10 Posts You Should Read | RedEaredRabbit

The Worst Speech Ever Made

03/04/2013 18 Comments

Yesterday, George Osborne became the latest Tory politician to be sent out to demonise the poor and made, I think, one of the worst speeches I have ever heard. You can read the full transcript here if you like.

All done? Well then – allow me to retort.

Let’s look at what George said:

For too long, we’ve had a system where people who did the right thing – who get up in the morning and work hard – felt penalised for it, while people who did the wrong thing got rewarded for it.

Ok, so let’s get this out of the way quickly. If this were the case then why would people ever have had any incentive to work at all? If people were penalised for working and rewarded for avoiding work, people would not work. Something doesn’t add up and we can see that the statement from the chancellor is purely wrong by comparing how the value of job seeker’s allowance has faired relative to wages over the past 30 years. Jonathan Portes does just that here. As you can see, with JSA being pegged to inflation, and earnings increasing on average significantly quicker, that JSA has steadily fallen from 22% of average earnings in 1979 to 15% today. Work is more attractive relative to JSA today than at any time in the past.

Now, those who defend the current benefit system are going to complain loudly. These vested interests always complain, with depressingly predictable outrage, about every change to a system which is failing. I want to take the argument to them. Because defending every line item of welfare spending isn’t credible in the current economic environment. Because defending benefits that trap people in poverty and penalise work is defending the indefensible. The benefit system is broken; it penalises those who try to do the right thing; and the British people badly want it fixed. We agree – and those who don’t are on the wrong side of the British public.

I think this intentionally misrepresents what those of us who oppose benefit cuts are actually saying. I am not defending every line item of welfare. I don’t even know every line item. I’m sure it is not perfect and could be improved. I do dispute though that the benefit system is a significant factor in the reason that we have high unemployment. I don’t believe the reason that we do is that people who would otherwise be working are trapped, for the reasons I gave above.

But! I have vested interests!

Well let me divest them now.

I don’t receive any benefits. I am lucky enough to have a job. I “get up in the morning and work hard” and have never felt that the welfare system penalises me for doing so. My interests are:

I would like to live in a society that looks after the poor and the vulnerable
I believe that something as important as welfare should not be reformed based on misrepresentations and lies
I believe that pushing the poor and vulnerable further and further into poverty is more likely to trap them there than the alternative

But I’m on the wrong side of the British public!

Well, as FiatPanda points out here – the government’s way of measuring this is to say the least, underhand, misleading and dishonest. But should we be surprised that a large section of the public believes that benefits are evil? We have a government and a right-wing press who have mounted a huge campaign to convince the public that people on benefits are lazy scroungers. You’ve probably all seen the Daily Mail today right?

We’re facing more and more competition from vast new economies like China and India. There are quite literally billions of people who are joining the world economy. That’s human progress. If we’re not careful, Britain risks being out-worked, out-competed and out-smarted by those hungry for a better life.

Oh no! Jonny Foreigner is going to take all our jobs again! Except they won’t. When developing countries become developed countries we all benefit through increased trade and more jobs are created and we are all better off. China and India’s development is a huge opportunity for us to increase exports to those markets and boost growth. Well it would be if we had a government who could understand that, rather than thinking of these countries as foreign rivals who must be beaten at all costs.

By taking hard decisions in the last few years to save money, this Government has cut that deficit by a third.

I would phrase it as. “By making bad decisions coupled with dodgy accounting sleight-of-hand we have reduced the deficit by much less than we said we would and missed yet another economic target.”

Some politicians seem to think we can just wish away Britain’s debt problem. They want to take the cowardly way out, let the debt rise and rise and just dump the costs onto our children to pay off. I don’t think that would be fair. And I don’t think we’d get away with it. The interest charges would soar. Interest rates would rocket. People with mortgages would struggle. Businesses with loans would go bust. Jobs would be lost.

Again, George is intentionally misrepresenting his critics. There are countless people who have made very strong economic arguments as to why the government’s economic policy is flawed and have described sensible alternatives. Paul Krugman, Joseph Stiglitz, Jonathan Portes, David Blanchflower, Brad de Long, Martin Wolf etc. etc. are not “wishing debt away” when they use the discipline of economics to analyse the mess the government has created.

Oh, and interest rates would not soar – I covered that here and there is absolutely no economic basis for such a claim. Until recently we were told interest rates would soar if we were to lose our AAA credit rating. What happened when we did?

…one in every six pounds of tax that working people like you pay was going on working age benefits. To put that into perspective – that’s more than we spend on our schools. That’s one reason why we’ve got such a big deficit.

No it isn’t. The Labour government was running a surplus between 1997 and 2003 with the same benefits system. The reason we have such a big deficit is because the banks caused a huge financial crisis. Still, can’t blame the rich can we? Not when the poor are such easy targets.

So our reforms have one simple principle at their heart – making sure people are better off in work than on benefits.

But they already were! Just look at the figures! A million people didn’t decide when the financial crisis hit that unemployment benefit suddenly looked good and therefore quit their jobs.

When I took this job, I discovered there were some people who got £100,000 a year in Housing Benefit.

No evidence is given for this claim. No figures to show who they were, what their circumstances were or if they even really existed. But even if we take that claim at face value, it is hardly a reason to cut benefits for every single person who receives them. This again, is a thinly-veiled attempt to demonise the poor by taking the Daily Mail line that every one of them is a rich scrounger.

Some have said it’s the end of the welfare state. That is shrill, headline-seeking nonsense. I will tell you what is true. Taxpayers don’t think the welfare state works properly anymore. When did this start to happen? When we created a system that encouraged people to stay out of work rather than find a job.

Another gross misrepresentation of the facts. As we know, the system has over time seen unemployment benefit falling further and further behind working wages. The line about taxpayers not thinking it works is just more rhetoric designed to divide the country. I am a taxpayer and I don’t believe that the system encourages people to be out of work. If it did I would have chosen to be out of work.

Our reforms are returning welfare to its most fundamental principles – always helping the most vulnerable, but giving people ladders out of poverty.

So pay the vulnerable less money and they’ll just see the error of their ways and go out and get one of those freely available jobs? If you want to help people get back to work, fix the economy so there are some jobs for them to go to. The idea that people are just choosing to be unemployed at the moment is plainly stupid. There are no jobs because of a financial crisis caused in the banking sector but George seems to think it’s “fair” that the poor and vulnerable should foot the bill.

And here’s another change we’re making. On Saturday, the top rate of tax will be reduced from 50p to 45p… In a modern global economy, where people can move anywhere in the world, we cannot have a top rate of tax that discourages people from living here, setting up businesses here, investing here, creating jobs here. If you don’t believe me, ask France. They’re planning to whack up their top rate of tax – and you know what’s happening? Job creation is down as people are leaving the country. The opposite is happening here because we are welcoming entrepreneurs and wealth creators – and the jobs they bring with them.

So let me get this right. With income tax for rich people at 50%, the rich all go and live in Monaco but with income tax at 45% lots of rich people are all moving to the UK? That sounds suspicious. Perhaps we could have some evidence to back that claim up? Err…. no.

So this all seems like smoke and mirrors for something more sinister. Fortunately George went on to explain exactly what that was.

I’m a low tax Conservative. I believe what you earn is your money, not the Government’s money. So I want to take away less of it in tax, and leave you to spend it how you wish. Give me the choice between people choosing how to spend their own money, or a politician choosing how to spend it, and I know who I would pick. That’s good for the economy. That’s good for society – the more people get to keep from what they earn, the more likely they are to work, the more independent and responsible they will be.

As much as George would have you believe it, tax is not a fundamentally bad thing. It’s true we could do away with it and just pay for everything directly but where would that leave us?

A couple of months ago there was a massive pot-hole in my road. The council came along and filled it in, (paid for by taxes). Now we could say that we won’t pay taxes to cover road maintenance and when a pot-hole opens up in my road the residents will all club together and pay to repair it….

Oh, but wait a minute, I don’t have a car – I don’t care. I’m not going to pay for it. And actually most of the traffic coming down my road probably isn’t from people that live on it anyway. I receive the tiniest share of the pain from the pot-hole in my road, so why am I going to put money towards it? But then everyone will have this attitude and the pot-hole won’t get fixed and over time my road will fall to bits without anyone doing anything about it.

At the moment the council collects my rubbish, (paid for by taxes). We can pay for it individually ourselves but I suspect a lot of people, rather than pay individually to arrange to have it transported to the local landfill are just going to go out in the middle of the night and wang it in each other’s hedges.

Or how about the armed forces, (paid for by taxes)? The next time that there is a need for a peace-keeping force to protect citizens in a third world country beset by civil war, are we all going to have a whip round and see what kind of private army we can muster?

This is, of course, all nonsensical government spin. While it is easy to make it sound good that I should get my wages and then choose how it is spent, I don’t want to spend 100 hours a day deciding on how much I should be spending on the armed forces and how much I should spend on a hole in my road. Taxes have an absolutely essential place in any society and they are not just something that we can do without.

Taxes have another important benefit though, and it is this one that I think the chancellor was hoping to curb. The overall tax system is set so that someone who is rich pays more than someone who is poor. This allows redistribution of wealth within our society. Although through taxes we all paid for the pot-hole repair, or the peace keeping mission, or the NHS, or the police, the richest amongst us did contribute more and the the poorest amongst us did contribute less.

After a big speech on why we should cut benefits for the poor and vulnerable and why we should cut income tax on the richest few, (neither of which, as we’ve seen, had any factual basis), this point is really what it came down to:

The multi-millionaire George Osborne would like to prevent redistribution of wealth from the rich to the poor.

And this man has the gall to say that I have a vested interest.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with Benefits, George Osborne, Welfare

The Interest Rate Fallacy

08/12/2012 6 Comments

I wrote recently of The Debt Fallacy – the widely held belief that the financial crisis was caused by government debt. If you read it you’ll recall that it’s fairly easy to prove this as a fallacy because figures for government debt are easily available. Nevertheless it’s a myth that is widely believed because the government puts a lot of effort into propagating it in the knowledge that most people won’t actually check.

Another fallacy that the government often uses hand in hand with this is one regarding interest rates. It goes something like this:

Interest rates on UK debt are low because the markets have built confidence in the UK’s economy because of the austerity measures. If the government were to increase public spending, the markets would lose this confidence resulting in the UK losing its AAA credit rating and interest rates on our debt soaring.

This, ladies and gentlemen, is the Interest Rate Fallacy – the widely held belief that interest rates are low because of the market’s confidence in our economy. To show why this is a fallacy is a little harder than it was with The Debt Fallacy because I can’t just download a graph from the IMF website. So before reading on you might want to get a cup of tea and an exciting type of biscuit, such as a Jammy Dodger.

All settled? Then let’s get started. Before we tackle the fallacy we need to look briefly at what government debt is and why people buy it at all.

How does the government borrow money?

The government borrows money by issuing bonds. A bond is essentially an IOU, which anyone can buy. It will say something like, “I will borrow £100 from you for 10 years and at the end of the 10 years I’ll pay you back your £100. As compensation for you not having access to your cash for 10 years, I will additionally pay you interest at an annual rate of 5% for those ten years.”

Why does someone lend money to the government?

Imagine that I have £100 in cash. I could keep the £100 as cash or use it to buy a bond. Cash is good because I can do useful things with it like buy stuff. However, I need to think about my future and if I want to save money for later rather than spend it now then I would be better off buying a bond because I get paid interest as compensation for me not having access to my money. If I want to spend now then cash is good. If I want to save now then bonds are good.

What determines the interest rate on my bond?

The interest rate on a bond is determined by the rate that savers are willing to accept in compensation for not having access to their cash for the period of the bond. So if I want to invest my £100 for 10 years what are the factors that will influence the rate I am prepared to accept?

Probability of default

If I tie up my money with someone for 10 years then it’s quite important to me that they don’t go bust during that time because if they do I will lose my money. If I am lending to someone risky I might decide to ask for a higher rate of interest in order to compensate me for the risk that they might not be able to repay me.

Demand for bonds vs Demand for cash

If I want to save money and everyone else wants to spend money then I can probably get a high rate on my investment. If there are few savers and lots of spenders in the market (i.e. the demand for bonds is low and the demand for cash is high) then the government will need to offer better rates to attract investors. Conversely if there are lots of people who want to save money and few who want to spend, the government can offer much lower rates knowing that there are still lots of people who will invest anyway.

Expected future short-term interest rates

That’s a mouth full isn’t it?

Short-term rates are set (in the UK) by the Bank of England. These rates determine the rate I can get for investing money for a short period of time.

If I am going to invest for a longer period of time, my expectation of what the Bank of England will do with short-term rates in the future is important. This is all sounding a bit wonkish so I’m going to explain with an example. Imagine the following scenario:

I live in a country where the government offers two different types of bond
One lasts for one year
The other lasts for 10 years
I have £100 that I would like to invest for ten years

I have a choice:

Invest my money once in the 10 year bond
Invest my money ten times (once every year) in one year bonds

If I choose the first option then my money is tied up for ten years at the pre-agreed rate of interest. If I choose the second option then every year when I invest my money again I get whatever the new short-term rate set by the government is. Supposing that short-term rates are 2% but I expect them to rise by 0.25% every year. My expectation of what the second option looks like is this:

Year	Interest Rate	Value of Savings
1	2.00%	£102.00
2	2.25%	£104.30
3	2.50%	£106.90
4	2.75%	£109.84
5	3.00%	£113.14
6	3.25%	£116.81
7	3.50%	£120.90
8	3.75%	£125.44
9	4.00%	£130.45
10	4.25%	£136.00

Therefore for me to decide that investing in a 10 year bond is worth it, I need a rate of at least 3.1225%, otherwise I expect to lose money on it.

Conversely, if I expect interest rates to go down then I will be happy with a lower rate for my 10 year investment.

Still with me? Good. Get yourself another Jammy Dodger – you’ve earned it.

Why are interest rates low now?

The government says that interest rates are low because the markets have lots of confidence in our economy because of their austerity policy. Lots of people lap this up as gospel but let’s stop for a moment and think about that. The government is borrowing at the lowest rates in the country’s history at the same time that the economy is in the longest depression in living memory. Would this really be the point in history that confidence in our economy hit an all time high?

Umm… no. So using what we’ve learnt, let’s look at some sensible explanations instead.

Expected future short-term interest rates

Short-term interest rates are very low at the moment. We know why – in reaction to the financial crisis, the Bank of England cut interest rates in an attempt to boost the economy. (They cut them to 0.5% in March 2009 where they have remained ever since.)

Remember though, that long-term interest rates are determined by what the market expects short-term rates to be in the coming years. One explanation (this is the right one by the way so pay attention) for low long-term interest rates would be that the markets expect The Bank of England to keep short-term interest rates low for the foreseeable future.

Why would the markets expect The Bank of England to keep short-term rates low in the future? Well remember why short-term rates became low in the first place – an attempt to stimulate a weak economy. If the market expects the UK economy to remain depressed in the future they will expect The Bank of England to keep short-term rates low. If they expect a recovery is just around the corner they will expect short-term interest rates to rise and they will demand higher long-term rates in compensation.

Demand for bonds vs Demand for cash

Ok, I said the last one was the right answer but it’s important to consider this point too. The demand for bonds is huge at the moment. Why? Because when the financial crisis struck, people who had spent happily during the good years changed their behaviour dramatically and started saving. We are living in a world of people saving money rather than spending it. Again they are doing that because of a lack of confidence in the economy.

Probability of default

Enough of sensible explanations. Let’s look at a daft one. You’ll recall that people demand higher interest rates if they think that the person to whom they are lending might go bust before their bond matures. Therefore if the markets think that there is a good chance that the UK might go bust within the next 10 years they will demand higher rates for their 10 year bonds.

Let me be absolutely explicit here. There is absolutely no chance of the UK going bust in the next ten years. Despite the least economically competent government that anyone can remember, it is still impossible.

The UK is a large, developed economy whose debt is in a currency that they control. We print our own money – we can’t run out of it. Barring alien invasion, the UK will service its debt next year, the year after, the year after that etc. etc.

What about Greece?

A common comparison, used by George Osborne amongst others, is that Greece has a weak economy that is expected to remain weak but has high interest rates on government debt. They do but there is a difference between Greece and the UK and although George Osborne chooses to ignore it, it is a very big difference. When a country adopts the Euro they give up something very important – control over their currency. The countries that have seen their interest rates rise, Greece, Ireland, Italy, Spain, Portugal all have something in common – their debt is in a currency they can’t control.

But what about Argentina in 1999/2000?

Their debt was in US dollars so the same thing applies. They borrowed in a currency they could not control.

What about Iceland? They weren’t in the Euro and their government debt wasn’t that bad.

That’s true but Iceland’s three major banks had somehow been allowed to build up about €50bn of foreign debt between them. To put that into perspective, that was about 600% (!) of Icelandic GDP. Nice one Icelandic banking dudes.

What if the UK loses its AAA credit rating? Interest rates will soar!

The first thing to mention is that this argument assumes that austerity will prevent any downgrade of the UK’s credit rating. I’ll return to that point though because I want to tell you a few things about credit rating agencies first.

A credit rating agency is a private company that expresses an opinion about a borrower’s likelihood of repaying money they have borrowed from someone else. You will note that the UK currently has a AAA credit rating, which is the highest possible. (Not all agencies use AAA as a code to signify the safest borrower but the UK has the highest rating from all of the major ones.)

For example, the biggest credit ratings agency, Standard & Poors, gives the UK a AAA rating. To understand what that rating means, let’s benchmark it against something else to which Standard & Poors have given a AAA rating.

In the run up to the financial crisis, banks lent money to risky borrowers in the form of subprime mortgages. Those banks would then package up a few thousand of these dodgy mortgages together and sell them on to someone else. Guess what rating Standard & Poors gave to these packages of toxic debt? Yep, AAA!

Reread that last paragraph – the largest credit rating agency in the world gave their highest possible rating to packages of subprime mortgages. I am not a credit rating agency and you are not a credit rating agency but if you and I were forced to form an opinion on the creditworthiness of 2,000 subprime mortgages all mixed together we would probably not come to the conclusion that it was the safest investment possible. The credit ratings agencies did.

If you think I am cherry picking one (albeit hugely damning) example, I’ll give you another. On the 15th September 2008, Lehman Brothers went spectacularly bankrupt. All three of the major agencies rated Lehman Brothers as a low risk counterparty.

So the upshot of this all is that no one actually listens to these people. S&P downgraded the United States from AAA to AA+ last year. Did the markets all panic and think that the US was about to go bust? No. They ignored the discredited opinion of an organisation who thought that subprime mortgages were a good investment and went their about business as usual. Interest rates on US bonds actually went down.

But wouldn’t rates go up if we abandoned austerity?

The last refuge of the “Austerity=Low Interest Rates” cult is always, “Even if your ‘economics’ mumbo-jumbo is right about the reasons for low rates, if we actually took advantage of them and borrowed some more money, those rates would not stay low for long!” I’ll address that now.

Demand for bonds vs Demand for cash

As I’ve mentioned before we are currently in a liquidity trap. In normal times, cutting short-term interest rates stimulates spending. A liquidity trap occurs when we have already cut interest rates as far as they can go but people still want to save. At the moment, no one wants to spend money but The Bank of England have already cut rates to almost zero.

Being in a liquidity trap means that we would need a significant change in behaviour back from saving to spending before it made any difference at all to actual interest rates. The interest rate we would need to get people spending is negative but The Bank of England can’t set a negative rate* so we’re left with demand for bonds far outstripping demand for cash. Being in a liquidity trap isn’t good news but it does at least mean we can increase borrowing without changing the interest rate.

Probability of default

What would happen if the markets thought the UK was about to go bust and everyone tried to sell their bonds all at once? (Yes, I know the idea of the UK going bust is stupid but people use this argument a lot so I should address it.) Unlike Greece, Ireland, Spain, etc we have a flexible exchange rate. If the markets suddenly decided to start offloading UK government debt interest rates would not actually rise. What would happen is that the pound would just devalue** and interest rates would stay the same.***

Summary

So as we’ve seen interest rates are low because everyone wants to save rather than spend and the markets expect short term interest rates to be low for the foreseeable future because they expect the economy to remain weak.

We’ve also seen that credit ratings agencies’ opinions are not worth listening to. Despite the government claims that austerity is the barrier against a downgrade, I fully expect the UK to be downgraded next year. And you know what? If that happens the markets won’t give a toss and long term interest rates will remain low.

If you have read this whole post down to here then well done – treat yourself to another Jammy Dodger. You know now what determines interest rates on government bonds and you know that it has the opposite to do with everyone being happy about our economy. The sad reason for low interest rates is simply that the markets expect our economy to remain bad for a long time yet.

And to be honest, who could really blame them?

RedEaredRabbit

* They could in theory make interest rates negative but then people would just hoard cash instead of investing it. (You’d get a better return by keeping cash under your mattress than lending it out.)

** Although a devaluation in the pound sounds bad it would actually boost the economy. When the pound is weak then foreign goods and services become more expensive. Also our goods and services become cheaper for foreign investors. This means more money being spent on UK goods and services, both by us and our friends overseas.

*** I brushed over the reason for this because it would have doubled the size of the already too big blogpost. If you’re interested in why this is the case read this.

Filed under 10 Posts You Should Read, Economics, Politics Tagged with Bond Vigilantes, Debt, Economics, GILTs, Interest Rates, Politics

The Debt Fallacy

27/11/2012 27 Comments

Because this blog has a strong political theme, it might surprise you to learn that I don’t watch Question Time very often. Partly this is because I’m usually in bed by the time it comes on, but if it were called “Answer Time” and the politicians were forced to give proper answers to the questions I would probably be compelled to stay up late once per week and watch it. Instead it is generally an hour of politicians indulging in their favourite pastime of evading, misrepresenting and misleading and to be honest, I get enough of that already.

Still, I did watch some of it a few weeks ago and noticed that in pretty much every answer the Conservative or Lib Dem gave they managed to blame having to take lots of “difficult decisions”, such as cutting benefits for poor people and cutting taxes for rich people, on…

The mess we inherited from the Labour government

The government seems to believe that this is some kind of carte blanche to do whatever they want without any accountability; a Get Out of Jail Free card that they never have to give back. It isn’t though. It’s the political equivalent of saying, “OH MY GOD, WHAT’S THAT BEHIND YOU?” then running away when you turn around. That particular favourite phrase is not what I am going to spend time talking about because no one believes it anyway. Despite the government’s best efforts, no one is actually dumb enough to agree that they don’t need to be accountable for their policies.

They did come up with another favourite line, however, that narks me even more than this one because a lot of people do actually believe it. When someone mentioned government spending they said something like this:

It was the irresponsible spending of the last government that got us into this mess in the first place…

And the thing that annoyed me more than them wheeling out this spin-doctor nonsense for the thousandth time was that no one else on the panel directly challenged it. If I’d been on the panel, (I was on holiday so they had to go with Steve Coogan as the non-politician), I would have directly challenged it. I would have directly challenged it because it isn’t true. It is a lie and when politicians say it they are lying. This, ladies and gentlemen is The Debt Fallacy, the widely-held belief that UK government debt caused the financial crisis.

Before we delve into what actually did cause the “mess”, let’s see why this is a fallacy by looking at UK government debt between 1997 when Labour took office and 2007 when the financial crisis started. (Source IMF)

National Debt of G7 Countries as % of GDP

Yes, not only was borrowing significantly lower in every single year than everyone else in the G7, it was actually lower in 2007 than when Labour took office ten years earlier. Staunch Conservatives will no doubt be hugely disappointing that there is no marked increase in UK government debt in that graph. Don’t worry, just for you I’ve done another one for just the UK with the previous five years under John Major added in. Now you can see a government who did oversee a marked increase in the national debt. I’m nice like that. Don’t mention it.

UK National Debt as % of GDP

So you can see why the government’s claim about a debt-fuelled spending binge is a lie. This level of public debt clearly didn’t cause the financial crisis. So what did?

The cause is actually fairly simple. Banks make profits by borrowing money and then investing it. Their profit comes by getting a higher return on their investments than they have to pay on to the people from whom they borrowed the money. For example if I put £100 in a bank account the bank might pay me 1% interest and then invest that £100 in in a scheme that makes them 5%. Simple enough.

Banks though, like any other businesses, want to compete against one another – they want to make the biggest profits for their shareholders and show everyone that they are the best bank. This is what caused the crisis.

Over time, banks became increasingly competitive and concerned themselves more with trying to make the biggest profit and less with the risks associated with what they were doing. With the £100 I put in my bank account they could invest it in something safe and make 5% or they could invest it in something risky and make 10% or 15% or 25%! The more risky the investment the more return it could yield. No bank was going to invest in something risky if its likely return was less than a safer alternative and so risk equalled reward. Competition between banks, all vying for the biggest profits, led to riskier and riskier investments and nowhere was this more prevalent than housing. It became possible for people to borrow crazy amounts of money to buy a house, even if they had poor credit worthiness. This irresponsible lending fuelled housing bubbles all over the world. Here’s how Florida house prices changed in the four years prior to the financial crisis.

Florida House Prices (Q4 2002 = 100)

In just four years they increased by almost 80% and people’s wages were definitely not increasing at anything like that rate. In short it was unsustainable. There is a useful principle in economics called Stein’s Law after the late American economist Herbert Stein and I wish more people had paid attention to it in the pre-crisis years. It says simply this:

If something can’t go on forever, it will stop.

Stop it did and we all know the rest. In hindsight it’s easy to look back at this and say that the banks were lending irresponsibly but much harder to say why they didn’t they realise it at the time. The only explanation I can offer is that they were too concerned with out-performing one another and not concerned enough about the risks involved until it was too late. Like a gambling addict who’s had a good night but doesn’t know when to quit, the banks didn’t want to think about Stein’s Law.

Essentially the positions they took on the housing market assumed that:

House prices always go up
Mortgage defaults are pretty rare

On the first point the banks thought, “Even if this individual doesn’t repay their 120% mortgage, the house will be worth more than that in a couple of years, so where’s the risk?”

On the second point they seem to have committed a really basic error in their probability calculations. Imagine I have lent to 5 risky individuals. The chances of any one of them defaulting on their mortgage is 5%. Therefore the risk of all of them defaulting on their mortgages is:

5% x 5% x 5% x 5% x 5% = 0.00003125%

But those of you who remember your GCSE maths will recall that you can only multiply probabilities together like this when they are independent. For example if the probability of a person having a beard is 20% and the probability of someone being female is 50% the probability of a lady having a beard is not 10%. (Unless of course you work in a circus.)

Similarly, the chances of individuals defaulting on their mortgages are not independent. When an economic downturn occurs, unemployment rises, incomes drop and lots of people all suddenly can’t repay their mortgages at the same time.

Banks, in their bid to out-profit each other, took huge positions on the housing market. They were betting that economies would grow and house prices would go up. It had been so long since the economy had been through a really serious downturn that they had forgotten the lessons of the past. The resulting crisis shows that so confident were they in endless economic prosperity, that none of them had a Plan B in the event of a downturn. The global economy isn’t like that though and if economic history has taught us anything it is that bad things have always eventually found a way to happen and by the time the banks spotted the bubble was about to pop it was too late.

Banks weren’t just lending irresponsibly on mortgages though. People took cheap loans and were able to borrow more than ever before on their credit cards. Banks were so desperate to lend that they offered amazing deals to secure our credit card debts. Fee-free transfers, interest-free balances for 12 months etc etc and the same thing happened – all of a sudden lots of people were unable to make repayments at the same time and the banks had no fallback.

This had a short term effect of making the banks insolvent and governments world-wide were forced to bail them out. While this solved the short-term problem there was another problem that almost six years later remains unsolved.

When economies around the world turned bad, people were left with mortgage debt, loan repayments and credit card bills that were ridiculously high. Those lucky enough to keep their jobs switched overnight from not worrying about their personal debt to worrying only about their personal debt. The thousand pounds they had on their credit cards was no longer something they could kick into the long grass and assume they would just pay it off later. Seeing their friends and co-workers losing their jobs made the risk of redundancy a reality.

This shock led to a very sudden and very dramatic change of behaviour. People moved almost overnight from spending to reducing their debt. Even those who had avoided running up debt became very worried about how little they had tucked away for the hard times and moved from spending to saving.

In the economy your spending is my income and my spending is your income. When everyone stops spending at the same time the consequences can be catastrophic. I say “can be” because a responsible government could plug the gap by increasing public spending but in most cases they didn’t, hence it was catastrophic, hence the depression. (I like saying “hence”. I think it makes me sound all knowledgable.)

So that’s how it happened and that’s the real reason we are in a depression and it had nothing to do with UK government debt at all.

There is a good argument that the previous Labour government should have spotted what the banks were up to and should have done something to address it. Although the banks caused the crisis, the previous government was asleep on the job while this was going on. If the current government were pushing that argument they would have a valid criticism but they aren’t because although it is the truth, it doesn’t pin all of the blame on the previous government.

Politics aside, the years before and since the crisis really are a shameful and embarrassing period in economic history. A first year economics student taking their first macroeconomics module will learn that government spending increases economic growth and that it works best of all when the economy is suffering from a lack of demand. They will learn that my spending is your income and your spending is my income. They will learn that if your spending disappears my income does too. They will learn about economic cycles – the economy will go down as well as up, so plan for it.

Sadly these are lessons that the current government has either not learned or has simply chosen to ignore. Simple enough as those lessons are, it’s sadly far more convenient for them to just propagate The Debt Fallacy.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with Debt, Economics, Politics

Depression

25/04/2012 4 Comments

Do you remember that time that Alistair Darling did that terribly apolitical thing of trying to tell the truth and said there was a recession coming that would be the worst since the Great Depression? And then Gordon Brown “unleashed the forces of hell” on him? I think in hindsight, there are a couple of interesting points to make about this event.

The first one, which is important to Christians, is that the forces of hell are clearly far weaker than we were taught at school. As we can see from this recent interview, Darling is alive and well, having suffered little more than a minor singeing of the eyebrows.

Secondly, we can say that Alistair was wrong. The Office for National Statistics published their quarterly Economic Review today and conveniently it contained some figures comparing the current economic cow-pat with that of the Great Depression. The below graph shows their results of comparing quarterly GDP against the pre-crisis peaks. The red line shows how GDP has changed since Q1 2008. The blue line shows how GDP changed for the equivalent period in the Great Depression (starting at Q1 1930).

(I have added a green dot to show when David Cameron came to power.)

Darling got it wrong because the current depression is actually worse than the Great Depression. By this stage in the Great Depression, the UK was going through a period of significant economic growth and had already passed the pre-crisis peak. The UK’s current GDP is still 4.3% lower than it was at the start of 2008.

The report said also, as you have probably heard today, that the UK economy has now contracted in two consecutive quarters and therefore, by the government’s definition, we are once more in recession.

If the government had achieved 0% growth as opposed to -0.2% in the first quarter they would have avoided recession and the media would be reporting it as such. The media, I feel, often puts so much weight on whether we are in or out of recession that we are essentially missing the big picture. Look at the red line on the graph above since David Cameron was elected and you see the real picture. We might be technically sometimes in growth and technically sometimes in recession but what we are actually in is a sustained period of economic stagnation.

Predictably, Cameron and Osborne have each made statements today saying that they will be strong in the face of the recession and stick with their current policy of reducing government spending. It makes me want to weep. Recession, stagnation, whatever you want to call it, this situation was caused by them. The government’s fiscal policy since they took office has been the exact opposite of what was needed to create growth in the economy and the effects are there for all to see.

When proposing a stimulus, I am often told that spending more would send us into a recession! Well, without spending more we’re now back in one but nevertheless I will explain my stimulus thoughts in a bit more detail.

Let’s take a look at say, renewable energy. By 2020 we are legally obliged to have 20% of our energy consumption coming from renewable energy. How’s that going to happen? Well it won’t happen without investing a lot of money building wind farms, tidal power stations and the like. This is money we need to spend anyway – we have agreed to be legally bound to the target. Why not bring the investment forward and spend the money now? The difference in government debt between spending the money now or in a couple of years is nigh on nothing and believe me, we won’t even get close to that target if we don’t get our arses in gear.

Or how about schools? I find it hard to believe that there are not thousands of state-funded schools not needing their ailing buildings, classrooms, gymnasiums fixing and rebuilding.

As you can see, I am not promoting the idea of spending money on things we don’t need – we need to do these things anyway so this money has to be spent sooner or later. All I am proposing is spending it now, at a time that we have economic stagnation and lots of people waiting for the jobs that such spending will create.

The government chose to implement a policy that opposed basic macroeconomic theory and that policy has had exactly the effect that basic economic theory predicts – depression. So how could they have got it so wrong? How could they not see that the fiscal policy they were pursuing was not just erroneous, it was completely irresponsible and entirely negligent?

One may as well ask, how could they not see that cutting tax on the rich at the expense of the poor was a terrible idea? Or, how could they not see that selling places at the Prime Minister’s dinner table in return for influence over government policy, was both morally and democratically abhorrent?

The answer is both surprisingly simple and hugely depressing. This government, (as with many other governments throughout history and throughout the world), did not come into power, assess the circumstances and devise the best possible policies to benefit the population and the country as a whole. They came into power with a particular idea of how they wanted the country to be. It involved private health care, lower taxes on the rich and yes, low government spending.

The fact that basic economics said that cutting spending would screw the economy was totally irrelevant. They probably knew it would. Their efforts have not gone into putting good policies into being but have instead gone into trying to make the country into their Etonian Utopia. They have cleverly coupled this with a massive campaign of bad marketing to mislead the electorate into thinking that all of these things are necessary. They know that economics is not a subject that is easily understood by the majority of the public and know they can use this to their advantage.

In forcing through the changes they wanted to make anyway, they have unnecessarily caused a depression on a scale not seen in recent history. As a direct result of these policies, people have lost their jobs and people have lost their houses.

If the 1930s was the Great Depression, then our current day situation will surely be looked on in history as the Even Greater Depression.

And the most depressing thing of all is that this was completely avoidable.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with Austerity, Cameron, Depression, Economics, Fiscal Policy, Recession

Economic Bloodletting

19/01/2012 7 Comments

In older times bloodletting was a common medical practice. A doctor would treat a poorly patient by pumping out a few glugs of blood in the hope that it would cure them. The patient would then decline a bit and the doctor would say, “It’s more serious than we thought!” And he’d pump out some more blood. The patient would then get even worse and this bizarre cycle would continue, often until the patient died, at which point the doctor would say, “Well we did our best but they were clearly beyond saving.”

In 2010, the coalition government inherited a poorly economy. (Can you see where I am going with this?) They decided that what it needed was less spending. Less spending they claimed, would have the economy back on its feet in no time.

They predicted that with some much needed spending cuts, economic growth in 2011 would be 2.6%. Then a couple of months later with an even more sickly economy they predicted that with some more spending cuts, 2011 would enjoy economic growth of 2.3%.

November 2010 came though and the patient had deteriorated. 2011 economic growth was now predicted at 2.1% – despite economic bloodletting things were looking bleak. What this patient really needed was… bloodletting.

By March 2011 they had downgraded the annual growth from 2.1% to 1.7% but maintained that the patient’s only hope was spending cuts.

By November, the annual growth prediction was downgraded to 0.9%. We’ll soon see what the real figure was but it is clear that like the quacks of ancient times, the government is unwilling to recognise that there is any link between the treatment and the illness.

Some will disagree that this policy had anything to do with the worsening economy. What is indisputable however, is that the government’s policy of austerity has not led to the economic benefits that they predicted it would.

So let’s think about an alternative policy. Another option is that when the economy is weak we should pursue policies that encourage economic growth and employment. When unemployment rises, there are two immediate consequences. Tax revenues drop and government spending on benefits increases. Then public spending decreases because fewer people have money to spend, and those in employment save more because they are worried about rising unemployment. When public spending decreases, the economy weakens further, the whole thing becomes self-perpetuating and if unchecked we end up where we are today in an economic depression.

The government would say that you can’t spend your way out of recession. They say it all they time. It’s entirely incorrect though – government spending increases economic growth. So a better way of doing things might be to increase spending during a recession and then cut it back once the economy had recovered, employment had gone back up and tax revenues had gone back up. You could also supplement this with some taxes on the wealthy. So we have found a policy that is better than the government’s. Great! Let’s get ’em!

Oh, hold on. Where’s the opposition gone?

Oh dear.

The Labour party it seems, have decided not to take a stance against the spending cuts. Well, I think they have decided that. If I’m honest I’m not absolutely sure. For the past 18 months they have sort of said that they oppose them but have never really laid out a clear alternative. Now Ed Balls has decided that they would not commit to reversing spending cuts whilst maintaining that the government is cutting “too fast and too hard”.

Well I am confused. If they think we are cutting “too hard” but wouldn’t change the policy of cutting exactly this hard then what exactly are they proposing? Labour seems to have moved from a bit wishy-washy to some bizarre conflict of agreeing with government policies whilst saying they are bad.

If I were Ed Miliband, every time David Cameron said during PM’s Questions, “you can’t spend your way out of recession!” I would stand up and read bits out of a first year Macroeconomics text book to him.

And it doesn’t stop at economic policy. Opposition to the government’s proposed health care reforms have come more from doctors than they have from the Labour party despite the government’s argument being shown to be based on completely false statistics. We have a Secretary of State for Education who thinks we should fire more teachers for poor performance. If I were in opposition I think my criteria for firing secretaries of state would include trying to spend £60m on a boat for the Queen and £400,000 on personally inscribed bibles.

In my frustrated state, I am quickly running out of parties to vote for:

The Conservatives – Implementing poor policies with no end in sight
The Labour Party – Unable to convey an alternative
The Lib Dems – Presumably I don’t need to explain
UKIP – Xenophobic
BNP – Racist
Green Party – In no way prepared for government but might have to look at them now

Ed Miliband’s time is running out to provide coherent opposition to what is going on. He was a good politician in government but for whatever reason he has been positively ineffective in opposition. A recent poll said that the UK public trusted the coalition more on economic policy than they did the Labour Party. I am in no way surprised by this. While I think the coalition policy is bad, it is at least coherent and clearly communicated. Rather than think of a better one, Labour seems to have given up and said, “That’s popular, let’s say that too!”

And say it they did. In a completely incoherent way.

The Conservatives might be poor when it comes to forming policies to gain economic growth, put people into jobs, or improve education and the NHS but never underestimate their brilliance when it comes to making a crap policy sound like common sense.

It is a fragile brilliance though and as their dumb marketing machine rolls forward we can see quite a few gaping holes at which to aim our wrath. I really do believe that a few carefully placed, well-argued policies could derail the whole thing but sadly I see no sign of them on the horizon.

And so, I am making one last, desperate, heartfelt plea:

Could the real opposition please stand up?

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with Austerity, Bloodletting, Economics, Fiscal Policy, Labour, Politics

Creationist Economics

13/10/2011 13 Comments

Evolution is truly amazing.

The are two reasons I think this. Firstly, just look at the wonderfully diverse range of organisms to which it has lead. Elephants, dolphins, giant redwoods, kangaroos, scorpions, sharks, squid, salmonella, venus fly traps, honeybees and naked mole-rats. They are all stunning examples of what evolution has caused.

The second reason I find it amazing is that it is so simple:

An individual’s offspring will share similar traits with that individual
An individual with beneficial traits is more likely to have offspring
Therefore more beneficial traits are more likely to be passed on from one generation to the next than less beneficial ones

That is pretty much it and all you need to add is a bit of time.

A friend of mine disputed evolution recently, on the basis that the species we see today are just too complex to have come out about through such a process. This is how I thought about it. (This is probably why I don’t have many friends.)

Suppose that a particular species has a one year lifecycle and on average each new generation is about 0.001% better than the previous generation. It’s a very small amount – one one-thousandth of one percent better.

Over a period of 1000 years you would notice little difference – the current generation would be about 1% better than they were 1000 years ago. It’s very similar to compound interest – invest £1 for 1000 years at a rate of 0.001% and you will get £1.01 back at the end. Look at this though:

After 10,000 years it will be worth about £1.11
After 100,000 years it will be worth about £2.70
After 1,000,000 years it will be worth about £22,000
After 2,000,000 years it will be worth about £485 million
After 3,000,000 years it will be worth about £10.7 trillion
After 4,000,000 years it will be worth about £235 quadrillion

Back in terms of our evolutionary example, our species that improved at a thousandth of a percent per generation is 235 quadrillion times better than its ancestor of 4 million years ago whilst being virtually indistinguishable from its ancestor of a few thousand years ago. Pretty cool.

Of course, like my friend, not everyone believes in evolution. Some favour Creationism. In Creationism you assume that there is a supremely intelligent being who made a supremely brilliant strategy for the development of species at the start of things and everything worked out from that brilliant strategy.

Now, I can hear you all saying, “That rabbit has really lost it this time, what the hell is he talking about now? I was expecting some sexy economics shit not a biology lesson.”

I am coming to that. I am a big fan of something that has come to be known as evolutionary economics. It works like this:

Suppose you want to achieve a certain outcome over a period of time in an environment with many unknowns. One way of doing it would be to work out the perfect strategy at the start and then run with it. Evolutionary economics would suggest that a better way of doing it would be to continually monitor and adapt your strategy, keeping the things that are working well, and replacing the things that are working badly with new things. Some of the new things will work and they’ll be kept. Some of the new things won’t work and they’ll be binned and replaced. Perhaps some of the things that worked well a while ago will stop being beneficial later. That’s fine, they’ll be adapted too. By doing this, the strategy continually evolves, adapting to the successes and failures along the way in order to ultimately succeed.

I strongly believe that in a complex environment the very best way to achieve success is by continually reviewing and adapting strategy. I do not believe that the very best way to achieve success is to come up with a strategy at the start and never adapt it in spite of how well it does.

Some people do though and they’re called politicians. When the Conservatives won the last election they did so partly based on the promise that they could cut spending and also achieve economic growth. The economic growth though, for one reason or another, has not materialised.

Some people will say, “You big muppet, George Osborne! You said we’d have economic growth and we didn’t! Your strategy was all wrong!”

I don’t agree with this way of looking at things. Sure, he’s a muppet but we are talking about the deployment of a strategy in a complex environment. The behaviour of the UK economy is not easily predictable – a huge number of unpredictable factors influence it. It is complex. His failure is not in his initial strategy, it is in being unable to adapt his strategy based on how well it is actually doing.

Imagine you are watching a horse race and horse number 3 is in the lead. You might say, “I think horse number 3 will win this race.” It would be a fair prediction. Horse number 3 might then take a fence badly and be overtaken by horse number 5. You might then say, “I think horse number 5 will win this race.”

You give your best judgment at a particular point in time and if the situation changes, you adapt your judgment. A politician does not do that though. When horse number 3 was overtaken, a politician would still back horse number 3 because that was what they said first. Horse racing is a brutal industry – when horse number 3 fell at the next fence, broke its foot and was shot by a vet, the politician would still back it to win.

In contrast to evolutionary economics, I have developed my own term for this kind of thinking – Creationist Economics. It’s impossible to get everything perfect first time around but politicians it seems, believe their strategies represent some kind of intelligent design.

At last week’s Conservative Party conference the general economic theme seemed to be, “We must keep doing what we’re doing because you can’t borrow your way out of recession.” (That’s actually not really true. You can borrow your way out of recession you are just left with more debt afterwards. What you can’t do is cut your way out of recession.) Either way, I am moving away from my point. George Osborne, favouring Creationist Economics, refuses to accept that his strategy has not realised the growth that he forecasted and instead stands by his policies through what I can only interpet as a matter of faith.

Of course, George isn’t the only disciple of the church of Creationist Economics. The Health Secretary, Andrew Lansley has an idea to reform the Health Service. Because the communicated benefits of his policy turned out to lack any basis in fact he had to work hard on a campaign of misinformation. (This is always preferred by creationist economists over accepting their strategy was wrong which is considered blasphemy.) Lansley found a couple of facts that if taken out of context he could use to make his strategy look like a good one. He didn’t exactly lie but he did intentionally mislead people, which I think is every bit as bad.

Let’s have a look now at Theresa May. Theresa’s new policy is scrapping the Human Rights Act. Unsurprisingly, this has come in for a huge amount of criticism from all sides. Like Lansley before her, Teresa was forced into telling a fib in order to maintain her creationist ideals. See if you can spot the fib:

What Theresa said:

We all know the stories about the Human Rights Act… about the illegal immigrant who cannot be deported because, and I am not making this up, he had a pet cat.

What Theresa said minus fib:

“We all know the stories about the Human Rights Act… about the illegal immigrant who cannot be deported because, and I am making this up, he had a pet cat.”

Let me summarise my thoughts:

It is not possible within a complex environment to devise a perfect initial strategy.
It is therefore necessary to monitor and adapt a strategy in order for it to be ultimately successful.
Politicians deny these things as they are creationist economists

You may not have realised this but most likely you are an evolutionary economist. Suppose you are making your first ever Sunday roast and when making the gravy you decide how much corn flour to add and it all goes thick and lumpy. Next time you do it you learn from your failed strategy and add less corn flour. Congratulations, you are an evolutionary economist. Would you ignore the evidence and continue to put the same amount of corn flour in your gravy forever? If so then you are a creationist economist.

To me it seems clear that our politicians are not governing our country in a particularly efficient way. It’s not just the current government – the opposition parties would and do embrace their own creationist themes. My complaint is with no particular political party it is with our system. If a politician tried evolutionary economics the media would crucify them for “flip-flopping”. It is much more beneficial for a politician to just get it wrong to start with, never waver from being wrong and spend their time and effort on misleading people into thinking they are right.

And while this is the case, we will all have to endure poor political strategies and politicians will have lumpy gravy every Sunday.

RedEaredRabbit

Filed under 10 Posts You Should Read, Economics, Politics Tagged with Andrew Lansley, Economics, Evolution, Evolutionary Economics, Politics, Theresa May

Politicians & Petitions

31/08/2011 4 Comments

Where I live in London it is free for someone to park a car on the street. My local council however, has recently been debating whether or not they should start charging people for this privilege. A couple of months ago a man knocked on my door. He was asking people to sign his petition to say “No” to paid parking. I didn’t sign it. I will explain why but not immediately. I never explain myself immediately. First I want to philosophise.

Democracy is the worst form of government. Except for all the others that have been tried.

I don’t know who said that but it’s quite good and I hope they gave themselves a big pat on the back afterwards.

I haven’t bothered looking up the definition of democracy but I suspect that if I did it would say something about everyone’s opinions being equal. If that’s the case then no country should really consider themselves a true democracy. The United States, for example, markets itself as the greatest democracy in the world. It isn’t though. It is sort of a democracy in that everyone is allowed to vote but are their opinions really equal? No. They’re not even close.

We can see a good example of this by looking at the US sugar subsidy. The US government guarantees American sugar producers a minimum price for sugar. This guaranteed price is way above prices on the world market. Why can’t people just buy sugar from overseas producers? The US slaps a big import tariff on imported sugar to ensure it can’t be cheaper than the home grown alternative. This means that US citizens pay much more for sugar than they should. A 2006 Department of Commerce study estimated the cost to US consumers was about $2bn per year. This is great if you own a sugar manufacturer in the US but bad if you live in the US and don’t own a sugar manufacturer (that’s most people who live in the US).

This subsidy gives benefits to a few at a cost to many. So why is it in place? The reason is fairly simple – the people who stand to gain from this are a well-organised group who will gain a lot each. The people who stand to lose (the American public) are a much bigger but less well-organised group who will lose a small amount each.

The well-organised people lobby the government, fund political campaigns and offer block-votes from their unions. A presidential candidate would be a bit silly to say they were going to repeal the subsidies if it meant that their opponent got lots of extra funding to their campaign plus some block votes from a few thousand union members in a swing state like Florida.

A democratic approach would be to ask Americans if they wanted to pay twice as much for sugar as everyone else does. I suspect the outcome would be different.

We can therefore see that even in the world’s largest economy, a true superpower which prides itself on the democratic basis of its constitution, people do not get an equal say in things. Their voting system is completely manipulated by organisations. I use the word “organisations” here because the real problem is that an organised group of people wield far more power than a disorganised group of people. It’s essentially how trade unions unfairly skew things in their own favour at the cost of everyone else.

Dave “Web” Cameron’s new policy of e-petitions is very susceptible to this problem. Get 100,000 signatures on a petition and it will automatically be considered for debate in the House of Commons. Does this make it the will of the people?

100,000 is equal to 0.16% of the UK population. That’s right – get 0.16% of the UK population behind you and suddenly your cause is being debated in Westmister’s highest echelons. A petition is often considered to be a reflection of public opinion but it is nothing of the sort. Petitioners have already decided the opinion they want their petition to reflect and therefore they:

Only reflect one side of the argument when asking people to sign it
Discard opinions of people who disagree with them

There are in fact very few proposals for which you could not get 100,000 signatures if you are organised. You just need to ask enough people and you’ll get there. If you want to save time by asking fewer people you can certainly help yourself along the way.

Do you remember when I proved a correlation between people who like jazz and people who like sushi? As I subsequently admitted, I had in fact proved nothing at all. Although my data appeared to show a statistically significant correlation, I had in fact achieved this brilliant result by violating some simple survey rules:

I did not have a random sample
I influenced the results of voters by telling them what I hoped to achieve.

I achieved a statistically significant correlation from a couple of hundred responses, just by violating these rules. I didn’t discard votes that went against my favoured result though so it was still better than a petition.

The government though, by promoting e-petitions, think that they are somehow opening a channel to hear the voice of the people. Petitions don’t do that though. A successful petition has little to do with the will of the people and a lot to do with the strength of the organisation behind the campaign. To get 100,000 votes (0.16% of the UK population) on your petition you could have a good argument but you could very easily obtain this with a bad argument as long as you knocked on enough doors.

So, why didn’t I sign the petition for free parking that the nice man brought to my door? He didn’t provide enough information. I asked how much the council would raise through this proposed initiative. He didn’t know. If the council raises money through the scheme then it might mean a lower council tax or better services for me. How could I possibly sign such a petition? I would have no idea whether it was good or bad for me.

It didn’t matter though. In his survey, people who wanted parking charges, people who didn’t know whether they wanted parking charges and people who were not at home on the day they called were all treated in the same way – ignored.

Please don’t misunderstand me. There are many very worthwhile campaigns which petitions help to promote. My argument is simply that I have a lot of trouble taking a petition’s argument into account because, when relying on petitions, I have no way to distinguish a worthwhile campaign from a non-worthwhile campaign. Petitions simply don’t provide enough information for me to tell if it is the will of the people or not.

If, as the government would like, we all decide to put our faith into e-petitions then all we are doing is putting our faith into the best organised purveyors of public campaigns. You already know who they are – the tabloids. And when do they ever give you a balanced argument? If The Sun did a ‘Death to Peados’ petition it would get 100,000 signatures. If the Daily Mail did a ‘No Jobs for Foreigners’ petition it would get 100,000 signatures. If the Daily Express made a ‘Clone Diana from her DNA’ petition, it would get 100,000 signatures.

The promotion of e-petitions as the voice of the people is not a vote for democracy; it is quite the opposite – a transfer of power from the people to small organised groups with an agenda. All this is doing is putting our faith into The Sun, The Express and the Daily Mail to make our arguments for us.

If you think that’s a good idea then please – don’t sign here.

RedEaredRabbit

Filed under 10 Posts You Should Read, Politics Tagged with Government, Petitions

How the Yes was Lost

12/05/2011 6 Comments

Why do X-Factor winners sell so many records? Why does JK Rowling sell so many Harry Potter books? Why do people drink Actimel or Stella Artois? Why do people wash their hair in Pro-Vitamin-A-Anticomplex-Regenerise-Maxi-Revitaliftium-4?

Ladies and Gentlemen – I give you Marketing.

Concentrate, here comes the science bit. There are two types of marketing:

Good Marketing

Good marketing is when a marketing message supremely shows off particular aspects of a product such that lots of people want to buy it. Importantly, good marketing must not omit any weaknesses in the product that the consumer would not reasonably expect.

It would not, for example, be good marketing to tell people that a new drug solved high blood pressure while at the same time omitting to tell them it would make them incontinent. It would not however, be a violation of good marketing if they didn’t mention that the drug tasted nasty. A consumer would not reasonably assume their potentially life-saving medicine would taste yummy but they might not expect to be continually pooing their pants.

Bad Marketing

Bad marketing is far worse than simply failing to mention that a drug might make you incontinent. Bad marketing is when the message gets so far ahead of the actual benefits of the product that is being marketed that is misleads people into thinking it has benefits that it does not.

Got it? Good because it’s quiz time.

Do people buy Harry Potter books because of good marketing or bad marketing?

I’ve never read a Harry Potter book. I’m sure they’re fine. I doubt though that they are hugely superior to every other book written in the last 1000 years, as their revenue would suggest. This phenomenon however, is because of good marketing. Nothing was misleading; they simply did a much better job of getting the message out about their books than anyone else did about their equally good or better books.

Do people buy X-Factor records because of good marketing or bad marketing?

Hopefully most of you answered bad marketing. The music is always terrible but people buy it because millions of pounds are spent on making people believe it is good when it isn’t. If my mum sang Agadoo on primetime TV every Saturday night to applause from Simon Cowell she would sell records. It wouldn’t make it good.

I don’t want to sound like I’m superior and immune to marketing. I’m not. After all, I have an iPhone. When I bought it I never even looked at any other phones for comparison. There are much more affordable phones which are very similar. An iPhone costs something like £35 a month for 18 months plus £100 up front. £730! A logical thing to do would have been to compare it with a similar smartphone that cost £25 a month and nothing up front (a saving of £280). I didn’t though. Why? Marketing.

At some stage I have been subliminally convinced that iPhones are a billion times better than all other phones so I didn’t bother looking at the alternatives. The reality is that they are a little bit better but are they really £280 better than the second best phone?

In moments of clarity, I can grudgingly admit this to myself but if I had to get another phone tomorrow I would again go straight to the phone shop and buy an iPhone without looking at the alternatives. This is the power of marketing. It can make people who are otherwise rational completely irrational and if marketing were motor racing, Apple vs other phones would be Ayrton Senna racing against my mum.

(Yes, that’s the second time I’ve mentioned my mum. She gives me £1 every time she gets a mention in my blog.)

iPhones represent good marketing though. Apple don’t make anything up but they tell the truth in such a clever way that people really, really want to have their products.

Actimel? Hmm. I don’t want to get sued. In my personal opinion, Actimel is an example of bad marketing. This is because I believe it (and Danone etc.) makes carefully worded claims from which people infer health benefits that I don’t believe are really what they will receive. This article goes into it in a bit more detail.

Stella Artois – good marketing. It doesn’t taste better than other lagers, in fact it’s not really particularly nice but it outsells everything. It doesn’t even claim to taste better; it claims to be more expensive, which it is. It’s “Reassuringly expensive.”

Now that’s clever. It might not taste great but be reassured that you paid more for it than the nicer tasting alternative. Rationality completely out of the window. I sincerely hope that the Head of Brewing at Stella Artois is stinking poor and the Head of Marketing is stinking rich. It is pretty clear who does the better job.

Onwards and downwards. Bullshit shampoos? Scientists in lab coats talking about imaginary scientific breakthroughs while computer simulations of imaginary molecules start miraculously rebuilding damaged hair, almost as if the imaginary recipient had stood on their head in an imaginary bath of imaginary stem cells for a month. Bad marketing.

So, we have seen examples of good marketing and we have seen examples of bad marketing. The above examples of bad marketing though, are the work of mere amateurs. When you become really good, no – when you become exceptionally good at bad marketing, you are given a job as a politician.

When I first wrote about AV in February my final conclusion was:

There will be a massive campaign of misinformation that will significantly influence the choice of voters.

There was too – on both sides. The politicians campaigning for Yes to AV made very little attempt to accurately reflect its benefits in comparison with FPTP. They resorted to bad marketing.

Unfortunately for them they were far worse at bad marketing than the No to AV campaign. The bad marketing on that side was truly something to admire. Honestly, if they put that much effort into sorting out the economy and the environment we’d all be laughing.

We were told that AV was so complicated that none of us would understand it. Amazingly lots of people took this at face value. There’s a bloke I work with who thought this and he’s really very intelligent. Are we all so challenged that we cannot put a few choices in order of preference? I would hope not.

In fact, I would go as far as to say that a person who can’t understand AV probably can’t understand the relative merits of the policies of the candidates between which they are choosing.

For example, I am told by David Cameron that I am too stupid to understand AV but, at the same time, it should be blindingly obvious to me that spending cuts, VAT rises and restructuring of the NHS are no-brainers. They aren’t though – they are really much more complicated. If I am too stupid to understand how to rank candidates in order of preference how could I possibly be clever enough to understand the overall impact on the economy of raising VAT to 20% vs keeping it at 17.5%?

We were told plenty of other things that were all a result of a brilliant use of bad marketing. I was impressed when looking at each one individually but if I take a step back and look at the whole thing together it truly is a work of art. It is abundantly clear that a huge number of people spent a huge amount of time working on one of the most intricate examples of bad marketing that our nation has ever seen.

Many people voted No to AV because bad marketing told them that AV would mean Nick Clegg in government. How brilliant is that?

You should all vote in favour of the current voting system (which put Nick Clegg in government) because otherwise it might mean Nick Clegg in government!

But people bought it. It didn’t make any sense but it didn’t matter – rationality is absolutely no competition against bad marketing.

Let me take a moment to make something clear. If you felt you had a good understanding of the good points and bad points of both electoral systems and voted No to AV then I have absolutely no problem with your decision. My gripe is not with you. My real gripe is that the majority of the public was not given enough information on the good points and the bad points of each system to make an informed decision.

The politicians agreed to allow the country to choose their voting system and then spent all of their time and effort concocting nonsense to confuse and mislead everyone.

It was truly shameful but it was nothing more than we have come to expect – just have a look at my previous blog on NHS reforms. Like it or not, we live in a society where a politician’s job title is firstly, Director of Bad Marketing and a distant second is Secretary of State for Something or Other.

I wrote this blog post simply to highlight this problem and I don’t have a solution. The politicians have no incentive to give us the real facts so solving the problem would mean everyone ignoring what politicians told us about their policies and forming our opinions independently. “I already do this!” you shout and perhaps you do but your vote is much trickier for them to spend time winning than that of a person who doesn’t.

And as long as a significant proportion of the electorate has their vote decided by bad marketing over rationality, a politician has no reason to change their behaviour. Unless, of course, we decided to change to a fairer electoral system.

Oh. Damn.

RedEaredRabbit

Filed under 10 Posts You Should Read, Politics Tagged with Alternative Vote, First Past The Post, Marketing, Politics

Pizza and Electoral Reform

17/02/2011 27 Comments

Politicians have recently been spouting a lot about the inefficiencies of the public sector. Well if it’s true, no better example could surely be found than the politicians themselves. After literally months of hundreds of them pissing around at our expense they finally decided yesterday that there would be a referendum on electoral reform. In the referendum we will be given two choices and asked to vote for the one which we think is the fairer system of electing future governments. The choices will be:

First Past The Post (FPTP) – our current system
Alternative Vote (AV)

I will be honest – I don’t know which system is fairer and that is a bit of a problem. I don’t consider myself badly informed with what is going on in the world. I am reasonably good at maths yet still I don’t know off the top of my head which system is fairer.

This is a problem not because of my personal dilemma but because I strongly suspect that I am not alone in not knowing which system is fairer. I am fairly sure there are a large number of people in the country who, like me are going to be asked to decide something they don’t have the information to properly decide.

Yesterday, I asked my Twitter followers which system they preferred. It looked like this:

Wow – almost 1 in 3 of us don’t know. If you are one of those people then look no further. I am going to work it out here on this blog and then we’ll all know. Hoorah! So let’s do it with an example.

15 friends are ordering a pizza to share from The Very Big Pizza Company. There are three options:

Meat Feast
Pepperoni
Margherita

Between them they need to decide on which pizza to get and so they take a vote. Their preferences look like this:

The voters

Summarised, their preferences look like this:

Voters

If they use a FPTP system then only their 1st choice preferences are taken into account so, with six votes, they will get a Meat Feast.

If they use AV however then it works like this:

Round 1

Meat Feast – 6 votes
Pepperoni – 4 votes
Margherita – 5 votes

In AV, Pepperoni with the fewest first choice votes at the end of round 1 gets eliminated and the Pepperoni lovers’ second choice votes are added in for round 2…..

Round 2

Meat Feast – 7 votes
Margherita – 8 votes

Margherita is the winner.

Two different systems – two different results. While we’re here though, let’s look at another system called the Borda Count. In this system 3 points are awarded for a first choice, 2 for a second and 1 for a third. Points are all added up to determine the winner. It’s a bit like what happens in the Eurovision Song Contest.

In this system we find the following:

Borda Count Results

Pepperoni, with 34 points has won.

Three different systems – three different results. So what does all this tell us? It tells us that the voting system we employ can make a big difference to the outcome of the election. With three different systems and the same set of preferences we observe 3 different outcomes.

You might think I intentionally set the group’s preferences such that this would happen. Yup, I did. But it may not be too far from reality. Imagine that it’s May 2010 and Meat Feast is the Conservatives, Pepperoni is the Lib Dems and Margherita is the Labour Party. The different outcomes here have essentially occurred because:

More people preferred the Conservatives as a first choice than preferred either of the other two (but importantly not an overall majority)
The Lib Dems are most often the second choice of both Conservative and Labour voters
Lib Dem voters are more likely to prefer Labour than Conservatives*

* I’m not sure whether this is actually the case but it doesn’t make it an implausible set of preferences.

So I have looked at three different voting systems and they produced three different winners but which is the fairest? Nope, I still don’t know. Let’s keep going.

First, let’s go back to the FPTP system where the group have decided to vote for Meat Feast.

They phone up The Very Big Pizza Company. Before they can place their order, they are informed that unfortunately there are no more Pepperoni pizzas left. Doesn’t matter, right? In the vote Meat Feast came first, Margherita second and Pepperoni came last. The fact that Pepperoni isn’t on the menu doesn’t cause a problem. Or does it?
Anna, on the phone relays this message to the group and they do the FPTP vote again based on Meat Feast or Margherita. Now Margherita wins on the FPTP method!

To me this seems like a big problem. In a fair electoral system, if people prefer Meat Feast to Margherita then the outcome should always reflect this, irrespective of whether or not Pepperoni is available.

FPTP says that if Pepperoni is on the menu then Meat Feast is better than Margherita and if Pepperoni is not on the menu then Margherita is better than Meat Feast!

So FPTP is cack then. Let’s look at the AV in comparison. After the AV vote they phone up The Very Big Pizza company to order their Margherita and find that Meat Feast is off the menu. Now Pepperoni wins. Bollocks.

If AV is a fair system then if it prefers Margherita to Pepperoni when Meat Feast is on offer, it should prefer Margherita to Pepperoni when Meat Feast is not on offer.

Aaargghh. All I have done so far is to find that neither is fair.

When you look at the summarised table of votes above, AV does have a clear problem. Pepperoni had loads of second place votes but these all got ignored because it was eliminated before they could be taken into account. 11 people liked Pepperoni second best but the system treated it the same as if no one had liked it second best.

When you look at FPTP though – it doesn’t just ignore all the second and third place votes for Pepperoni. It ignores, by definition, everything that wasn’t a first choice vote.

My view is that when you need to make a decision about something, you should take as much of the available information into account as possible. AV, while not perfect takes more information into account than FPTP and it is on that basis I think, a fairer system.

Let’s not though, forget about our third option – the Borda Count which we sadly will not get the option to vote for. That system takes every preference into account and I therefore think it is a fairer system than either of the two from which we can choose.

Formula 1 uses something not too far from the Borda Count to decide the world champion. Would Formula 1 be fairer if driver’s second places, third places etc were not taken into account when deciding the World Championship? Bernie Ecclestone thinks so but I don’t. I think a driver with 5 wins, 8 second places and 2 third places has more claim to be World Champion than a driver with 6 wins and 9 races that they didn’t finish.
The Borda Count system is by no means perfect but it allows us to take a lot more information into account than a simple FPTP.

This is not the whole picture though. Even if everyone agreed on the fairest system they would not all necessarily vote in the same way. For a start, some systems are more likely to benefit certain political parties. The Conservatives don’t really think FPTP is the fairest possible electoral system, they just think they will have a better chance of winning a majority than they would with the others. If the party you like the best is going to do better out of a particular system why would you want to vote for an alternative in which they would do worse?

Also, the best system may not be the fairest system. FPTP is the simplest system by far – one cross in one box and you’re done. The more complex the system becomes the harder it is for people to understand and cast their vote. A clever mathematician could come up with a brilliantly fair voting system but if a significant proportion of the electorate didn’t understand it or couldn’t work out how to fill in their ballot papers, it would be worthless.

Some people also praise FPTP for its strength in delivering a majority government with a minority of votes. That doesn’t necessarily sound like a good thing to me but if people really think it is a good thing then why should they not vote for a less fair system in order to achieve it?

Irrespective of these there is something much worse which will undoubtedly have a strong influence on the result of the referendum – the campaign of misinformation which I can see on the horizon, heading for our shores like a giant wave of bullshit. Political parties, unions and other groups will no doubt know which of the two systems benefits them the most and they will undoubtedly be feverishly preparing their campaigns to scare the public into believing that one system means 100 years of darkness to the UK.

On the Today Programme the other day, James Frayne who ran the successful campaign for the Conservative Party to vote No to a North East regional assembly said that because Nick Clegg is so unpopular, the best tactic for the No2AV campaign (yes, they’ve already made a name like a fucking X-Factor band) would be to say if you vote AV you will get Nick Clegg in government again.

It’s shameful that on one hand we will be given a chance to vote to change the electoral system and on the other hand we will be drowned in this kind of crap designed solely to mislead us. Will any political party in the next few months spend time and effort really trying to explain the underlying good points and bad points of each system in a bid to assist the voters into making an informed choice? I hope so but I don’t think so.

So – what have I concluded?

AV has big problems and probably isn’t a great system but it is fairer than FPTP
The Borda Count is fairer than either of them but isn’t available
A fair system is not necessarily the best if it is overly complex to understand
Even if people agree on what the fairest system is they will still not necessarily vote for it
There will be a massive campaign of misinformation which will significantly influence the choice of voters

Well, to be honest, I’m disillusioned by the whole thing now. Bollocks to this. Anyone for Pizza?

RedEaredRabbit

Filed under 10 Posts You Should Read, Politics, Surveys Tagged with Alternatvie Vote, Borda Count, Electoral Reform, First Past The Post, Pizza

Facts Evasion

02/02/2011 22 Comments

When I’m not tweeting or blogging, I sometimes have to do some real work. Last year, I was asked to put together a report to analyse the performance of a particular strategy my company was pursuing and then present it to my CEO and the board.

“That sounds well important,” I thought. So I did this:

I clearly set out what I was going to measure and why
I gathered as much information as possible and analysed it
I accounted for any uncertainties in my measurements
I accounted for any external factors which could have influenced the results
I summarised how the strategy was performing based on these factors and tied it back to the things I said originally that I would measure
I made recommendations as to how we should proceed based on the gathered evidence and uncertainties

While I would like to think I was the first to think of this nice structured way of doing things, in fact I wasn’t. This is just, at a high level, the way you approach changing anything important, even if you’re doing it subconsciously.

If for example you were buying a house, you would not do it this way:

Buy a house
Gather as much information about houses as possible
Selectively discard any evidence which suggested you’d bought the wrong house
Selectively include any evidence which suggested you’d bought the right house
Set out what your house buying criteria were based on the bits of evidence you had not discarded

Well, you wouldn’t do it this way unless of course, you were a politician. Politicians, you see, work in the opposite way to everyone else. Let me explain with an example.

At the moment, the government is proposing a reform of the NHS. This is the evidence they are putting forward for why such radical changes are necessary:

Health Secretary, Andrew Lansley, speaking on PM:

You are twice as likely to die of a heart attack in the UK as you are in France.

Prime Minister, David Cameron, on the same day:

We’ve fallen behind the rest of Europe. We spend similar amounts of money but we’re more likely to die of cancer or heart disease. I don’t think we should put up with a second rate… errrr… with coming second best.

Note he actually almost called the NHS a second rate health service but thought better of it.

Well it all sounds extremely scary. But is it?

John Appleby, Chief Economist at the Kings Fund, London thinks things aren’t quite as bleak as the government is making out and writing in the British Medical Journal he explained why.

Although statistics from the Organisation for Economic Cooperation and Development (OECD) confirm that in 2006 the age standardised death rate for acute myocardial infarction was around 19/100 000 in France and 41/100 000 in the United Kingdom, comparing just one year—and with a country with the lowest death rate for myocardial infarction in Europe—reveals only part of the story. Not only has the UK had the largest fall in death rates from myocardial infarction between 1980 and 2006 of any European country, if trends over the past 30 years continue, it will have a lower death rate than France as soon as 2012.

You see, the government selectively chose one data point on the graph and discarded the rest of the data. This is what the data looks like if you don’t discard the rest of it:

This doesn’t look quite so scary, does it? You see, when you look at all the available data, you get a very different picture. The UK’s death rates from heart disease have been plummeting and if the trends shown in the graph continue, argues Appleby, then we will have a lower rate than France by 2012.

This looks to me, (and John Appleby) like things are going in the right direction with our current system. Also, as Appleby points out, Lansley and Cameron chose quite a tough comparison. France has the lowest death rate from heart disease in all of Europe. A lucky choice, or cherry-picking a number to support an argument?

Either way – good for France, right? Well, not yet. Something Lansley and Cameron didn’t take into account which is absolutely massively important is this:

Are France and the UK using the same criteria to determine their causes of death?

As it turns out, possibly not. Speaking on More or Less on Radio 4 on 21st January*, Dr. Pete Scarborough, a Senior Researcher at the British Heart Foundation Health Promotion Research Group at Oxford University (get a shorter job title) noted that in the UK, if a person with a record of high cholesterol or high blood pressure dies, the coroners are much more likely to record the cause of death as a heart attack in comparison to France where the cause of such a death unless a heart attack is clearly shown to have happened, is generally recorded as “unknown”.

An additional point which Lansley and Cameron failed to mention is death from heart disease has a lot to do with lifestyle. The best way of avoiding death from heart disease is to avoid getting heart disease in the first place. Diet, smoking rates and exercise were all omitted from their conclusion.

Appleby in his article stated:

The trajectory for many causes of death swoops up and down over decades—often linked to changes in lifestyle behaviours rather than spending on healthcare.

Which makes perfect sense. Perhaps due to lifestyle, a higher proportion of people in the UK turn up for treatment for heart disease than they do in France. If that’s the case we should hardly be blaming the NHS.

You’ll recall, David Cameron also brought cancer death rates into the equation. On that, Appleby noted this:

As Cancer Research UK has pointed out, although the Eurocare data often feed headlines that the UK is the “sick man of Europe” for many cancers, trends from Eurocare actually show improvements in survival rates for the UK. These are confirmed by the Office for National Statistics, which last year reported improvements in five year survival rates between 2001-6 and 2003-7 for nearly all cancers. But Eurocare is problematic; the latest study includes diagnoses only up to 2002, and coverage is patchy (French data cover around 10-15% of people with cancer, the UK, 100%). Furthermore, differences in survival rates may reflect variations in how early diagnoses are made, not the state of healthcare in different countries.

Overall, I think again, this doesn’t seem quite as clear cut as we were led to believe but there is yet another important statistic they failed to mention. If our substandard healthcare is really causing a significantly higher death rate then shouldn’t our life expectancy be significantly lower than France’s? I went to the World Health Organisation’s website to check this out and found this:

The most recent figures for average life expectancy they have are for 2008. In France it was 83 for women and 81 for men. In the UK it was 82 for women and 80 for men. Irrespective of what people are finally dying of, the average life expectancy between the two countries is extremely close.

The WHO also conveniently shows average life expectancy by global region and here we can see whether we are lagging behind the rest of Europe, as claimed by David Cameron:

Oh. As you can see, the average for Europe for 2008 was 79 for women and 71 for men.

So much for us lagging behind the rest of Europe but, anyway, if we truly are experiencing significantly higher death rates from heart disease and cancer than the rest of Europe it is a bit puzzling. If they aren’t dying of that but have lower life expectancy then what exactly is it that they are all dying of? Rabies?

My conclusion based on this data (which was by no means all of it but a lot more than Lansley or Cameron used) would be that we are doing well and heading in the right direction. So where is the big problem? Where is the big need for a radical NHS reform?

Let me move back to my initial example of the report I had to do at work. If I had made a conclusion in advance, backed it up with one or two pieces of cherry-picked data and gone in front of the board with it, my audience would have torn me to shreds.
My report was important to me but compared with the importance of the NHS to the UK it was really nothing at all. This is the NHS we’re talking about – people’s lives.

My audience wouldn’t have accepted such a poor analysis of the data for my crappy report – so don’t you dare do it either. You are the audience now and this is really important. Don’t accept these arguments as the complete story – understand them for what they are. A couple of cherry-picked, airbrushed, bullshit numbers selected to back up a plan that the government wanted to do anyway, regardless of the what the actual evidence suggested.

If I couldn’t get away with such behaviour in front of my board then why should the government get away with it in front of the British public?

Pulling basic information from the British Medical Journal and the World Health Organisation is not hard to do – I did it with no trouble at all. The government’s position is nothing more than pure deception and when we look at the real evidence – their position fucking stinks.

RedEaredRabbit

*More or Less’s excellent piece on this same subject helped a lot with putting this post together. It’s available as a free Podcast so have a look for it.

Filed under 10 Posts You Should Read, Politics Tagged with Government, NHS, NHS Reform, Politics

RedEaredRabbit

The Worst Speech Ever Made

The Interest Rate Fallacy

How does the government borrow money?

Why does someone lend money to the government?

What determines the interest rate on my bond?

Probability of default

Demand for bonds vs Demand for cash

Expected future short-term interest rates

Why are interest rates low now?

Expected future short-term interest rates

Demand for bonds vs Demand for cash

Probability of default

What about Greece?

But what about Argentina in 1999/2000?

What about Iceland? They weren’t in the Euro and their government debt wasn’t that bad.

What if the UK loses its AAA credit rating? Interest rates will soar!

But wouldn’t rates go up if we abandoned austerity?

Demand for bonds vs Demand for cash

Probability of default

Summary

The Debt Fallacy

Depression

Economic Bloodletting

Creationist Economics

Politicians & Petitions

How the Yes was Lost

Pizza and Electoral Reform

Facts Evasion

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