US transparency

3095
us-transparency

Barack Obama introduced his stimulus plan to the world a few weeks ago, had it approved in the house and senate, and subsequently established a separate website and program to analyse the progress of the package. According to the ‘Our Mission’ section of the website: “The Act provides for unprecedented levels of transparency and accountability so that you will be able to know how, when, and where your tax dollars are being spent. Spearheaded by a new Recovery Board, this Act contains built-in measures to root out waste, inefficiency, and unnecessary spending."

Of course, the stimulus is mostly waste, inefficiency and unnecessary spending, but given that Obama has already mentioned his plan for integrating this level of transparency into all areas of government spending it could prove a useful check on government spending in the future. Therefore, at least in theory this plan for transparency in government spending is positive and quite revolutionary in the history of US government policy. For those Americans who have tried to use government websites to search for information on just about anything, they know how frustrating it can be to actually find what you are looking for. And since government databases are for the most part inaccessible from search engines such as Google, a user will have to spend hours sifting through poorly organized pdf and other text files to discover that they have been on the wrong government website all along.

A step forward of sorts, one hopes the UK follows suit.
 

Blog Review 898

3093
blog-review-898

When someone is given the Nobel for achievements in one are of economics that doesn't instantly make them experts in other areas of economics.

As one other Nobelist puts it, the current problems require a new understanding of the points Adam Smith made.

And the current problems are also laying bare quite how little we know about macroeconomics (as opposed to micro....)

For example, the Goldilocks Theory of Macroeconomic Stimulus.

One way of putting it, we don't have a British banking crisis, we have a Scottish banking crisis. A new Darien perhaps?

Don't try to trim government spending, slash it by simply stopping government from even attempting certain things.

And finally, OK, economists don't know everything about the economy but then that's not uncommon, for a science not to know all the answers.

Banking secrecy: A convenient scapegoat

3094
banking-secrecy-a-convenient-scapegoat

Politicians and lobbies of all persuasions seem to have found a new 'public enemy number one': banking secrecy.

Politicians and their paid servants, the regulators, have failed miserably to prepare for the current global financial crisis. Despite the fact that institutions like the Bank of International Settlements has spent around ten years and produced a report of 1000 pages, the Basel II rules did nothing to prevent the debacle that has afflicted major banks around the world. The attacks on banking secrecy and particularly tax havens are nothing more than a desperate search for scapegoats. They are not the cause of the current crisis.

Not so long ago there was a time when anyone could walk into a bank in Austria and open a bank account without presenting any form of documentation. No one asked what his or her name or address was. You paid in your money and you received a bearer passbook that was the only document you needed to claim back your money. Was crime any higher as a consequence of lax banking regulation? Was corruption rampant? Not at all. Since the (US inspired) crusade against banking secrecy has gathered speed, both crime and corruption has - if anything - increased.

Ironically, much crime and corruption can be traced back to ill-conceived legislation: the war on drugs, arbitrary taxes (tobacco, alcohol), questionable regulations and subsidies (agriculture, trade tariffs), limits on prostitution. All these laws and regulations may be well intentioned but they provide a fertile field for criminal activity and usually are counterproductive as well as costly to the taxpayer.

If countries want to close down tax loopholes they can avail themselves of a solution that is easy to administer and leaves the precious privacy of all citizens untouched: Legislators can decide to impose taxes at source. If politicians are really only interested in reducing the amount of tax that in unpaid this solution should suffice. Their more intrusive tactics indicate that the authorities are more interested in invading the private sphere of the individual, increasing the control that the state already has over the lives of individuals.

Illions

3091
illions

It's one of those -illions moments, where everything steps up in magnitude. I remember when government budgets, tax receipts, public expenditure, public borrowing and the rest was always expressed in millions, or hundreds of millions. Sometime in the 1980s, the numbers started to go through the 1,000 million ceiling, and than we had to choose – should we stick with expressing them in thousands of millions, or should we adopt the American rule of calling 1,000 million a billion? Eventually The Economist decided it for us, and we opted for billions.

And now, with bank bailouts and gargantuan, mistaken, Keynesian New Deal spending programmes, we're into trillions. In just 25 years, government financial measure have grown not just once or twice or even ten times, but a thousand thousand times.

But how do you write trillion? When budgets were just in the millions, we'd write £1m. When they reached the billions, we could have written £1b, but for clarity £1bn has become the norm. That use of two letters seems appropriate. A billion is bigger, after all.

So how do we write trillion? We could to £1t or £1tr, but I would favour, once again, something a bit longer, to match the scale of the figure - £1trn.

Dr Eamonn Butler's new book, The Rotten State of Britain, is published later this month.

 

Brussels Dispatch: A pressing idea

3096
brussels-dispatch-a-pressing-idea

This week the Government commenced 'operation helicopter', its three-month, £75bn plan, by having the Bank of England buy £2bn of government bonds using money it printed specially for the purpose. 
 
As the the Governor of the Bank of England, Mervyn King, wrote in his 17th February letter to the Chancellor: “The Bank of England remains committed to improving liquidity in credit markets that are currently not functioning normally.”   
 
Printing ‘central bank money’ is apparently the way to do this – don’t worry that the Bank has never tried quantitative Easing before in its 315 year history – there are some very clever people working at the Treasury and the Bank. Not having sufficient savings is no longer an inhibition in the light of the Bank’s greater priority of increasing velocity.

So here is my idea of how I can contribute to the 'war on illiquidity'. I have my own 'domestic quantitative easing monetary base expander' which I can use. More commonly known as a ‘counterfeiting machine’. Why can’t I contribute to expanding the money supply? Why not just let me print £2,500 myself, and start spending? 

Blog Review 897

3092
blog-review-897

Equality's a big thing in lefty circles. Pity they don't actually mean it all that often.

And there's also lefty big style rewards at the top while the workers get fired.

If you're going to nationalise the banks then you do need to use a little bit of logic in deciding how and which ones.

To be hoped for of course, but it's very hopeful to think that this government will lead us to smaller government.

And more on this government. There are some things which government simply has to do and they don't do these essential tasks well if they continually try to do things which government doesn't need to do.

(Sweary alert) It seems obvious that this government still hasn't quite grasped the concept of competition as yet.

And finally, St Augustine and the Obamessiah.

Wake up, cut public spending

3089
wake-up-cut-public-spending

In yesterday's Times, Daniel Finkelstein wrote:

Welcome to the era of no money. The central fact of British politics in the next ten years, and perhaps longer, is not hard to spot. British politics isn't going to be dominated by interesting debates on the future of capitalism. It isn't going to be the stage for a revival of interest in democratic socialism. It isn't going to play host to the interplay of competing ambitious projects. No. We're in for a hard slog. Because what British politics is going to be about in the next ten years is living with the consequences of the State being broke, of the Government running out of money.

I think he's right about that, and I also think he's correct when he points out that the politicians (of all three parties) haven't yet realized how drastically things have changed. By and large, they're all going on as merrily as before, proposing more spending here, a new government programme or two there, and so on.

It's just not realistic. As Finkelstein points out, the IFS says it'll be at least 2030 before the official national debt returns to below 40% of GDP. Of course, that assumes the Treasury's predictions are correct, and many analysts would take a more pessimistic view.

There's one point on which I would strongly disagree with Finkelstein, however, and that's his assertion that the government already has "very difficult, tough plans" to cut spending. They don't. All they are talking about doing is reducing the rate of public spending to 1.1% a year from 2011/12 to 2013/14. It's a pathetic effort.

What you have to realize is that public spending has doubled since 1997, to more well in excess of £600bn. And for what? It's not like government has become twice as effective. In reality, I guarantee you could easily cut 15-20 percent of public spending (that's about £100bn a year) without it having any discernable impact on frontline services. All that's required is the political will to do it.

Abusive taxation

3088
abusive-taxation

When their snouts hit the bottom of the trough, politicians have to develop new money flows so that they can survive a little longer. You only have to look as far as the Empire State to realise that their food is getting short, especially as they are facing a $14bn deficit. Felix Ortiz has put forward a bill that would see patrons of strip clubs or topless bars charged $10 every time they visit them. His reasoning behind this particular tax is that it will raise $500m for the, “ victims of human trafficking, domestic violence, sexual abuse and child prostitution." And it has nothing to do with the massive hole in the NY State’s budget.

Even Governor Paterson has got in on the idea of taxing all that moves. His pronouncements have included the following:

...a sales tax on numerous items including digital music and movie downloads; satellite television and radio; cable television; entertainment venues such as theaters, race tracks, bowling alleys, swim clubs, golf clubs, movies, sporting events, and amusement parks. Other proposed taxes included an 18 percent "fat tax" on soda, and he wanted to tax the full price of an item when a coupon is used. Paterson was also going to eliminate the no-tax rule on clothing under $110..

All of which are of course to change the bad behaviour of those who do not know what’s good for them! Government has seriously crossed the line. When times are hard for government it undoubtedly means they will be worse for the citizens; even though taxing them further will only hinder any move towards growth. It would be better if we could just let government go bust, leaving this abject attempt at democracy to disappear quietly into the night.

Blog Review 896

3085
blog-review-896

There's more management wisdom in this blog post than in most MBA courses.

No, it's true, nominal prices really are sticky downwards.

Technical, but what went wrong at AIG.

If rewards for failure are to be named and shamed in the private sector, should that also apply to Ministers in the public sector?

On the valuse or not of teacher training courses.

If a politician is going to hire an expert it's probably a good idea that the politician pays attention to what the expert says, no?

And finally, an old photo series explains new events.

The Recession: Causes and Cures

3079
the-recession-causes-and-cures

The present recession is the direct consequence of first, the formation and then the bursting of speculative asset-price bubbles in the housing and financial markets, made possible by a combination of three factors. An excessive growth of liquidity in the financial markets was tolerated by the central banks,  the Federal Reserve and the Bank of England. The behaviour of these two bodies encouraged the development of two significant beliefs amongst financial market players:  that debtors would always be bailed out by the increased availability of cheap money, and the belief that many financial institutions were too big  to be allowed to fail. The combined effect of these three factors was to encourage behaviour on the part of market participants that ranged from the reckless to the fraudulent. Lesser contributory factors included the failure of regulatory agencies to identify, let alone restrain, such behaviour, and the pressure exerted on the commercial banks by Governments in both countries to make extensive housing loans to households who were poor credit risks in the name of ‘social inclusion’.

Those who were in charge of the commercial banks and other financial institutions  that failed have, rightly, either resigned or been dismissed. No one would entrust them with the responsibility of leading the recovery of the institutions they made bankrupt. However, no such principles seem to apply to those policymakers who were responsible for the systems of monetary control and financial market regulation that failed so spectacularly in both London and New York. These failures may be attributable to the fact that the policymakers concerned were relying on an inadequate understanding of how recessions come about, and how financial markets behave. Their variable and sometimes contradictory responses seem to bear this out.

Just as there is no medical way to escape a hangover, other than to avoid becoming drunk, so the only way to avoid having a recession is not to have the antecedent boom. There may be, however, some ways to mitigate the worst effects of a recession. The key principle must be to encourage the restoration of a climate of confidence in which businesspeople can seek profitable opportunities. The most direct way in which a government can bring this about this would be by a permanent  reduction of taxes on business. To be effective, this must be financed, not by increasing borrowing and thus future taxes, but by cutting unnecessary government expenditure.