.
I know first-generation, analogue, mobile phones were easily intercepted (as Princess Diana discovered), but nobody uses them anymore, even in the US, and the events in the Wired article all took place this year. Now, Paul Vixie is a long way from an idiot when it comes to tech security issues – so is this a sign of encroaching senility on his part, with the other players indulging his whim, or are there some substantive concerns that I’m missing?
(and yes, this post should probably just have taken the format of ‘email to Alex Harrowell’…)
So the fairly essential cuts in interest rates are hitting savers. As a net saver, I can only say this is a good thing.
There are approximately four sorts of people in the UK, financially speaking:
1) people with no assets or liabilities. “The poor”.
2) people with houses and mortgages. “Hard-working families”.
3) people with some savings, no house and no mortgage. “People who noticed there was a bloody great house price bubble”.
4) people with houses, savings, and no mortgages. “Jammy sods”.
Cutting the interest rate benefits people in group 2, at the expense of groups 3 and 4. But the house price crash has massively disbenefited people in group 2, to the benefit (either now or at some point in the next couple of years) of people in group 3. The fact that we’ll lose out on interest in the short run is more or less irrelevant, since by next year our cash will be worth about 1.5x what it was in 2007 in terms of “how much house can you get?”. So it’d be churlish for people in group 3 to worry too much about bailing out the poor buggers in group 2 – we’ll just buy their houses for next-to-nothing…
People in group 4 are unequivocally hit both by the house price crash and by the interest rate cut. But since their net worth is enormous by comparison with everyone else, even after both these adverse events, and since they’re the ones who benefited from 40 years of house price inflation and the enormous wealth transfer from the young to the old that this entailed, their plight is pretty much inconsequential.
And the poor? Well, they’re pretty much still poor, just as they were during the boom.
Parliamentary privilege, as traditionally viewed in the UK constitution, grants MPs freedom of speech on what they say within the House of Commons. It doesn’t:
a) give them the right to run spies in the civil service; or
b) cover what they say or do outside of the House of Commons.
Its relevance to the Damian Green case, therefore, is rather limited.
Update Dec 3: Sam Coates at the Times has been doing some digging, and has found that – of course – my interpretation is correct:
Parliamentary privilege is a narrow beast. Article IX of the 1689 Bill of Rights guarantees that “Parliamentary proceedings” – anything said on the floor of the Chamber or published in Hansard – cannot be used in evidence against MPs during a prosecution. But, citing a 1999 committee report, it says Parliamentary privilege “does not embrace and protect the activities of individuals, whether members or non-members, simply because they take place within the precincts of Parliament.”
The report cites the precedent of Lord Cochrane, who was arrested in 1815 while sitting on the Government front bench in the Chamber, having escaped from prison. The arrest took place before the sitting of the of the House, and the Committee of Privileges concluded that no breach of privilege had taken place.
Richard Herring has come up with an excellent solution to the problem of ‘person in your way, what to do?’, and backed it up with impeccable Science and Logic. In short – go left, and slate anyone who doesn’t, and all will be mathematically fine.
Now, if Mr Herring can also solve the issue of corrievorrie, he’ll be elected a god amongst men. Relatedly – blimey, you can get the entire Meaning of Liff online. This is the best thing ever (except for sellers of books to keep in one’s toilet, who’ll presumably lose out slightly. And John Lloyd, but I’m fairly sure his invention of QI is keeping him fairly sorted in the lavatorial book market…)
In case anyone’s wondering why Damian Green was arrested by ‘anti-terror’ police – it’s because all investigations involving potential breaches of the Official Secrets Act are dealt with by Special Branch, which was renamed to Counter Terrorism Command when it was merged with the Met’s Anti-Terrorism Branch in 2006.
As with the freezing of Landsbanki’s UK assets, it has absolutely nothing to do with terrorism at all – neither in terms of the crimes that Mr Green is accused of committing, nor in terms of the laws under which he was arrested.
Rather, the media have picked up that one of the other functions of the legislation (for Landsbanki)/police force (for Mr Green) in question is terrorism, and jumped to entirely ridiculous ‘MP Arrested Under Terror Laws / Brown Brands Iceland Nation Of Terrorists’ conclusions.
During the chancellor’s pre-Budget report and the opposition’s response, there were alternate gasps of disbelief and jeers of contempt across our trading floor. It’s utterly bewildering how our political system has managed to put such innumerates, however well-meaning, in charge of our economy.
Hmm. Perhaps, after you – not the politicians at all – were directly responsible for screwing the economy, you might lay off on jeering at them for trying to clean up the mess you created? And given your complete inability to price or understand liquidity risk, perhaps ‘innumeracy’ jibes might be considered especially inappropriate?
As ever, Dan Davies has the sensible economist’s take on things: viz, it’s all to the good but probably won’t be enough. And prophet of doom Willem Buiters is as terrifying, well-argued and appallingly badly written as ever.