Bad numbers; bad reporting

Apparently, most of the US Congress are millionaires. The Guardian reports this with glee as a sign they are out of touch, ranting on out about how governments should be representative.

Toss.

There are two major problems with this analysis. Firstly, the philosophy behind it is flawed - I don't want a representative elected chamber, having a lot of stupid people doesn't make government better. But the second point is more important. The logic of the numbers are misleading.

How so, well:

• Firstly, they are dollar millionaires, so £650k in net worth. Still a lot, but less than reported
• Secondly, they are paid quite well. The salary of a congressman is $174k p.a.
• And taxes in the US are low, about an average of 33% (somewhere here), which means actually $115k p.a. post tax, so almost immediately on election, they won't be poor
• They have been around a while - average length of term 10 years, rising to 12 years in the senate
• And they are quite old, average age 57

So, suddenly this all seems stunningly uninteresting. After 10 years on $115k, which we might assume they put aside $40k on mortgage or savings, so paying $400k over the period + a bit of appreciation takes you to $500k on average. Given this solely refers to the half that are millionaires, probably a bit more than that.

Plus, we're not talking about slackers here. They've been working for say 25 years before then, so an average of $20k per annum payments into property or savings, or $1,500 per month is hardly the stuff of which legends are made, though not poor.

Actually, I am pretty sure that money does have too much of a role in congress; I just don't this stat illuminates it very well. In fact, it illuminates successful people in well paid jobs are pretty wealthy. That's not a story. Quite frankly I'm surprised that more of them aren't millionaires.

The rhetoric ends by saying we don't want poor people who made good. By definition, if they're in congress, they have. Thus, the author is a moron. Anathema.

And we're 0-1. Fucking hell. OK, no 10-1. Still rubbish.

We were wrong

One of the many reasons why I could never be a politician, apart from my lack of interest in people and general unlikeability, is that I could never do the evasions that are necessary.  For years I thought that successful politicians simply lied about their past beliefs out of opportunism. Recently having seen it first hand, it seems to me that they simply don't believe they held those positions for those reasons in the past at all.

Now we all do that to a degree, but I think it's important to recant when you're wrong. I've been wrong about many things in my time, and this won't be the last, but it's pretty spectacular: I spent much of the late 90s and 2000s on the wrong side of the single currency debate. At the outset of monetary union most of the fears seemed unjustified, and there is still some overblown rhetoric around - like this.

But, some of the issues were real, and poor judgement and lack of discipline about entry and membership has had the inevitable effect, as Ireland has shown and I suspect more will. There's a longer set of thinking about what it shows though. It doesn't mean that this was automatically doomed. Remember Benelux was yoked to the Mark for years before the Euro, and we've had currency union with Ireland in the past. Rather the experiment was too big, too soon, and with too little structure. I believe in the European project, but it needs discipline, and caution - things lacking in this construct and which I was too quick to overlook.

I don't think we're owed an apology from those who held a view that has turned out to be right, but I do think we should recognise we were wrong. For once, we were better off out.

Can the Unions actually count?

Innumeracy is a problem, a blight on our society. It's distressing, and more should be done to stop it. However, I'm sceptical that placing sufferers at the head of Trades Unions is a solution.

In fact. I'm fed up with the general tenor of the discussion of the budget: here is a fascinating table from the HoC library (page 8), showing government spending between now and 2015-16, current (i.e. non capital) and total:

Current and Total expenditure (£m, real at today's prices)
2010-11:     637.3     696.8
2011-12:     639.0     686.8
2012-13:     637.4     682.1
2013-14:     634.5     675.1
2014-15:     630.6     671.4
2015-16:     630.6     671.5
%change:     -1%        -4%

Overall, the change in public expenditure 2010/11 - 2015/16 is 4% down in real terms, actually a substantial rise in nominal expenditure. The budget report (page 45) points out pretty clearly that nominal expenditure rises by about £60bn over the period, or around 10%.

Here are the Unions on that today:

• "A savage and opportunistic attack on public services ... [that] goes far further than even the dark days of Thatcher"
• "What they take apart now could take generations to rebuild. Decent public services are the glue that holds a civilised society together and we diminish them at our peril. Cut services, put jobs in peril and increase inequality, that's the way to make Britain a darker, brutish, more frightening place."
• And predictably, Bob Crow has called for a campaign of "civil disobedience"

I don't think this is justified over a 4% reduction in real expenditure, and in fact I think pretending it does makes you a moron. Although, I don't deny the debate is important and there is a sound discussion over what the right economic policy is: for example, a good retort would be that comparative spend is what matters, and broadly I would agree they are right: a quick check on this reveals that expenditure is forecast to stabilise at 39-40% of GDP (budget report above, page 16), or to put it more plainly, higher than the levels for the entire period 1997/98 - 2003/4.

So I would like to ask politely, could everyone just get a grip on the numbers before they debate them; and if you don't know or cannot understand the numbers, could you just shut up. For I think commenting on economic policy when you can't count does make you worthy of the anathema.

Bring back Maggie

TUC on the radio this morning seem to be doing their best to remind everyone why we must never let the Unions near power again. Ever.

Here it is. In summary, a perfectly sensible woman from KCL has written a report on whether national pay bargaining is a good idea. I've no idea if it is or not; may be rubbish, but the whole thing was met by a ranting delusioinal ad hominem attack from the TUC's rep Sarah Veale, which was inappropriate, and in most cases, drivel. I can't be bothered to argue with all her points but here are a couple of the worst ones :

• Trade Unions create jobs; and keep wages high. I suggest they cannot do both, certainly not in a contracting public sector which needs to cut close to £200bn from the annual payroll. I think all you need to work that out is multiplication; maybe she can't do that.
• There's more, but I'm busy
• Most importantly, we already have this, through London weighting, Sarah Veale appears not to know about this, as she thinks nurses get paid the same in Newcastle and London (see 2.56. The scale for London weighting is here. As Ms Veale advises the TUC on employment, she probably ought to have read it)

Idiot woman. Anathema indeed

Also, there is an amusing slip of the tongue at the start when John Humphries tells us the South is cheaper than the North at the start

(Weights and) Measures

From my younger days, I seem to remember that this call would come out at key moments in drinking games, though I forget the details. However, the value of units of measurement and particularly their pricing was brought home to me in Austria last week, when A & I spent a week in the old archduchy and spent most of it drinking wine Anna did have some beer, but I was keen to visit Heuringen having failed to notice these on previous visits; I liked this one not least because it has family tree of the Esterhazys in one of the rooms.

I digress, the most interesting thing about all drinking establishments over there is that wine is priced strictly by volume, i.e. a glass (a 125ml glass is standard) is precisely a sixth of the price of a bottle. As a result we drank far less (we would have spent less but for the exchange rate - thanks Gordon) than we do normally. This makes perfect economic sense of course: deprived of the price incentive to buy bottles, it is better to retain flexibility (assuming you expect to get served frequently enough) so rationally one orders by the glass. As a result you are less likely to overorder and end up with wine unwanted, but drunk.

So, in support of the new paternalism, I think this is exactly the kind of idea that would make a difference to drinking habits (which we're officially worried about, not that you'd be able to tell) without much effort. The government seems to be thinking about making the right measures available, but it's really the pricing that is key to this. As ever, they've never really understood that.

At the margin

Last weekend, Martin Johnson said that 'International rugby is all about fine margins' after our depressing loss to South Africa. He is of course right: though there were times when the gap looked a little bigger than that, the reality is that minor changes appear large when played the game is played at that level - small differences matter.

This is hardly news to any economist. The reason demand curves look like they do is because marginal changes to feed through to behaviour overall even if they individually appear to be negligible. Of course this is slightly counterintuitive because no one wants to admit that they might be influenced by 1 or 2% at the margin, but at some point price changes mean behaviour changes, so that margin works somewhere. You would have thought from the coverage of the various economic discussion that people had fogotten this essential fact. Labour has long been guilty of this - I remember Adair Turner's Just Capital which claimed that the difference in incentives didn't change at low increases in income tax - rubbish - and a general heavy handedness on economic policy. Now we're at too: John Redwood may have a point about income tax being a better cut than VAT, but not that 2.5% doesn't matter when goods have been reduced by 10-20% so it won't matter.

I'm not a professional economist; I haven't done this formally for over 10 years, and then hardly to a high level, but I know that we need to stop pretending that the only change that counts is a big bang. Small percentages always matter.

There are some things money can't buy

This quote is priceless.* I almost want to frame it. It's not that she's entirely wrong, it's the totemic significance of 3 million for Labour and the sudden renunciation of its importance:

Even if unemployment reaches 3 million, that still leaves 90% in secure jobs. Most people will suffer not at all in this recession: on the contrary they will do well
Polly Toynbee, The Guardian 25.11.08

The rest of the article is also bit rubbish. My personal favourite is describing a tax that she admits affects 1.3% of the country as Labour having 'unfurled its old battle banner for social justice.'

Incidentally, Polly's grandfather, A.J., was a wide ranging historian and one of the first Byzantine chairs. He's less fashionable now, but he would have been pleased at the cyclical nature of politics and the significance of his grandaughter acknowledging that 3 million may not have been so bad after all.

*BTW, I've shamelessly stolen someone else's research to find it.

Learn some maths

One of the downsides to the credit crunch is the sheer number of people who now have an opinion on what the economy needs despite knowing nothing about economics nor, in many cases, having any understanding of basic building blocks of finance.

I've ranted about idiots (specifically Billy Bragg) talking about debt earlier (see footnote), and while Bragg-bashing is fun for everyone concerned, he is not the only one. Listening to Any answers - I know, it's a bad idea - I heard, again, the tiresome line that the banks were to blame and people used to be allowed only a multiple of three for their mortgage.

Every time I hear another moron repeat this asinine statement, I want to tattoo 'interest rates' on the inside of the eyelids. The triple multiples was current when my parents first bought a house in the 70s, and when they bought their current one in the 80s, but then so were double digit inflation and correspondingly high interest rates. Now, the base rate is 4.5; in 1975 it was 11, in 1985 it was 12.

Now, at the risk of being patronising, if you apply those rates to a mortgage taken out at the different periods (a formula here), you get radically different numbers. Let's assume market rates a generous 1 percentage point about base and you get figures for annual repayments of £7,455, £11,874, and £12,750 respectively for now, commensurate with a 4-5 multiple of salary for the same monthly outlay.

Einstein called compound interest the eighth wonder of the world - it would be good if people ever bothered to do the calculation.

*By the way, this achievement is Tory one which Major, Clarke and Eddie George can take much credit (helped by benign global conditions). Labour complained and said that reducing inflation wasn't worth short term job losses. Don't ever let them pretend otherwise - Tessa Jowell once tried to do that to me when I lived in her constituency, but then she has never been good with numbers.

No, Marx was still wrong

Right, after some faffing around over the summer, proper politics starts again, and where better to start with this ill concieved article where our primate attempts to argue that Marx was partly right about capitalism (actually he doesn't, but it's his title)

It has become an oddly fashionable line to take recently (i.e., in the last generation) that although Marx was wrong about the answer, somehow he was right about his diagnosis of the issues around capitalism - in effect to argue that Das Kapital was right, and The communist manifesto wrong. This is of course absurd, and the issues that Marx was wrong about suggest his diagnosis cannot have been very good either. If you are consistently wrong about the long term economic prospects of the industrialised poor, worng about how they will react and wrong about what the 'post-capitalist' society looks like, then the odds are you were wrong to start with.


To his credit Williams isn't really doing any of this. It's noteworthy that he opens with Trollope, a man much more attuned to how people actually behave than Marx ever was. In fact, much of the article is very sensible: he is of course right to point that trading in debt is not new (though it's much older than the C19), and doesn't fall into the ridiculous trap of arguing that banks should only lend what they have in deposits. Given that stretching beyond that point is the point of a bank, it would be odd to limit them.* However, there is a degree of naivity about the nature of finance and what I think is an arbitrary line between, put crudely, speculation and financing. The archbishop argues that:


'And a particularly significant line is crossed when the borrowing and lending are no longer to do with any kind of equipping someone to do something specific, but exclusively about enabling profit.'

This is a facile distinction and it hinges on a definition of 'specific', which is basically untenable and contains substantial inconsistencies. For example, preumably, mortgages are OK, as they clearly are for something specific (though they have caused much of the problem); government borrowing is borderline if not a problem, as it tends not to be for something specific (but I suspect this is not what he means). The problem is I suspect, those bankers who are dealing with loans fourth or fifth hand, but levelling accusations based on what it's for misses the point. Failing to understand your risk and liabilities is really really stupid, but a significant qualitative line itsn't crossed when you do.


later on we see the real crux of the problem comes when he moves onto the percieved moral issue. Here:


'the deeper moral issue. We find ourselves talking about capital or the market almost as if they were individuals, with purposes and strategies, making choices, deliberating reasonably about how to achieve aims.'

Now, again, this is a really bad idea. Sometimes people use language that suggests the marekt acts like an individual, but that's a convenience. When economists talk about markets, they are really commenting on a number of observed characteristics that have (more or less) predictable outcomes. They know it's not an autonomous individual. So, what is described here is not a moral issue, but a factual error, albeit a big one.

Now, this does mean, following the line of his argument, that a belief in markets that will provide just outcomes is misplaced, but again, this is an absurdity. Markets don't allocate on a principle of justice, but on one of efficiency (even assuming they worked perfectly). Justice isn't a market word.

However, the real problem comes in the last section, where he equates this to idolatry. Now, idolatry is a bit of a problem in the modern world so we get this wishy-washy definition here: 'ascribing independent reality to what you have in fact made yourself .' But that won't do; the second commandment reads as follows (KJV, naturally):

'Thou shalt not make unto thee any graven image, or any likeness of any thing that is in heaven above, or that is in the earth beneath, or that is in the water under the earth: Thou shalt not bow down thyself to them, nor serve them.'

By contrast, the unsupportable breadth of Williams' modern defintion does the decent thing, and collapses. In some philosophical senses, I don't doubt that power, reality and agency can be circumscribed such that this definition works, but given the language here is of a political periodical, it is abundantly clear that power does reside in market forces, and their effects are real. But even if they weren't, the market is not something we have created, it is our behaviour. When the Israelites worshipped the Golden Calf that they had created, it had a physical existence; when our markets collapse, they represents our own debts coming back to haunt us. It is Dr Williams here who is in real danger of ascribing an kind of existence to a form of words, not supporters of market led economies.

We shoudn't expect markets to do what all economists know they cannot, but that doesn't make Marx right, and getting your economics wrong doesn't make you an idolator either.

* Not that this stops people mind. One of the most idiotic comments on the banking crisis that I have heard so far came from Billy Bragg (this is no surprise) on BH no less, where he opined that banks shouldn't lend money they don't have from depositors. I learnt about banks and multipliers at 14. It's not very hard.

Relative poverty

I've always hated the term 'relative poverty.' It's false language and disingenuous. I was reminded of it by this rather good post on it - my favourite line - 'if Warren Buffet moved to London poverty would increase' - I think nicely skewers the point.

Some technical notes: The definition of relative poverty is 60% of median average income. The details are here. For a single adult, it means an income below £5,200 per annum excluding income tax, council tax and housing costs, (rents, mortgage interest, buildings insurance, water charges).

Now, the level of relative poverty may have kept me as a student (no, that's a lie, but I had a rather extravagant student life, and it could have done), and it's clearly not a lot of money, but it's not poverty to have a house, insurance, and a decent amount of spending money.

What they actually mean is of course inequality. Inequality is important, we can all have opinions on it, but it's not necessarily linked to poverty, so can we defend policy on relative poverty on inequality grounds please? And not raise the totem of poverty, which is overly emotive and just not true.

Personally, I am not very interested in inequality, rather in outcomes for the genuinely poor, which is why most of my donations go abroad. Anyway, this isn't even one of the things that annoys me most about government use of statistics and maths: that's the tax system, but I'll post on that later.

Isn't this what we wanted?

Much wailing and gnashing of teeth has attended the rising oil price, but it's not entirely clear why. Of course there are some immediate problems, but price increases make solutions economic.

Firstly, they make people use less. The Guardian led on this yesterday, but couldn't quite bring itself to argue that supply and demand appears to be working. Mark you, the Guardian has rather blotted its copybook this week with a long print supplement on Wednesday which extolled the virtues of using less resources in 6 A2 pages

Secondly, it makes other sources of energy more economically efficient, and makes the returns on investment in R&D a better bet. The Economist this week has an excellent supplement.

Of course, this isn't quite a painless as it sounds, and I am insulated from this, being well paid and living in a city without a car. However, it's not going to be a painless transition, so there's not a lot we can do about it.

So aren't price rises what we want?