Friday, 29 November 2013

Student loans

It now appears that £5 billion out of £22 billion government loans to students has become unaccountable. That is civil service speak for lost! What exactly do civil servants do all day?

There are 368,000 student borrowers for whom there is no current employment record, or other details on earnings, according to a study by spending watchdog the National Audit Office [NAO]. It means the Government does not have enough information to decide whether these students should be making repayments on their loans, and if so, how much.

More than a third [35%] of new loans taken out are not “expected” to be repaid, according to Government figures, and around half of students are not expected to repay their debt fully. It appears that civil servants spend their day working out the percentage of people who they are not monitoring correctly.

Last week we were told that the government has sold £890m of student loans to a debt management consortium for £160m. Another good deal?

This is a system that has failed young people at every level, and which is then clearly completely incompetent when it comes to recouping missing funds. Liam Byrne has it that so many loans are being written off that the new system is more expensive than the old one. People do not feel they owe the government anything, and it is made it far, far too easy for a generation of angry people to disappear.

Thursday, 28 November 2013


Big news at present, however, I have nothing against immigrants, I think it is all too much fuss. The more we stoke public anger and distrust on immigration, the more we threaten the stability of our political system in general.

Fifty years ago, two academics set out to study the 1964 general election. Aside from tracking the influence of the usual issues, David Butler and Anthony King pointed to the growing importance of a new issue in British politics: immigration. The picture they painted is eerily familiar: a heavy majority of voters believed there were too many immigrants; politicians were accused of joining in a conspiracy of silence on the issue; the then-Conservative leader, Sir Alec Douglas-Home, warned that a million Commonwealth migrants were waiting to descend on Britain.

Fast forward 50 years, and immigration looks set to dominate the next two big elections in British politics: the European elections in May 2014, and the general election in May 2015. And not a lot has changed since the 1960s. British voters remain strongly in favour of reducing immigration and hostile toward immigrants and are now more so than their European neighbours. Commentators attack political elites for not listening. And claims that a tsunami of new migrants from Bulgaria and Romania are about to arrive and detonate a crime wave are now entrenched in the public mindset.

Public disillusionment over immigration has peaked on two earlier occasions, in 2003 and 2006-07, amidst earlier debates over asylum and EU expansion. But since 2010, it has been consistently on the rise, and never before has this trend lasted for so long. This is especially worrying for Labour who have consistently trailed among this disenchanted lump of voters since 2000, reflecting how they have simply not connected in any meaningful sense on this issue. And the issue looks set to become only more important as concerns over the economy subside, which is one big reason why UKIP will finish strongly in May, including in Labour areas.

There will come a point, which perhaps we have already passed, where the damage that is being inflicted on our politics becomes irreversible. Rather than cling to the conventional wisdom that disenchanted and perhaps would-be UKIP voters will respond rationally to a change of policy or tougher rhetoric, we should accept the reality that irrespective of what is offered, more and more voters are moving from the mainstream to the margins, guided by a toxic and - to be frank - nasty group of opinion-makers in our society who appear to relish sowing the seeds of xenophobia, protest and division. Make no mistake: unless we chart another course this 'debate' will have serious and long-term effects on our politics, and the already fragile link that binds our citizens to the democratic arena.

Wednesday, 27 November 2013

What is zero bound?

If it were possible for central banks to cut rates below 0%, would we still have experienced the Great Recession of today?

No, we would not have experienced the Great Recession. [except I cannot say that as I do not know]

However, there are lots of evidence pointing to the zero bound not being the real problem.

Other countries such as the eurozone and Sweden have experienced similar recessions, or worse, despite being above the zero bound for the vast majority of the past 5 years. You can write off the eurozone because of the cluelessness of the institution under Trichet, but Sweden is not so easy to write off. They did some very sound monetary policy in the first couple years of the recession, and then mysteriously gave up. And Sweden has a long tradition of great expertise in monetary policy and progressive policymaking.

The discussion in the US has not been what you would expect if economists actually thought the zero bound had caused the Great Recession. To begin with, the only reason the Federal Reserve has not cut IOR [Institute of Recruiters] further is that they are worried about the “break the buck” problem in the MMMF [Man-Made Mineral Fibres] industry. But if that trivial institutional quirk were widely seen as preventing the sort of faster GDP [Gross Domestic Product] growth required to avoid a Great Recession, there would have been massive demand for reform of the system.

Recall that the Fed got Congress to immediately give them authority for IOR in 2008 when they told Congress they needed it. As far as I know reform of the MMMFs was not even a part of Dodd-Frank. There is no evidence that mainstream economists, pundits, bloggers, etc, lose sleep over the break-the-buck problem, which prevents negative IOR.

So what is really going on here?

Lots of economists have not really thought through what they believe. At a certain level they believe the zero bound is the problem, but if pushed with solutions they fall back on other arguments. Those on the right would talk about “structural problems.” Those on the left would argue that highly negative rates would just blow up asset bubbles and lead to more income inequality. Very few economists actually believe the zero bound is the cause of the Great Recession, because very few believe that excessively tight money is the cause of the Great Recession.

Tuesday, 26 November 2013


The great student loan sell-off has begun.

After announcing its intention to privatise the £40bn loan book earlier this year, the government has sold a £890m tranche to a private debt collection agency [Erudio Student Loans] for £160m.

The coalition has presented the move as a pragmatic step that will, in the words of Universities minister David Willetts, "allow us to reduce public debt and maximise the value of one of the government’s assets." But in reality, the reverse is the case. In order to attract a private buyer, ministers have sold the loans at a discount of £730m. While analysts will debate the precise price, it would have been impossible for the government to sell them at a profit.

As Martin Wolf explained earlier this year, "no private party has a lower borrowing cost than the government, since the government is the most creditworthy entity in the country. So the value of the student loan book to the government, given its low discount rate, is higher than to any potential private buyer."

Why then, has the government opted for privatisation? Were the UK, like Greece, compelled to sell its assets to stave off bankruptcy, the move would make sense. But with its independent monetary policy [allowing the Bank of England to create new money], its above-average debt maturity and its growing economy, Britain is in no danger of insolvency.

The decision, like so much coalition policy, reflects the Conservatives' determination to prioritise short-term deficit reduction over long-term investment [which is what student loans are]. While the sale will save the government money today [allowing it to cut debt or taxes], it will cost its successors money tomorrow. But never mind the long-term economic interests of the country, George Osborne and David Cameron have got an election to win.

Friday, 22 November 2013

The Co-op Bank scandal

The debacle at Co-op Group and Co-op Bank highlights a fundamental problem for all mutuals or organisations owned and managed on co-operative lines by members. Which is that in order to thrive, they don't just have to be as efficient and successful as conventional companies that have outside shareholders, they have to be, in a broad sense, better than the mainstream [I will come back to what I mean by that]. The structural weakness of mutuals is that they typically don't have access to outside equity capital.

In the case of Co-op Bank, there was and is Co-op Group as the sole owner. But it did not have the resources to supply the £1.5bn of capital needed by Co-op Bank to continue trading. So the rescue of Co-op Bank has been complicated and tortuous - and involves its creditors converting £1.3bn of bonds and preference shares into equity capital and providing a bit more investment on top of that.

The Bank of England remains on high alert, just in case it all falls apart, and it would have to step in with an imposed rescue plan or "resolution" scheme that would protect depositors and the bank's important functions.

It will not have escaped your notice that the appointment as Co-op Bank's chairman of a former local councillor with an apparent taste for hard drugs, a history of downloading porn on to a municipally owned computer and [by his own admission] limited knowledge of modern banking, somewhat undermines Co-op's claims to be better than the rest in both those important senses.

How did he get the job?

Thursday, 21 November 2013

Oh Dear!

China has announced that it is abolishing the one child rule.

On the surface, this 'loosening' of the one-child policy appears to be a significant move, but it is still a long way from complete abolition. Although the policy’s eventual disappearance is inevitable under the pressure of an ageing population, family-planning officials who now have fewer policy violations from which to profit may even be motivated to enforce the remaining rules more harshly in the short term, while many of the intended beneficiaries of this reform were not the ones pressing for permission to have a larger family in the first place.

One of the results from China's 30 year policy of only one child families is, there are apparently 30 million single men in the country that have no prospect of a wife, mainly due to everyone having boys as their child.

This can only end in tears.

Wednesday, 20 November 2013

Tweet off!

Emma Way now saddened by her tweet "Definitely knocked a cyclist off his bike earlier. I have right of way - he doesn't even pay road tax! #Bloodycyclists" because a court has ordered her to pay a £337 fine, £300 in costs and was given seven points on her licence. She has been convicted her of failing to stop after an accident and failing to report it.

The firm where she works have suspended her and she is getting trolled on the net, trollolol...

Tuesday, 19 November 2013

IDS fibbing again?

The Work and Pensions Secretary claimed that "child poverty rose" under Labour; it fell by 800,000.

Iain Duncan Smith has acquired a reputation for playing fast and loose with the facts and he was up to his tricks again at Work and Pensions Questions in the Commons. Towards the end of the session, he declared that "child poverty rose" under the last government. But as so often, the data tells a different story. Under Labour, child poverty fell from 3.4m in 1997 to 2.6m in 2010, a net reduction of 800,000 and the lowest figure since the mid-1980s.

While child poverty has fallen under the coalition to 2.3m [largely due to the overall drop in average household incomes, which resulted in a relatively higher poverty threshold], it is projected to rise by 600,000 by 2015-16 as the government's welfare cuts take full effect. As the IFS [Institute For Fiscal Studies] has noted, "Despite the impact of universal credit, the overall impact of reforms introduced since April 2010 is to increase the level of income poverty in each and every year from 2010 to 2020." The forecast rise will reverse all of the reductions that took place under Labour between 2000-01 and 2010-11.

Rather than slandering the last government, Ian Duncan Smith would do well to turn his attention to that.

Monday, 18 November 2013

Green shoots!

Europe is at this point doing worse, at least as measured by industrial production, and probably in terms of overall output than it did in the Great Depression.

The usual response is that things were different then, because Europe was rearming. Is this trying the lack of manufacturing debate, even though we are shutting down a major shipyard in Portsmouth.

There is nothing special that makes military spending a better stimulus than other kinds of spending actually the reverse, because spending on useful stuff can enhance the economy’s long-run potential as well as giving it a short-term boost. So when you attribute European recovery in the 30s to military spending, you’re saying that what the economy needed back then was expansionary fiscal policy and it needed it so badly that even destructive spending had a positive effect.

This time around, the good news is that we have peace. The bad news is that Europe’s leaders, lacking the incentive to build up their armies, have listened to prophets of austerity, and cut spending when it should have been going up. And the result is a depression that is well on track to be worse than the 1930s.

Friday, 15 November 2013

Energy companies - ./spit

The energy companies cannot avoid the blame for rising prices.

While shifting the debate towards green levies, the Big Six have remained much quieter about their healthy profits.

They may be public enemy number one but you cannot accuse the energy companies of being inept at public relations. Since their appearance in front of the energy select committee two weeks ago, the Big Six have successfully moved the conversation about energy bills away from their own profits and practices and on to so-called green levies. But by promising to "roll back" these charges, the Prime Minister is marching to their tune and failing to get the best deal for consumers.

Energy companies like to blame anyone but themselves for rising energy prices. In announcing their inflation-busting price rises, energy companies were quick to focus on wholesale gas prices and the levies on bills for low carbon energy and fuel poverty reduction.

They were much quieter about their own rising profits and operating costs. Energy firms make a healthy 5 or 6 per cent from their supply arms. They claim this is needed to make necessary investments but their own generation businesses report profits as high as 20 per cent.

Instead of scrutinising the acceptability of this level of profits in the energy supply industry, or questioning why operating costs appear to be spiralling upwards, the media have lapped up energy bosses describing green levies as a "stealth poll tax".

The only obfuscation, however, is by the energy companies themselves. New figures from Ofgem, released following a freedom of information request by IPPR, show that the two companies performing least well are those that have jacked up their energy prices the most. British Gas added £50 to consumers' bills for these charges but has delivered just 4, 6 and 9 per cent of its obligations. Scottish Power, by contrast, have delivered 24, 48 and 31 per cent and only raised green charges by £20.

Instead, we need a much more targeted approach to fuel poverty. The best approach is for local organisations to give out free assessments to work out who is fuel poor so that support reaches those who really need it. And to help everyone who is struggling with high energy bills, low interest loans for making energy efficiency improvements should be made widely available.

Of course, we could all stop paying our energy bills, that would screw them…

Thursday, 14 November 2013

Banks, Energy companies, Estate Agents whose next?

There is an old saying that if you kill one man they put you in prison, if you kill 100,000 men they build a statue in your honour. It could be re-written today as, if an individual extorts money he is put into prison, if a government extorts money it is praised for getting tough on banks.

To a public angry at banks for their role in the financial crisis, this may all seem like reasonable retribution. Yet in many cases the rush to punish is overturning basic principles of justice. Take the settlement agreed to by JPMorgan. The accompanying statements from both the bank and the regulator involved, the Federal Housing Finance Agency, provided no indication of what the firm did wrong and no admission of guilt. JPMorgan is the fourth institution to settle over its dealings with Fannie and Freddie without going to trial, following settlements by General Electric, Citigroup and UBS.

Bank executives contend that they have little choice but to accept punitive settlements because the alternative, facing a criminal indictment and going to court, could destroy their businesses, even if they are subsequently found not guilty. This is because they risk losing their banking licences or being shunned by clients while charges are pending. In some cases regulators make these threats explicitly. Last year New York’s financial regulator threatened to revoke the state banking licence of Standard Chartered, which would in effect have excluded the British bank from America.

Most people react to this type of story that an emotional level; either the banks deserve what they’re getting [liberals] or they’re being treated unfairly [conservatives].

Wednesday, 13 November 2013

Old Bailey high-lights

::[disclaimer: bad language ahead...]

Rebekah Brooks, her husband Charlie and News International’s head of security conspired to conceal material from the police including hiding a laptop behind rubbish bins in an underground car park after a drop-off disguised as a pizza delivery, the Old Bailey heard earlier this week.

The prosecution detailed an elaborate plan in which Mr Hanna and a colleague retrieved a laptop and a jiffy bag that had allegedly been hidden by Mr Brooks behind a bin in the car park of his Chelsea Harbour flat. The material was allegedly then driven to News International’s Wapping offices while police raided the home.

“The coast was clear after that,” said Mr Edis.

Mr Hanna then hatched a plan to return the material to the car park in the guise of a pizza delivery to Mr Brooks, the court heard.

The associate of Mr Hanna who delivered the material to a hiding place behind bins, sent a text message to his controller that referenced a line from the film Where Eagles Dare: “Broadsword calling Danny Boy. Pizza delivered and the chicken is in the pot.”

In reply, the controller wrote: “Ha! Fuckin amateurs! We should have done a DLB [dead letter box] or brush contact on the riverside! Cheers mate, log in the hours as ‘pizza delivery’.”

However, the plot went wrong when a cleaner found the hidden material and gave it to his manager, who called the police.

Monday, 11 November 2013


John Major is having a pop at the elite, allegedly!

In September, the New Statesman and the Intergenerational Foundation teamed up to run an essay competition for A level students. The topic was "has Britian robbed its children?" and the winning entry was by Conor Hamilton.

The message is clear: young people are lazily relying on the old. One reason this narrative is so effective is that there is a widespread anxiety today’s children will not value and uphold the efforts of the generations that came before them. It plays on a fear that young people are not fulfilling their part of an intergenerational contract, preferring to live their lives selfishly. However, what if the breach of contract is the other way around? What if older generations have been living an unsustainably extravagant lifestyle, leaving little for those that will come after them?

The immediate evidence for this would be the UK’s national debt, which has increased from 34 per cent of GDP in 1991 to 90 per cent. This debt is so large that the interest we pay on it is roughly the same size as our defence budget. Unfortunately, the interest will only increase as our debt shifts to just short of 100 per cent of GDP, as it is predicted to have done by 2015. It seems the taxpayers of tomorrow will be struggling with the debts of yesterday for a long time to come.

However, it is not only the profligacy of the last generation, commonly deemed synonymous with the previous Labour government, that will harm the young. The austerity measures pursued by today’s coalition are also unfairly weighted against young people. University funding and housing benefits for the young have been slashed, employment schemes have been abandoned and the Education Maintenance Allowance (EMA) has been scrapped in England.

Meanwhile, pensioners are exempted from caps on housing benefit, pensions remain triple-locked and universal benefits such as winter fuel payments, free TV licenses and free bus passes, all remain untouched. None of those benefits existed 16 years ago. Strangely, the current deficit reduction plan shows little concern for those who will have to pay the money back.

As a result, Britain’s homeowners have stopped investing in useful things like businesses, and have instead starting using their homes as an easy source of cash. Every time someone takes out a second mortgage or downsizes to make the most of their house’s increased value, they bring that over-inflated profit along, even though they have done relatively little to earn it. This cost is then paid by the people entering the market for the first time or looking to upscale. Yet again it is the younger generations that must over-pay because of the actions of the old - a cost which has been estimated at £1.3trn pounds in total.

This has dire consequences for the distribution of wealth, which has been shifting in favour of elderly in recent years. A Bank of England study found that in 2005, the average wealth of people aged between 25 and 34 had fallen to a third of its 1995 value, whereas the wealth of those aged 55-64 had tripled.

A lack of affordable housing and heaps of private and public debt won’t just deprive the young people of the chance to accrue material wealth, it will also delay their chances of becoming adults. This latest housing scheme does not address the real issue that WE ARE NOT BUILDING ENOUGH HOUSES!

Friday, 8 November 2013

Interest rates

Yesterday, in a shock move, the ECB [European Central Bank] has reduced the benchmark interest rate by a quarter to 0.25%. This was previously unchanged for the last twelve months. Reason unknown!

The official statement from the (ECB) says that it has cut the core interest rate in a bid to boost flagging economic recovery in the Euro area. However, there have not been many reports recently flagging any momentum that would require a change. The moved startled many investors while most economists thought the bank would wait to offer more economic stimulus at least until December.

The Bank of England yesterday kept its rates at 0.5% which have been stable for over four years now.

In addition to the ECB cutting its main refinancing rate to 0.25%, it held the deposit rate it pays on bank deposits at 0% and cut its marginal lending facility, or emergency borrowing rate to 0.75% from 1%. A lower refinancing rate makes it cheaper for banks to borrow from the ECB, in hopes that that lower rate will be reflected in what companies pay for credit.

The real question is this a reaction to the figures produced recently showing we are currently moving through a deflationary period.

Thursday, 7 November 2013

DWP and computers

It’s going to be another uncomfortable day for Iain Duncan Smith. Today’s Public Accounts Committee report on Universal Credit is one of the most excoriating anyone can remember. Margaret Hodge and her colleagues warn that most of the £425m of public money so far spent on the programme is likely to be written off, that management of the project has been “alarmingly weak” and that the DWP has consistently failed to “grasp the nature and enormity of the task”, missing early “warning signs” and refusing to “intervene promptly”. He should have hired us and now he would have a working system :)

Labour, meanwhile, has focused its criticism on Cameron, not IDS. In her response to today's report, Rachel Reeves said: "Today’s report from the Public Accounts Committee is a shocking confirmation of David Cameron’s failure and another nail in the coffin of his Government’s promise to deliver Universal Credit on time and on budget. Families facing a cost of living crisis need welfare reform they can trust. Instead they’ve got an out of touch Prime Minister who has presided over chaos and waste."

It now turns out that behind the scenes IDS has been rallying support to blame the civil service on this latest fiasco. The work and pensions secretary took the rare step for a cabinet minister of publicly blaming civil servants after the release of a scathing report by the National Audit Office (NAO) on the introduction of universal credit. The report said the welfare changes had been poorly managed and were riddled with major IT problems, threatening to increase costs by hundreds of millions of pounds. How far does this have to go before it is stopped?

Wednesday, 6 November 2013


I'm currently following Rebekah Brooks and Andy Coulson at the Old Bailey, fascinating, there is soooo much to come out!

However, it was Guy Fawkes' Night last night, a traditional night of celebration when we let off fireworks and light bonfires. It commemorates an attempt in 1605 to blow up our houses of parliament when our King was addressing it.

It is a somewhat ambiguous celebration. Originally the celebration was ordered to celebrate the escape of the King from assassination but over time Guy has attracted more and more sympathy and many modern English people see the festivities as an anarchist celebration that someone had the balls to have a go at our rulers.

Of course, if we were to try this today we would naturally get into trouble, but sometimes it is worth considering tweaking the political nose a bit!

Monday, 4 November 2013

More reasons to ignore inflation

I have argued that inflation is a highly misleading variable, and should be dropped from macroeconomic analysis. To replace it, we would be better off looking at variables such as NGDP growth and nominal hourly wage rates. A paper by Coibion and Gorodnichenko illustrates the problems with using inflation (although they reach very different conclusions.)  The paper starts off with a quote from Bob Hall:

“Prior to the recent deep worldwide recession, macroeconomists of all schools took a negative relation between slack and declining inflation as an axiom. Few seem to have awakened to the recent experience as a contradiction to the axiom.” Bob Hall [2013]

Not my school!! In my book on the Great Depression [which my publisher seems determined shall never see the light of day] I argue that the standard model is wrong, slack does not cause disinflation.  For instance, prices rose sharply after March 1933, despite the greatest level of slack in US history.  Rather falling NGDP causes slack, and is often associated with falling inflation.

Here is what they discovered about inflation expectations:

Specifically, we show that an expectations-augmented Phillips curve, using household inflation expectations as measured by the Michigan Survey of Consumers, can account for the absence of strong disinflationary pressures since 2009. The primary reason for the success of a household inflation expectation-augmented Phillips curve is that household inflation expectations experienced a sharp rise starting in 2009, going from a low of 2.5% to around 4% in 2013, whereas other measures of inflation expectations such as those from financial markets or professional forecasters have hovered in the close neighbourhood of 2% over the same period.

The public’s confusion was due to the fact that they focused on price increases from the supply-side, i.e. those that reduce living standards, not the demand-side:

Friday, 1 November 2013

The NHS just don't get it

Details have now been released that managers have been made redundant, given huge payments [millions of pounds] and then rehired at a later stage.

The people reporting this are saying that nothing illegal has taken place, how is that right?

In one instance it was a husband & wife team that were both laid off & paid off and then rehired. This is a joke!

Nothing will get done, it will just be swept under the carpet again, I would love to be sacked, given a huge cash amount and then rehired...

Why don't more people complain?