Posts from June 2010

On Keynes and Cuts

Tuesday 22nd June 2010

Keynes’ central insight was that the economy is cyclical. That when observed over a long period of time, there are economy-wide fluctuations; that there are times when the economy is generally doing well and we’re all getting richer (expansion), and times when the economy doesn’t do so well and we get poorer (recession).

I suppose there is an argument against this; that the problems which occur aren’t generally structural issues to do with the economy, but rather specific issues to do with the way the economy is run. For instance the credit crunch which precipitated the current downturn was caused by the default of loans on assets which were overvalued (i.e. people not paying their mortgages), and you may say that this isn’t something which will always happen. That there doesn’t need to be a cycle, if only things were run better.

This is almost academic though; looking back through history, clearly there are cycles for whatever reason (there have been recessions in the 70s, 80s and 90s as well as the more recent one). Keynes said that the government should act in a manner which is counter-cyclic. That a period of recession is marked by a shortage of demand, and that the government should spend lots of money during that period in order to pick up some of the slack and help the economy at large. That, in essence, during a recession the government should run a deficit and spend more money than it takes in.

That was the rationale that was used to inform the response of the government to the downturn in 2007-8, but it’s not a complete analysis. Because Keynes said that the government should pursue counter-cyclic policy. By definition, running up a deficit in recessionary times is only half of the story; the other half is that the government should run up a surplus in the boom years, that it should save money. The previous government didn’t pursue this policy, instead they borrowed and spent more and more money. They then added to this with deficit spending in the downturn, which means that we now have a staggering level of public debt and we need to pay it off. The question that today’s budget is trying to answer is: how?

By the way, the costs of bailing out the banks aren’t entirely part of this problem. Because when the government did that, they mostly did it in exchange for shares in the business. As far as I remember, we should actually make a profit from this when the government sells those shares on in a few years, because the banks will be worth more then than they were when the government bought the shares.

Some people have offered the defence that the previous government “didn’t know there would be a recession”. I reckon that is an incredibly poor argument, because even without the recession it was really poor policy to run up such a large amount of public debt. In addition, I simply don’t buy the idea that the recession was unforeseeable. I was working in a retail bank during 2007, and even I had thoughts along the lines of “they’re giving money to people who can’t afford it… is that really wise?”. The causes of the crash were not rocket science, and I know that I’m writing with the benefit of hindsight, but I contest that the Chancellor of the Exchequer really should have shown a bit more foresight. Proclaiming “the end of boom and bust” is nice rhetoric, but seems somewhat blind to the economic reality (pun not intended :-P).

I’ve also heard the argument that people look at public debt in the same way as household debt but that really the two aren’t comparable. People seemingly use this to justify a deficit, to argue that it’s acceptable for the government to borrow large sums of money. This is disingenuous, because whilst there are differences, the fundamental principles are the same. When someone borrows money, they are giving up some money in the future in order to have some now. This isn’t a bad thing as it allows us to be more productive, but we have to be aware that this is what we are doing. And if we take on too much debt, then the cost of that debt can become crippling (I believe that the current figure is £80,000 per day in interest). Increasing debt reduces our future spending power, and if the costs of paying back loans is greater than we can afford, then we have a problem (see the issues presently facing Greece for an example). We need to make moves now to reduce our debt, to reduce the likelihood of that happening.

This budget is painful, but it needs to be. The grim reality is that we simply can’t afford for anything else, so the task was to cut the deficit in a manner which is least damaging. It’s very easy for the opposition and their supporters to snipe, to point out that the budget is tough, and to blame the big mean Tories for screwing the poor and the Liberal Democrats for “selling out” in exchange for cabinet positions, but that version of reality ignores who helped get us into this position to start with.

Posted In: Politics Tagged: | 1 Comment

Having an Argument

Sunday 20th June 2010

This is something which really annoys me, which I’ve noticed relatively frequently recently, and I’m wondering whether it’s just me who feels like this.

Right. So I generally enjoy arguing about things. I like having an opinion on something – be it politics, religion, motorsport, whatever – and listening to the opinions of others and generally discussing them, whether we hold the same viewpoint or not. It’s a satisfying experience, because it makes me look at my own thoughts more closely, and it obviously opens my eyes to other perspectives. This sort of analysis either leads to me reinforcing my initial opinion, or changing my mind partially or even completely. Either way I enjoy this because it broadens the way I view that subject.

I like to think that I am fairly logical in forming opinions. Whether or not that is fair to say is for other people to judge, but I like to think that it is. I find that I don’t come to a conclusion about something until I really feel as if I know a decent amount about it. I’m probably extremely pedantic about finding facts or evidence to form (or indeed judge) an opinion.

When that comes to forming opinions about things like politics, then yes I suppose to an extent that there is a certain amount of philosophy which enters into the equation. Questions about what we want to do – how we want society to be – are fundamentally philosophical. There’s not really any evidence to support the idea of freedom being good, for instance, it’s simply a philosophy which we generally find pleasing. I reckon that if you look across the political spectrum there is probably a great deal of commonality about this underlying philosophy; the real differences come from the development of political theories for building a society which delivers this, and this arena of thought is much more open to evidence. These theories are inherently testable – we can implement them and see which best deliver what we want. And in the course of human history (and especially in the last 100 years), many of these different theories have been tested to destruction and studied. So we can probably state with some confidence at this point, which political theories are most effective for delivering certain types of society.

The world is a complex place. It seems a bit simple to point that out, but I think people gloss over it sometimes. There is very rarely an unambiguous completely correct solution to something. Maybe this is something that’s been drilled into me through my engineering education; any scheme or solution has pros and cons, and the role of the engineer is to study the specific needs and to work out the solution which best balances the pros and cons to meet those needs in the most successful way. Which in most cases is really the “least worst” solution, in that almost every solution to every engineering problem is a compromise and will have downsides. It’s raw problem-solving (which is why I enjoy it) and its a way of thinking which I think is applicable to more than just purely technical problems.

So to come back to politics, I obviously have a certain opinion about which political theory is best. And by best I obviously mean that by the standards of what I think society should be like – someone who has a fundamentally different idea of this is likely to form a different opinion to me. In Britain though, I think there is probably general agreement that we want a fundamentally free and fair society. I don’t think many people have massively differing ideas of what this means, even if they disagree about what the solution should be to deliver it.

By way of example, a significant part of what I would consider to be a good solution is the idea of economic liberalism. That is, free trade in free markets. Or for want of a better word: capitalism. Now is not the time to explain the reasoning behind this, but I would say that it’s better for society if things are done in this way; if goods and services are generally provided through the market (I’m very much an Orange Book-er). And of course, the reason why I have come to this conclusion is because the evidence seems to support this (and also because I think it’s a wonderfully elegant concept). But, note the use of the word “generally”. I recognise that there are certain things that the market cannot deliver, or at least cannot (on its own) deliver fairly. And for these things, yes, we need a state.

(I intend to go into the thinking behind this in another post, so for now please don’t comment just to argue about the last paragraph!)

This is an example of what I mean about things requiring relatively complex solutions. I don’t think that my opinions tend to be straightforward “this is best”; generally I think that I recognise that many solutions are imperfect. But I find that when I try to explain what I think, occasionally people just ignore much of this and instead take what I say to an over-simplistic extreme. For some people, if I try to explain the belief in free markets, they seem to automatically assume that I’m some anarcho-capitalist nutjob who thinks that the state should be dismantled. They don’t seem to understand the nuance of the argument. Indeed in some cases, people don’t even seem willing to understand it…

The question is: has anyone else had this experience? I’m wondering whether it’s my fault for not communicating clearly enough; but then I’ve expressed the same opinion to different people, and some seem to understand what I’m saying (even if they disagree), whereas others seem to almost caricature what I say and leap to a simplistic conclusion about what I mean without really understanding my argument. And actually, from looking at comments on the various politics-y blogs that I follow, it does seem to be a fairly common occurrence on some of them. But I just don’t get it.

Whatever, it frustrates me massively when people choose to disagree with something before they’ve bothered to properly understand the argument they’re disagreeing with. It’s supremely arrogant.

Posted In: PoliticsRantStuff Tagged: | 11 Comments

Hammond Meets Moss

Tuesday 8th June 2010

I watched an absolutely fascinating programme the other day. It was “Hammond Meets Moss“, and you can perhaps guess the basis of the show from the title. Basically it’s Richard Hammond meeting Sir Stirling Moss. Duh.

These two men have had pretty different careers. One was a top-flight racing driver, the other is a TV presenter. But they have one thing in common: they have both suffered major brain injuries. You will probably know about Hammond’s injury, after he crashed a jet car at 300mph in 2006. Moss had a career-ending accident in an F1 race at Goodwood in the 60s, when he veered off the circuit and crashed into an embankment at 110mph (the car wasn’t fitted with seatbelts, so his head hit the steering wheel). Different accidents, but the effects were similar.

Incidentally I loved Moss’s reaction to seeing Hammond’s crash: “Rather you than me, old boy”.

Moss also talks about the racing driver “mindset”, which sort of follows on from the interview I mentioned recently. But it’s fascinating hearing about how their accidents affected them, and how they recovered (or are recovering, it seems). To me this sort of injury is one of the scariest things that can happen. Even the most hideous injuries to other parts of your body only affect that thing; if you’re in an accident and you break your legs, then it means you can’t walk for a bit and it’s incredibly inconvenient. But if you suffer a brain injury, that’s you. Your brain is obviously where your personality comes from, and where your memories and whatnot are stored. The idea of having an accident that can fundamentally change who you are is a pretty terrifying one.

I know I mention lots of motorsport-related things and say “you should definitely watch this”, and I’m sure most people don’t. But this time you really, really should. The documentary isn’t merely about racing, it’s about brain injury and the effects thereof. It’s not a pleasant subject by any means, but I think this is genuinely fascinating.

Posted In: MotorsportTV Tagged: | 9 Comments