Miliband minor, closet Marxist?

On Saturday, Milibland minor told the nation that he 'gets it' (src) and today, that he is of a certain generation (src). Apparently, this means that he is going to support our civil liberties, despite having voted for every piece of Labour anti-terrorism legislation during his parliamentary career (src) and for ID cards (src). It means that he will make leftish overtures on Trident, despite voting for replacing it (src). It means that he understands the loss of trust which Iraq created, despite having voted to obstruct an investigation into the conduct of the government at every step he could (src). And it means that he realises that the last administration became a tired, clapped-out Labour government, despite having been ultra, ultra-loyal, even as a back-bencher (src).

On many of the major areas of policy, Ed Miliband was agin it before he was for it, or for it before he was agin. He makes John Kerry look positively consistent.

So I think we are entitled to ask of the new Labour leader when he 'got it' and what made him 'get it'. In particular, I think we are entitled to know whether he 'got it' before Labour was delivered such a bloody nose at the polls. Because I suspect that he is really a Marxist: 'Those are my principles, and if you don't like them… well, I have others.' (src)

Setting the record wonky

Chris Mullin, for whom I have more respect than for the average former Labour minister, tries to undermine a 'lie' he accuses the government of propagating with another set of untruths in today's Independent. He begins by smudging the history of the recent financial crisis by telling us,

Point one – and this is so obvious that one should not have to make it, but alas memories are short – is that the crisis is global. (Even the Americans agree it started in America.) (src)

Fair enough, the banking crisis did begin in America. But if we're going to look at that side of things, it didn't begin with the banks. It began with an American administration — in fact, a succession of administrations — which were keen to encourage higher home ownership among people who, to put it very bluntly, couldn't afford it. So they meddled in the mortgage market using financial quangos like Fannie Mae and Freddie Mac. Eventually, this meddling blew up in their faces as the banking sector passed the risks around like a hot potato on the assumption that Uncle Sam was going to bale them out. As, indeed, he did. If this is a failure, it is a government failure. This is not the best ground to be arguing from, if you want to defend an activist role for government.

Mullin continues,

Point two: most of the deficit was incurred while rescuing the economy from the folly of the bankers, derivative traders and hedge funders, few, if any, of whom are Labour voters.

All very nice, except it's not true, is it?

For the most part, the bale-outs did not require huge injections of cash: the Government simply promised to underwrite certain institutions, being good for the cash if it ever came to it. Moreover, if the bale-outs had caused the deficit to rise substantially, then the deficit would have decreased naturally now that no further bale-outs are being undertaken. Instead, the deficit is still with us, which puts paid to the notion that it was mostly incurred as a one-off payment.

No, the deficit really is Labour's fault, and the figures bear this out. Gordon the Prodigal was running a deficit well before the financial crisis, and while the slight decrease in GDP will have reduced tax revenues while exacerbating the scale of the deficit, it was not incurred 'rescuing the economy'. The exact date that Labour's surplus turned into a deficit depends on your definition, but public sector net debt as a proportion of GDP began to rise in 2001 and hasn't fallen back since (src).

But there is more!

"Light-touch regulation" was the mantra of the hour. … Quite apart from which, no amount of regulation would have protected us from the tsunami that came from America.

So, let me get this straight: the problems we got from America were caused by heavy-handed government meddling in the market, and no amount of regulation could have saved us from them. But we need more heavy-handed regulation here in the UK because, um, [argument goes here - Ed.].

Chris Mullin understandably wants to dissociate the government of which he was a part from the problems we now face. The difficulty he has is that they are indubitably tied up in them, and it is not just good politics but necessary to remind the British public of that fact.

In which the Indy abandons the scientific method

Einstein's theory is proved – and it is bad news if you own a penthouse
Scientists use atomic clocks to show that time moves faster at altitude, even on Earth
By Steve Connor, Science Editor (src)

If I were Steve Connor, I would find out who wrote that headline and… well, let's say they wouldn't be associating my name with any dubious headlines again.

For Einstein's theory is not and can never be proven. Ever. At all. In any way. It's a scientific theory, and as such the best we can say is that Einsteinian relativity has passed another test. (I now get to say this with my magic PhD-in-Theoretical-Physics hat on.) Perhaps you could get away, through journalistic licence, with saying that it has been affirmed: that is, another experiment's results are consistent with the theory. But never that it has been proved. In any case, we're quite certain that general relativity isn't quite right somewhere, so proving it true when in fact it's not quite right would be a bit of a sticky point.

And these experiments are old hat. We've been doing them with aeroplanes and even mountaintops for ages, and GPS has relativistic corrections built into its calculations. If Connor wants a really fun story, he could tell a nation agog how their sat-navs 'prove' Einstein was right.

The Independent has form on this. They did it a while ago with climate change: 'Now we know climate change is true' ran the headline, and the subheadline used the word 'proved'. Whoever thinks that scientists 'prove' anything needs a refresher, if not a first course, in the scientific method, and is thus an anonymously-inducted Journalidiot.

No comment necessary

From the New York Times — the New York Times! — recently:

In the journal Science a couple of months ago, the psychologist Joseph Henrich and several of his colleagues reported a cross-cultural study of 15 diverse populations and found that people’s propensities to behave kindly to strangers and to punish unfairness are strongest in large-scale communities with market economies, where such norms are essential to the smooth functioning of trade. (src)

Having said no comment is necessary, let me encourage you to read the whole thing. Babies are not tabulae rasae, but have an innate sense of morality. To some of us, this was not news, and despite the author's best endeavours, it is scarcely a blow against one's belief in God to have one's belief in natural law, established by that same God, affirmed.

Treating symbols with respect

Philip Stephens in yesterday's FT, commenting on how the Orange Book section of the Liberal Democrats hopes to build a liberal Britain (and Stephens' caution to them that they may destroy the Liberal Democrats in the process), writes:

Many Lib Dems do not accept their leader’s definition of liberalism. Mr Clegg draws inspiration from John Stuart Mill, marrying social liberalism to limited interference in the economic lives of citizens. Many in his party prefer the party’s 20th century icons John Maynard Keynes and William Beveridge – champions of active government as an architect of progress. (src)

Some Liberal Democrats may complain at Clegg's (alleged) affinity for Mill over Keynes. But then, Mill's On Liberty is the book of office for the Liberal Democrats: each new party president is presented with a copy. It would appear that the party leader takes the party's symbols of office more seriously than the party at large. I'm not convinced that the fault, therefore, lies with the leader.

What's trade ever done for us?

Matt Ridley, of Rational Optimist fame (blog), explains in a virtuoso TED talk why trade has made us who we are today, using his delightful metaphor of "ideas having sex" (via).

He starts with a nice comparison of two pieces of technology which draws him into a discussion of our cousins the Neanderthals, who were at least as sophisticated as our direct ancestors in many respects, but did not engage in trade: whenever we find Neanderthal stone tools they are made from local stone sources, while human artefacts can be found whose origins are from very far-flung locations. He argues that it was trade which meant our ancestors won out over the Neanderthals, and along the way makes some neat observations about the influence of biology on culture. This idea about the Neanderthals has appeared in the Journal of Economic Behavior and Organization (src), and a related idea about the division of labour between the sexes appeared in Current Anthropology (src).

One of the things Ridley's talk highlighted for me was that when people talk about the need for us to work together, we can forget quite how tightly the gains from trade and markets bind us together. To take a topical example, David Miliband said that for him, socialism is the statement that "what we can do together is more than what we can do separately" (src). We shouldn't dispute the statement, but rather dispute the characterisation as "socialist": for the free market also brings us together for co-operation.

Well, that's enough rambling from me. Watch and enjoy.

Yikes

FT Alphaville asks whether ETFs can go bust (link). The article is guest-written by three experts in fund management: two practitioners and an academic at Princeton. The basic gist is best illustrated using their example, of an American ETF.

The owners of this ETF (the institutional owners, that is: like Barclays or HSBC) were aware that 17mn units had been written into existence one way and another (large institutions can create and destroy blocks of units when the ETF price and the prices of the underlying get too out of kilter; they make a profit by doing this). But short sellers had sold short a further 95mn units. And they hadn't just borrowed units from an existing holder, which would be bad enough: they had sold them 'naked short', which meant they were promising to create the units to cover the short at some future time.

The hundred-billion dollar question [1] is this: what happens if these short sellers go broke? As the authors put it, 'this creates a serious counterparty risk and quite possibly the potential for a run on an ETF'. For if enough people start going broke and being unable to honour their commitments, then unit holders will catch on and try to sell out before the contagion spreads to them. It will look like a bank run, because it would be exactly the same underlying mechanisms: bankrupt debtors forcing a crisis of confidence in an issuing institution.

One of the Alphaville commenters suggests this is less of a problem than the authors make out. I suppose we might add that if shorters blowing up is a problem, then increasing sales of the ETF will drive down prices which should help to limit shorters' losses. It sounds like there is a plausible case to be made for the existence of some checks in the system, but I hadn't ever considered the point that Alphaville's guests raise. Perhaps not many people have. I hope this is a debate which will educate especially those of us with a direct interest in well-functioning ETFs.

[1] Inflation's a beast, eh?

Low expectations

The Guardian website's front page headline today is:

Pope visits UK – live (src)

Was Ian Paisley the pilot?

In which I demonstrate that I am no libertarian

Carswell and Baker, Tory MPs who describe themselves as libertarians, have put down a Ten Minute Rule Bill requiring banks to ask depositors whether they would like the bank to lend the money they deposit. You may recall the similarly loopy idea which was behind a left-wing campaign to do something equally potty, about which I wrote earlier (link).

The Libertarian Party, which has this as a mainstay of its economics policy, approves (link), as does the Mises blog (link): even Liberal Vision is sounding impressed (link). Et tu, Sara?

It's odd how the libertarian right is infected by the same curious idea as the statist left when it comes to banking: that the banks create money. So once more, mit feeling: banks don't create money out of thin air. They create assets and liabilities in equal measure, which is really quite different from creating money.

I know no-one ever went broke underestimating the intelligence of the public, but surely most people have at least some vague idea about what your bank does with the money which you deposit. Good heavens, I can remember, as a six-year-old (or thereabouts), having a rather twee, "Camberwick Green" understanding of what happened to the money in my savings account. (I think it involved the bank manager's wife and a cake stall. I'm saying no more.) Are the public really less bright than a six-year-old? Come to that, are our Parliamentarians?

The joy of competition

The Motley Fool (UK) reports (link) that HSBC is making a play for a share of the ETF market (wiki), currently dominated by the eight-hundred pound gorilla that is Barclays' iShares. Over the past year, they have set up a stack of ETFs duplicating some of Barclays' most popular, and have now slashed their total expense ratios: in some cases, to levels which are startlingly lower than Barclays'. At the head of the pack, their S&P 500 ETF, which tracks the 500 largest American companies, has a TER of 0.15%, against Barclays' 0.40%. Even at the lower end, their FTSE 100 tracker beats Barclays' at 0.35% against 0.40%.

This may seem like a small difference, but it matters. ETFs are a low-cost way for people to manage their own retirement savings, and so investors will benefit from the decrease. Since they are generally going to be held over the long term, a small difference in TER can make a noticeable difference in relative performance: over thirty years, a 0.4% fee will erode the final value of the fund by about 7.3% relative to a 0.15% fee (which in turn erodes capital by 4.4% relative to no fee).

Secondly, however, there was a fun bit of research conducted a while back which linked fund fees with performance very strongly. The fun is in the irony that it was conducted by a fund provider and supermarket, which has an interest in high-fee funds, but showed that low-fee funds typically outperform their high-fee competitors (src). The take-home slogan in the investing world has been that the most reliable predictor of fund performance is the fund's fees: the lower, the better. Many small investors, I suspect, have long shared a feeling that fund managers are poor value for money: this study suggested that in fact, fund managers are, net, negative for investors. Consequently, cheap 'n' cheerful trackers are a very sound investment strategy, and the cheaper the tracker, the more cheerful the investor.

The ETF market has been a one-horse race for a little too long. HSBC's move to make its fees more competitive should shake things up a little, and the competition can only serve consumers well.

Disclaimer: I hold some iShare units in a fund which HSBC is not presently duplicating.

Obama hits a duff note

This is the American nutter story. For clarity, that's the religious nutter. The one who hates Muslims. In Florida. Burning Qur'ans. (Is that enough to pin him down?) I've refrained from commenting on this story, mostly because, like Linda Smith said about the BNP, "Never mind the oxygen of publicity, I don't think I'm happy with [him] having the oxygen of oxygen." And also because it is clear that the man is an idiot. (As are the people burning effigies of him. Idiocy is an equal-opportunities affliction.)

But now that the Master of the Free World has started opening his mouth, it's odd the things you can find coming out of it. Here are some of his bons mots:

I will do everything I can, as long as I am president of the United States, to remind the American people that we are one nation under God. We may call that god different names but we are one nation. …

My hope is that this individual prays on it and refrains from doing it. (src)

You see, I thought the United Constitution specifically precluded the holder of the Office of the United States President from being Pastor-in-Chief. Notwithstanding the constitutionality, American atheists might bridle at being told that they are members of "one nation under God," and given that some religions represented in the US worship multiple gods, it is difficult to see how all these deities can be the same yet called by different names.

As for praying on the question of book burning, this is far too weak. By suggesting that this guy should do so, Obama is implying that the morality of his action is debatable: after all, it is plainly unnecessary to pray about whether to do wrong. But this is not debatable: it is directed against peace and against the teachings of the Prince of Peace, who said, "Love your enemies," and, "Turn the other cheek." If this is how we should treat those who are our enemies, how much more so neighbours and compatriots with whom we live at peace!

Which leads me, finally to a note of media housekeeping and a commended link. Some of the media have been calling the American nutter "evangelical". Tarring evangelical Christians with his proposed behaviour is akin to tarring all Muslims with the actions of al-Qa'eda or the Taliban. I should imagine this is clear, but it is notable how the same media which are so careful to speak of "Islamist extremism" are quite happy to describe this idiot, simply, as an "evangelical Christian".

Secondly, the commended link. A genuinely evangelical Christian theologian, Michael Horton, writes about the situation and explains very clearly and very well what mainstream evangelical Christians should think about all this:

Muslims are our neighbors and regardless of what their religion encourages, our scriptures call us to imitate our Father who sends sunshine and rain on the just and the unjust alike. (src)

I can't commend Obama to your edification, but I am very happy to commend Horton.

Labour did the Big Society

The Peterborough prison initiative is an interesting and somewhat novel approach to government services (src). The government has offered to pay charities working with prisoners if they can demonstrate a reduced re-offending rate; the charities involved are intending to fund this by issuing a "social impact bond" in which some charities and presumably philanthropists are putting their money.

This bond is a new kind of financial arrangement, which (if I have interpreted the press reports correctly) has a fairly simple payout schedule, based on the reduction in re-offending: below a reduction of 7.5%, investors lose their capital, and the payouts rise between 7.5% and 13%, to a maximum of £1.60 for every £1 invested.

Running things this way enables the government to cut its costs without completely sacrificing savings later. Capital spending is expensive, one-off and upfront, while the savings are smaller, and come in over a long period much later. By offering a share of the savings, the government is able to "crowd in" capital spending in order to achieve them. It therefore enables the government to make good savings without putting pressure on the public finances, and without shouldering the risks of the project itself.

However, as I suggest in my title, it also has a more political implication. This was initiated by the Labour government when it was in power, but I think it is a very clear example of the kind of thing which I understand the Tories to mean when they talk about "the Big Society". It draws together various sections of society in a way which is not heavy-handedly State-directed but nor is it completely absent the State:

The government puts up a bounty for some kind of outcome which it wishes to see: in this instance, saving money through cutting recidivism, and the bounty is paid out of the expected saving. Non-governmental organisations provide services which are aimed at achieving the goal and winning the bounty: in this instance, it is charities but in other circumstances a private company might be appropriate. People and organisations with capital supply funding for the projects in exchange for a share in the bounty: in this instance, philanthropic and benevolent institutions as well as some well-intentioned and well-heeled citizens.

If I were a Tory minister (it is perhaps unnecessary to observe that I differ in only two respects), I would be commending the programme: commending it as a way to make good savings without breaking the bank, commending it as an example of "the Big Society" in action, and commending Labour for having thought it up. Because it demonstrates that in the real world, there are things we can do together, with the State as a partner rather than as a master. And I would be pointing out that although Labour is clearly never going to use the Tories' language, they have provided an excellent example of the practical reality which stands behind the words.

Is it schadenfreude when it's your own misfortune?

Looked at this way, the UK is effectively an enormous unfunded and effectively bankrupt pension scheme, with a large speculative holding in some banks and a sideline in running a small island state off the northern coast of France. (src)

Nick Silver, at the IEA, on the UK's gross assets and liabilities.

An anti-AV canard

Following on from my post in May, ripping up a couple of pro-AV canards (link), I think it's only fair to rip up at least one anti-AV canard, repeated by Robert McIlveen at the Spectator Coffee House blog (src). He writes:

AV’s solution – recycling votes until someone does get 50 percent acquiescence – treats third preferences (I dislike him slightly less than her) the same as first preferences (I really want this person to be my MP).

No, it doesn't. People's ballots are counted the same number of times (assuming they don't get exhausted) regardless. Watch.

Say we have an election which ends up going to six rounds of counting. If someone puts the winner down as a first preference, then their first preference ballot counts in the winner's favour six times, once at each stage. If someone else selects the loser at each stage, then their ballot counts at each stage for the loser. We might put it like this: the first person has one vote counted six times; the second person has six votes counted once. In total, both have had their ballot counted six times.

And in order for your first preference to be counted alongside a third preference, you must have been through at least three rounds of counting: in other words, your first preference vote has counted at least three times, and the other person's third preference has counted fewer times, perhaps only once. It is equal and sensible, whichever way you cut it.

The business and economic cycles

We all know that GDP is made up of a number of components: government spending, consumption, investment and net exports being the usual categorisation. Now, if GDP falls for long enough, we end up in a recession: the US is still in recession and the rest of us have left it. Apart from the Aussies, who avoided it in the first place.

But where does the variability come from? This is clearly an important question, because we might expect and even desire that the recovery come wherever the decline occurred. Robert Higgs writes about the US experience (src, via) and points out that it comes from investment. The same is broadly true in the UK. Here is GDP (in £bn, current prices) for the past few years, according to the ONS' Blue Book (pdf) [1]:

Component	2007	2008	2009
Households	896	928	909
All gov't	296	313	327
Investment	256	241	191
Net trade	-43	-38	-32
Total	1405	1446	1393

You can see that's a loss of £50bn in investment, and the government spending merely covers the decrease in consumer spending. Investment was last that low in 2003: on the one hand, that should put in perspective the doom-mongers who want us to believe that The End Of All Things Is Nigh, but on the other we should be able to see that the business cycle really does drive the economic cycle.

Since this is so, it makes sense to focus policy on ways to encourage more investment. In particular, this undermines claims that consumer stimulus will help the economy: sustainable improvement clearly only comes from growth in business investment. This means that the government's desire to declare Britain 'open for business' has to be applauded as the right way to act in the face of the need for sustained economic growth. Cutting corporation tax, simplifying taxes and regulations and trade missions are all good things to do.

And as individuals, it is clear that the paradox of thrift is less of a paradox if investment drives the economy. Growth will come from investment and investment, from savings: but Keynesians want us to believe that savings are bad for growth. I think the figures tell a rather different story.

[1] 'Government' includes transfers, such as benefits and tax credits. Strip out those elements, and the increase in government spending from '08 to '09 is less than a percentage point.

Jesus is Jehovah: JW edition

[Jesus] said to [the former Gadarene demoniac]: "Go home to your relatives, and report to them all the things Jehovah has done for you and the mercy he had on you." And he went away and started to proclaim in the Decapolis all the things Jesus did for him. (Mark 5:19–21 NWT, src))

The JWs' tendency to substitute, illegitimately, the Old Testament name 'Jehovah' for the New Testament title kyrios ('Lord') comes back to bite them [1]. For Jesus instructs the man to tell of Jehovah's works, and he proceeds to tell of Jesus' works. Either he didn't get the memo, or, ahem, um, even the JWs' own dodgy translation fails to obscure the truth that Jesus is the God of Israel.

[1] Incidentally, in Mark's gospel, on the lips of Jesus, the title kyrios is most often used to refer to himself, with one ambiguous instance. On the lips of others, it is used both of Jesus and of God, including some Old Testament quotations. The odds are that in this instance, the JWs' substitution is illegitimate. But don't let that stop you having a little fun with your next batch of them.

The economic heart monitor

Courtesy of FT Alphaville, I present a chart which, as they comment, shows up the lost decade rather tellingly (src):

Bip-bip-bip-bip-biiiiiiiiiiiiiiip.

Can this be right?

Offshore tax dodgers are being offered “the best amnesty ever” which could even enable them to avoid inheritance tax (IHT) on undeclared assets, accountants claim. The deal follows the theft of computer discs from banks in the tiny principality of Liechtenstein, containing the names of many thousands of wealthy Britons, for which HM Revenue & Customs (HMRC) is understood to have paid millions of pounds. (src)

Let's park the issue of tax avoidance and evasion by allowing, purely for the sake of argument, that all the names on the disc have committed some sort of tax crime. This is unlikely, but even so, let us allow it.

HMRC has paid millions of pounds for discs containing personal data which have been stolen from Liechtensteiner banks. Doesn't this breach the Data Protection Act, as well as law on the receipt of and payment for stolen goods?

And if that's not the case, oughtn't it to be? Because last time I checked, the rest of us can be prosecuted for receiving stolen goods, and doubly so if those goods are computer discs with hundreds of thousands of people's sensitive data. It is a good thing that we require the forces of law and order to obey the laws they themselves enforce. I can think of a lot of governments which don't bother themselves with such niceties as legally-obtained evidence, or holding their police forces to the law: but crucially, none of them is government of a country in which we would enjoy living.

I'm not for a moment suggesting that we shouldn't crack down on tax cheats: they cost the country dear, and increase the burden of taxation felt by others by failing to pay what they ought. And if the Liechtensteiner depositors have been illegally evading taxes then that includes them. But more importantly than cracking down on tax cheats — or benefits cheats — is doing so within the law and subject to proper processes. For who wants to live in a country where the government is unconstrained by laws and treats your personal details as goods to be traded arbitrarily?