Monday, Mar 08, 2010
Some excellent comments follow the article
The Telegraph: A year on and quantitative easing is paused– but when will it return?
The Bank of England's recent pause was probably justified. But if I am right in thinking that the economy will remain very soft, that in the second half of this year inflation will plummet, and that after the election a programme of fiscal tightening will be put in place, then there will be cause to do more QE.
Posted by devo @ 06:40 AM (3098 views) Add Comment
80 Comments
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1. devo said...
for example:
Roger
The story line actually goes like this.
Fact: QE (as the excellent Denis Cooper will point out to you) has been largely spent on covering the difference between Government tax receipts and Government spending.
Fact: That Government spending has been on social security payments that have no marketable outputs to replace the wealth spent on them
Fact: That Government spending has been on quangos and multiple layers of apparatchiks that have no marketable outputs to replace the wealth spent on them
Fact: QE has been spent on supporting the client state with no prospect of that wealth being replaced by the client state
Conclusion 1: QE in the UK has been used in a Robert Mugabesque manner with all that that implies
Conclusion 2: You are a morally weak economist for 2 reasons (A) You know these facts and yet refuse to admit them (B) like Jeremy Warner, you hide behind the counter factual position to avoid ethical responsibility - as far as you are concerned there is no condemnation of Stalin as a mass murderer because we do not know the counter-factual.
Roger, I would not trust you in any circumstances - it is quite clear that you have no moral compass.
2. taffee said...
good comments at the bootom of the article....its clear that the general public see that creating more debt is not the way forward and fits into no normal economic model and is just making things worse
3. devo said...
to avoid any misunderstanding, the above comment is from Dr Jonathan Wilson on March 07, 2010 at 10:30 pm
credit where it's due
4. hpwatcher said...
Fact: QE (as the excellent Denis Cooper will point out to you) has been largely spent on covering the difference between Government tax receipts and Government spending.
Fact: That Government spending has been on social security payments that have no marketable outputs to replace the wealth spent on them
Fact: That Government spending has been on quangos and multiple layers of apparatchiks that have no marketable outputs to replace the wealth spent on them
Fact: QE has been spent on supporting the client state with no prospect of that wealth being replaced by the client state
I would just add something about keeping interest rates artificially low.
5. flashman said...
devo: This Jonathan Wilson chap is clueless
"Fact: QE (as the excellent Denis Cooper will point out to you) has been largely spent on covering the difference between Government tax receipts and Government spending"
The guy doesn't understand QE at all. This definition is nonsense. After all this time, how can so many people not understand QE and yet be so bombastic about it?
"Fact: That Government spending has been on social security payments that have no marketable outputs to replace the wealth spent on them"
Is he really implying that all government spending has been on social security payments? That would be ridiculous. On the other hand, if he is saying that SOME government spending has been on social security payments and that they don't have any marketable outputs to replace the wealth spent on them, then he is exhibiting a complete lack of economic knowledge. If you pay someone a social security payment, then he buys food, drink and gets a haircut. The multiplier effect then takes over. In any case, we need to make social security payments because we are a civilized country. Would he rather we starved the unemployed? As an aside, has anyone else noticed that conspiracy loons tend to be slightly right of Mussolini in their political leanings?
"Fact: That Government spending has been on quangos and multiple layers of apparatchiks that have no marketable outputs to replace the wealth spent on them"
Again, he is completely wrong. If a quango is set up to protect the rights of one-legged lesbians, then those lesbians pay a team of contractors to build them a new office etc etc. (then the multiplier effect takes over)
"Fact: QE has been spent on supporting the client state with no prospect of that wealth being replaced by the client state"
Not remotely true but he is really just repeating the same crap as he did in “fact” 2
There are really only two “facts” in this list of four and both are laughably inaccurate
I am no fan of excessive government spending or stimulus but let’s at least be accurate and truthful in our criticisms.
6. techieman said...
Hi Flash .... Does paddy help?
:http://marketplace.publicradio.org/display/web/2008/12/22/whiteboard_quantitative_easing/
We are all left needing a drink... FACT! :-).
7. braindeed said...
H Pee @ 4 said.... "Fact: That Government spending has been on social security payments that have no marketable outputs to replace the wealth spent on them, blah blah blah, drone drone
'Wealth spent on social security, makes its way back into the system uping GDP.
You're expressing a truism, or an opinion - know the difference between 'facts' and opinions - at the very least learn to express your 'facts' as opinions.
8. flashman said...
Hi techie: Paddy is pretty good. The government does two things to encourage the banks to lend. Firstly, they drive down yields to discourage the banks from buying treasuries (by buying them themselves). Secondly they take toxic assets away from the banks so they have no other impediment to lending. They are tying to create an environment where banks can only make money by lending to businesses and people. I don't really like the policy but that, in a nutshell, that is QE
9. matt_the_hat said...
5. flashman - .....then he is exhibiting a complete lack of economic knowledge. If you pay someone a social security payment, then he buys food, drink and gets a haircut....
Then everyone else that creates wealth and receives sterling in compensation has their wealth diluted by the ones who receive sterling for nothing. As a country the resources are allocated away from the wealth producers to the unproductive, i.e. the prices of your example food, drink etc are more for the productive members of society than the market would dictate.
With your economic knowledge can you explain why youths smashing shop windows in the high street are not doing society a favour, they create jobs, i.e. insurance, police, glaziers, street cleaners, doctors, nurses (when they cut their fingers) - who then go and spend money in the economy on food drink and hair cuts - its great this multiplier effect!
10. braindeed said...
I said @ 7
Of course, I should have said, that in my opinion, Wealth spent on social security, makes its way back into the system upping GDP
Apologies all round.
The so called science of economics is a goodly proportion of guess work - we're all still debating the efficacy of Smith's Inquiry into the Nature and Causes of the Wealth of Nations 2 and a half centuries later.
11. mark wadsworth said...
Hang about here. Denis Cooper is one of my email friends and we often email back and forth on QE and other topics (like the EU) I would say that he understands QE better than most people.
12. techieman said...
@10 "Apologies all round" - is that really you b/deed? A new improved and cuddly version? Wonders never cease!
13. braindeed said...
8. flashman said...
Hi techie: Paddy is pretty good. The government does two things to encourage the banks to lend. Firstly, they drive down yields to discourage the banks from buying treasuries (by buying them themselves). Secondly they take toxic assets away from the banks so they have no other impediment to lending. They are tying to create an environment where banks can only make money by lending to businesses and people. I don't really like the policy but that, in a nutshell, that is QE
In my opinion,I think that's a pretty good assesment, I think pehaps the system could only have been saved by this course - it was pretty close to total collapse.
14. braindeed said...
Re: tetchie @ 12......the Prozac is kicking in
15. Estrader said...
@9 " why youths smashing shop windows in the high street are not doing society a favour, they create jobs, i.e. insurance, police, glaziers, street cleaners, doctors, nurses (when they cut their fingers) - who then go and spend money in the economy on food drink and hair cuts - its great this multiplier effect!"
*LOL* Because I was thinking that earlier myself. Brilliant!
16. estrader said...
@9 "why youths smashing shop windows in the high street are not doing society a favour, they create jobs, i.e. insurance, police, glaziers, street cleaners, doctors, nurses (when they cut their fingers) - who then go and spend money in the economy on food drink and hair cuts - its great this multiplier effect!"
*LOL* I was thinking the very same thing earlier before you even wrote it. Brilliant.
17. techieman said...
@ 14 - try not to o/d - there's a good lad :-).
18. techieman said...
EST @ 15 - i did respond to the thread on Friday btw - yesterday morning. Was just tied up until then... and no it wasnt sorting out new lines of credit :-).
19. hpwatcher said...
H Pee @ 4 said.... "Fact: That Government spending has been on social security payments that have no marketable outputs to replace the wealth spent on them, blah blah blah, drone drone.
The resident troll returns!
20. braindeed said...
Different thread…….same tune
….in my opinion…
21. flashman said...
Matt the hat @9: Reactionary as always. I simply refuted the guy’s claims that there is no economic output from social security payments/government spending and you go into a Sieg Heil rant about unproductive members of society. It is a simple fact that a portion of government spending/social security payments will find its way into the economy. When a hospital buys a scanner, the money finds its way into the private sector economy and it is also a simple fact that the multiplier effect will then kick in.
How on earth could you translate my post as suggesting that we pay social security payments to people and encourage them to smash windows for the good of the economy? You always seem to add 2 and 2 to get 20.
The existence of a well-excepted economic theory called the ‘multiplier effect’ seems to enrage you. You do know that I didn't invent it? You sometimes remind me of one of Pol Pots henchmen. "He said multiplier effect. Quick smash his glasses and drag him away. We must eradicate all knowledge and return to zero"
22. estrader said...
@17 Techie,
"In any case it does make me smile - one minute your long terms calls dont matter and you only trade short term then the next they do matter..... funny that..... :-)"
I didn't think you would want to acknowledge that I was right, 100% right. I don't remember saying that my medium-long term calls don't matter. What I would have said is that I TRADE short term movements but I like to make longer term forecasts based on what I see happening. When you said that my call of 1150 "Couldn't possibly be more wrong" my reply was "MAYBE". Also, you conveniently ignore my two short term calls on twitter which were 100% spot on, precisely, exactly. Check your chart against the time I made the calls. NB, the time on twitter isn't GMT, I think it's US unless you are logged in. You also conveniently ignore that I said the 1061-1063 level was important and say if I had gone long at 1045 I would have had your respect. The market is now 75 points ABOVE 1061 heading towards 1150, where I said it would move to, whereas 1045 is only a 16 point retrace below 1061.
23. hpwatcher said...
Different thread…….same tune
You need to understand how dull your backbiting and attacks look to other people on this site.
You have made it very clear what you think of my opinions - now just give it a rest.
24. techieman said...
Est - bit busy now - will not deal with this here - as off topic. If you want to continue i will respond on the other thread.. repost that there and i will reply, unless you dont want me to :-).
25. braindeed said...
H pee @ 22
You have made it very clear what you think of my opinions - now just give it a rest.
Opinions....he said opinions........Eureka!!!
Lesson 2: It's just a blog.
26. hpwatcher said...
I think pehaps the system could only have been saved by this course - it was pretty close to total collapse.
I simply don't think this to be the case. So a few banks would have gone bust, so what? All that would have happened is that the other competent banks would have come in and taken the business...and those bankers who had been irresponsible would have lost their jobs.
Now the tax payer is underwriting losses that the incompetent bankers have made, and effectively encouraging more of the same - which is what we are getting.
27. braindeed said...
25. hpwatcher said...
I respect your right to that view, but I disagree. In my view, the interdependance of the banks regarding the toxic trades, meant that there would have been none left standing, and that bailing out the system was inevitable. Now how do we re-introduce 'Moral Hazard', thats the bigger question.
28. hpwatcher said...
Now how do we re-introduce 'Moral Hazard', thats the bigger question.
I'm not so sure about that, as there are plenty of lenders who weren't exposed to the toxic assets i.e. the smaller building societies.
Do you not mean remove the ''Moral Hazard''?
29. braindeed said...
27. hpwatcher said...
Do you not mean remove the ''Moral Hazard''?
No
30. Nightflame said...
@9 "why youths smashing shop windows in the high street are not doing society a favour, they create jobs, i.e. insurance, police, glaziers, street cleaners, doctors, nurses (when they cut their fingers) - who then go and spend money in the economy on food drink and hair cuts - its great this multiplier effect!"
Actually I want to know the answer to this! Because the way I understand it, this contributes to GDP with all the activity (product) it generates?
I think I misunderstand GDP. Reading GDP seems to be the measure of wealth by how much a country spends. Its like an individual with a big house and flash car is considered to be rich. Even if he borrowed to get these. This can't be right?
31. mark wadsworth said...
a) There is no such thing as a "multiplier effect" generally. You have to look at it on a project by project basis.
i) Let's say they build Crossrail at a cost of £16 billion, that's an annual amortised cost (depreciation plus interest) of £1.6 billion, if output of private sector in and around London goes up by more than £1.6 billion (and it appears that it almost certainly would) then yippee hurrray, let's do it! (notwithstanding it should be funded by local property taxes to prevent landowners getting windfall gains equivalent to productivity gains).
ii) Let's say they borrow money at 6% to give to banks to lend to borrowers at 4% to prop up house prices, that is clearly wealth-destruction. There is a negative muliplier effect.
b) Having a basic welfare safety net (preferably by a flat rate Citizen's Income) is not just an act of common humanity (and promotes social cohesion), can have overall economic benefits as well (if it reduces crime and smoothes out peaks and troughs in people's earnings, for example). But you have to look at what the economy is really losing. It is not losing the welfare payments, as they go straight back in to spending. It is losing...
i) The output of people who choose to go on benefits rather than working (and with a CI system, this would hardly happen - you get the CI whether you are working or not) and
ii) What the deadweight costs of the taxes are that have to be raised to fund the CI. Some taxes have lower deadweight costs than others (and the deadweight costs of Land Value Tax are more or less nothing).
Here endeth today's lesson.
32. Goldbug9999 said...
"Again, he is completely wrong. If a quango is set up to protect the rights of one-legged lesbians, then those lesbians pay a team of contractors to build them a new office etc etc. (then the multiplier effect takes over)"
Please do a Google search for "the broken window fallacy".
33. flashman said...
mark wadsworth: your rebuttal of the multiplier effect reads more like a political broadcast than a rebuttal :) No one is denying that we would be better off if we had full employment or an enlightened tax system but you haven't actually given any reasons why "there is no such thing as a "multiplier effect" generally". Btw, did you use the word "generally" for a reason or am I reading to much into it? How about specifically?
Before I go on, are you by chance talking about the banking multiplier effect, which is another thing all together?
Here is a decent definition of the multiplier effect:
"In economics, the multiplier effect or spending multiplier is the idea that an initial amount of spending (usually by the government) leads to increased consumption spending and so results in an increase in national income greater than the initial amount of spending. In other words, an initial change in aggregate demand causes a change in aggregate output for the economy that is a multiple of the initial change".
The only economists (actually, right wing politicians mostly) who argue with the existence of the multiplier effect do so, only partially. There are a few economists who subscribe to the thought that SOME types of government spending crowd out private sector investment. This is quite controversial but even these people do not deny the existence of the multiplier effect for most spending (government and private).
To an extent, the existence of the multiplier effect is common sense. Give money to x and he will give money to y etc.
34. mark wadsworth said...
"Here is a decent definition of the multiplier effect..."
Yes that is the definition "generally". But it is far too vague and does not apply to all government spending, it only applies to some government spending. If all government spending had a positive multiplier effect, then all we would need is for the government to spend more every year.
Some things are good value for money, some aren't and I gave real life examples of each just to be fair - I don't do party political broadcasts and if I were traditional right wing I would not be in favour of building more social housing :-).
It's exactly the same criteria as for private spending. If they invent something new like mobile phones or DVD players, then yes, the benefits to society far outweigh the costs. That's called "profit" to you or me (or "producer surplus" and "consumer surplus"). But if Corus were to spend a zillion pounds trying to turn lead into gold, that would be a waste of money and resources.
35. 51ck-6-51x said...
My 2c:
There is little point debating the knock-on effects of an experiment without a control, let alone in using these to asses the necessity, of lack thereof, of stopping, continuing, or resuming said experiment.
QE was put in place with the supposed aim of increasing capital lending.
QE's direct action is to increase the liquidity in the money markets (at least the instance we are discussing, it could be used for other instruments of course).
The only measure that may be used, regardless of the actual aim, is one of this liquidity, the first step in the causal chain, wherever it may (or may not) lead.
36. flashman said...
Mark w: We appear to have agreement that there is, after all, a multiplier effect (generally!). To be fair I scooped off the top paragraph of a multi page definition of the multiplier effect, so it may have been more ‘specific’ by the time you had nodded off on the second page
Your example of Corus attempting to turn lead into gold is an interesting point for discussion. If they did this then there would most certainly still be a multiplier effect. They would pay contractors to build a giant plant and hire a bunch of charlatan scientists who would then spend a fortune on porn and catapults. However that is not to say that the multiplier effect is the be all and end all. Obviously it would be better if Corus spent the money on something that was actually possible and useful for society.
The value of the spending is a separate matter to the existence of the multiplier effect. It would unarguably be better if the government sacked a few idle quanganistas and spent the money on renewable energy research etc but no matter what they spent it on there would still be a multiplier effect. The only danger is if an over-zealous economic theorist/politician took the multiplier effect out of context and decided that it meant that any all spending is equally good. Obviously it is not
37. matt_the_hat said...
Flash - The window smashing thing is a generally regarded thought experiment in the area of economics - maybe I was wrong to assume you didn't have a 'complete lack of economic knowledge' - there goes
38. matt_the_hat said...
The only multiplier effect I know of is FRB - anything else is the government thinking it keeps the world spinning round.
39. mark wadsworth said...
Flash, in that case we shall have to agree to disagree.
I think that if Corus did that, there still would be an overall loss to society - sure, the shareholder loses £1 zillion and various wacky scientists would gain £1 zillion, so best case, the impact is zero. But what we would be losing is the things that those scientists could have invented instead.
Just because there is a clever definition for the multiplier effect does not mean it exists. A commonsense approach says people (whether private or public sector) should do things that ADD value and not do things that DESTROY value. Some of what the state does ADDS value (in particular things like police and law and order), some is neutral (like redistribution via tax and welfare, 'free' education, 'free' healthcare) and some clearly destroys value (like quangocracy).
40. matt_the_hat said...
Exactly Mark its the misalloaction of resources (scientists) and oppertunity costs. Flashman roughly translated its poo poo
41. techieman said...
MTH "The only multiplier effect I know of is FRB - anything else is the government thinking it keeps the world spinning round." erm hope this helps ... http://en.wikipedia.org/wiki/Multiplier_(economics)
of course it doesnt work if the mps is 1! ;-) MPS? try http://en.wikipedia.org/wiki/Marginal_propensity_to_save :-).
EST @ 22 - i responded on that other thread.
HPW / Bdeed - how can that be right ? What happened to my enemy's enemy being my friend? Are you both my friends now?
42. flashman said...
mark w and matt: I am not a fan of wasteful and inappropriate spending. I merely responded to the ludicrous suggestion from the first post:
"Fact: That Government spending has been on social security payments that have no marketable outputs to replace the wealth spent on them"
There is undeniably some economic output from government spending. It is a dry fact, not a pro government spending statement. I would personally like government spending to be cut by about 30%. You might both wish to see even more cuts but we should not allow a belief in efficacy of cutting expenditure, to turn us into zealots who deny the existence of inconvenient truths.
Of course sensible productive spending is always better and I clearly indicated that Corus' attempt to turn leading lead into gold would be wasteful. All I said was that if they went ahead with this project, there would still be some multiplier effect. If you deny this then you also deny that the employees of such an endevour would spend their earnings on goods and services. I also clearly indicated that the knock on effect (multiplier) from a fruitful enterprise would be greater.
“Just because there is a clever definition for the multiplier effect does not mean it exists”
mark: I am certain that you know it exists and I am equally certain that you have allowed your crusade against government spending to cause you to whiplash against even the merest suggestion of the term (it is after all sometimes used by lefties to justify government spending). It is easy to argue that there is no multiplier effect on an anonymous blog but I’m sure you would not take this stance if your professional credibility depended on it. It is economics 101.
Just so there can be no doubt:
I don’t like excessive government spending. It is wasteful and damaging to our economy. Most government spending does cause the multiplier effect to kick in but the multiplier effect would be far better if the spending was on somethink sensible and productive. OK?
43. letthemfall said...
MW "Quangocracy"
That's your favourite word isnt it. What constitutes money well spent is a matter of opinion much of the time. Even taking the quangos you really don't like - the football one appears quite a lot in your posts - these will produce at least some value, but it may not be measurable in hard quantitative terms. Even if it could, the true value is always in doubt - hence all the economists and their opinions.
A majority of the interpretations about value on this site seem to stem from party politics. So we get all the trumpeting about money wasted on unemployed yobs and any area of public spending that does not meet with approval. But few if any parts of public spending are without some value. Social security, regardless of arguments about multipliers, keeps people alive and in a condition to work in future, to put it in economic terms. Unless we want to live in world where everyone is treated as a production unit (for the benefit of the rich?), this spending is essential. I would argue that not nearly enough is spent on bringing our society to a state where wealth is not so polarised and 3 million-odd are not filling their days with grim job hunting or fatalistic rumination.
As for misallocation of resources - talk to the banks.
44. mark wadsworth said...
LTF: I don't think it is opinion at all. You have to look at costs and benefits.
a) The government pays for somebody to go and do the shopping for old ladies = the benefit probably outweighs the cost.
b) The government pays for somebody to draw up a national strategy for a programme of people to do shopping for old ladies, with a PR department, a lobbying department and a liasion office in Brussels = the cost outweighs the benefit.
Sure, there are marginal situations, but hey.
Flash, OK then, how about this for a compromise statement"Although there is a Multiplier Effect, its benefits can be wiped out by the accompanying misallocation of resources and the deadweight costs of the taxes that have to be raised to fund the additional government spending"??
45. mark wadsworth said...
PS, when did I ever day that the credit bubble and bank bail outs were not a massive misallocation of resources? Have I not railed at length about debt-for-equity swaps and land value tax to cut them down to size?
46. letthemfall said...
mark w
But are there such things as b) set up for such simple tasks in the public sector?
There must be plenty of private companies with all the depts you mention. Why is that not a waste of money, paid for in the prices we're charged? I come across private sector inefficiency and incompetence nearly every day. I'm happy to accept that it exists in the public sector, but you have yet to offer any evidence that it is worse there than the private.
47. letthemfall said...
mark w: You have indeed criticised the banks (in my view they can't be criticised enough) but quangos are the real bee in your bonnet; even if they are all a waste of money, it is tenths of pennys in comparison to the pounds the banks have wasted. I've certainly got quite annoyed by iffy service from the public sector - though to be fair it is not too common in my experience - but it is the big companies, especially banks, that give me the real grief. I could tell you stories, but then I'd have to use very bad language.
48. mark wadsworth said...
LTF: "There must be plenty of private companies with all the depts you mention. Why is that not a waste of money, paid for in the prices we're charged?"
Yes there very much are, but you only pay what you are prepared to pay. If you're getting a good product, do you mind whether that goes as higher salaries for workers, dividends to shareholders, massive profit to owner or indeed massive 'waste' on marketing and lobbying? In fact, do you care whether the company is racking up huge losses? I'd like to think not. And if you do mind, then you are free to only buy goods and services from those businesses you think are ethical.
As to banks vs quangoes, they are (in the grander scheme of things) as bad as each other...
The quangoes burn through £100 billion of taxpayers' finest each year, and at current levels, the banks also burn through £100 billion. What might tilt the balance against bank bail outs is that they are propping up house prices, but you could say the same for overpaid civil servants who must, by definition, also be propping up house prices (via their own mortgages or BTL portfolio). Hmmm.
49. flashman said...
mark w @ 44: It's a deal. What fun.
For what it's worth, I think that we should cut public spending by about 30% and then turn straight around and use it for more government spending. The private sector is incapable of allocating sufficient resources to the creation of infrastructure and new industries. They sometimes have a desire to do the right thing but most of the necessary projects are too large for them to digest. I would like to see government/private initiatives that are strategically designed to give us a future in energy and other modern high tech industries. The Japanese had a strategic 5 industry plan after the war and they succeeded with a massive cooperation between state and the private sectors. Sometimes all the state needs to do is give tax allowances for research and investment but more likely they will need to jointly fund the projects.
If anyone doubts my statement that the private sector is incapable of allocating sufficient resources to the creation of infrastructure and new industries, then consider the broadband fiasco. We have a disgraceful network because it is not economic to create sufficient infrastructure. How are we going to lead the world in anything serious like energy if we can’t manage broadband under the current system?
50. letthemfall said...
£46.5bn 08/09 (according to Guardian). But some quangos are worthwhile - the Environment Agency for one, which I know does some pretty good work (that we really could not do without), and pays its staff indifferent wages.
In the end the banks will have wasted far more than any notional waste in quangoland - the decaying US housing for instance. It is true to some extent that one can choose from whom to buy stuff, but the rise of the big corporation is limiting that now. With banking there is a limited choice and they all offer similar levels of (terrible) service. I'm sure I'm not the only one who remembers the customer service one used to get, and compares it to the call-centre queue, customer-is-always-wrong-so-tough-s.... attitude now.
Public or private, however, wasted activity is still a waste, whoever is paying for it. I'm sure we both agree there are many areas where good work is needed that are not getting it.
51. mark wadsworth said...
Flash: "The private sector is incapable of allocating sufficient resources to the creation of infrastructure and new industries."
That may or may not be true - but a large part of what is holding the private sector back is the NIMBYs and Greenies. We could have all the ports, airports, factories and power stations that we needed at zero cost to the taxpayer if the government told the NIMBYs and Greenies where to get off and dished out planning permission left, right and centre. And with LVT on those new sites, it would be a win-win for the taxpayer!! A more extreme example is the Corus plant - the government gave them so many free carbon credits that huge resale value that it was more profitable to shut it down that to keep it going.
And don't get me started on the EA. Why isn't it just up to every local or county council to see where there's need for flood prevention (or whatever) measures, work out what it costs and ask local property owners to vote whether to go ahead with it or not - on the understanding that the cost will be met from land value tax?
52. matt_the_hat said...
Gents we are in the midst of Gordon Brown centrally planned green economy where we all cycle to work whilst China builds a coal fired power station per week.
53. Denis Cooper said...
flashman @ 9:58AM -
"The government does two things to encourage the banks to lend. Firstly, they drive down yields to discourage the banks from buying treasuries (by buying them themselves). Secondly they take toxic assets away from the banks so they have no other impediment to lending. They are tying to create an environment where banks can only make money by lending to businesses and people. I don't really like the policy but that, in a nutshell, that is QE ."
QE is being implemented through the Asset Purchase Facility, and when that started Darling explicitly instructed King that the facility should only buy high quality assets:
http://www.bankofengland.co.uk/publications/news/2009/005.htm
Hence if you look at what the Bank now holds:
http://www.bankofengland.co.uk/markets/apf/results.htm
it's 98% gilts, 2% high quality commercial assets and 0% toxic assets.
Your argument that the government is discouraging banks from buying gilts doesn't square with the fact that the Debt Management Office has been selling new gilts as fast as the Bank has been buying up previously issued gilts.
Putting two and two together and making something pretty close to four, the overall effect has been that 98% of the new money has been passed, with some transmission losses, into the coffers of the Treasury, and then it has been used by the government to help pay its bills.
54. letthemfall said...
MW "but a large part of what is holding the private sector back is the NIMBYs and Greenies."
Now that really is the party animal talking!
Smoke me a Ukipper, I'll be back for breakfast.
BTW the EA do a great deal more than flood prevention. They also deal with the many pollution incidents in rivers - you know those watery flowing things in the countryside and towns.
55. 51ck-6-51x said...
Flash said "the private sector is incapable of allocating sufficient resources to the creation of infrastructure and new industries"
- I say "... is often times incapable".
I think I would say this really boils down to the generic problem of the provision of public goods and is the underlying reason for the existence of government.
As we are, I would agree with you (with the insertion above), however I can imagine a world in which private enterprise could provide such a service, the key, however is having markets in all externalities. Ideally we would have no regulation as all externalities would be priced thus there would be no need for regulation. Having regulations and the democratic process slows down the progressive march toward these markets: When a set of regulations fails we implement a new set, rather than start markets in the root cause externalities. This is, in a nutshell, why I am anti-state. I don't foresee The Right Thing happening any time soon though (the political world makes far too much from externalities ;p)
56. 51ck-6-51x said...
"but a large part of what is holding the private sector back is the NIMBYs and Greenies"
- That does not necessarily imply it is bad to have green views (or wants) or to want to stop one's neighbourhood changing in any particular way, it also comes back to the pricing of externalities. If I don't want a prison built 500y from my front door it is worth something to me to not have it built over any given period. Again it comes down to the very same thing. (see my previous post)
57. letthemfall said...
51ck
It seems to me that the best models at present are the closely regulated and fairly highly taxed, such as the Nordic countries, in that they are stable, relatively wealthy with comparatively low crime. Not perfect, but many merits. In contrast the more free market models like the US (and UK) have the problems we know well.
Now I'm guessing you will say that our free markets are not true free markets. However, it seems to me that the kind of system you envisage is a counsel of perfection and thus impossible. Or at any rate, I think the chance of our perishing by global warming far higher than achieving the Right Thing.
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59. rumble said...
FM, "We have a disgraceful network because it is not economic to create sufficient infrastructure"
Surely if it's not economic, it's not economic, regardless of who does it? If the private sector won't touch it, doesn't that indicate that the government should probably avoid touching it and screwing the tax payer?
LTF, "Unless we want to live in world where everyone is treated as a production unit"
What do you think socialism is? You're a variable in a government formula.
60. flashman said...
rumble: That's a bit like saying you shouldn't buy a house if you can't pay for it all immediately or that a factory should not invest in modern machinery if it cannot buy it out of petty cash. It's a matter of investment. Good infrastructure will pay dividends for years or even generations to come. We can't afford to stick our collective heads in the sand and say "if we can't afford to buy it out of our current account, then we can't buy it at all". An attitude like that would result in Britain becoming a third world country within 20 years. We have already lost too many important industries through lack of investment. The French and the German governments have always stepped in to protect or invest in an industry if they think it is in the national interest or that it is strategically/structurally important. Nuclear energy is a good example. We now go cap in hand to the French for our future requirements. The difference is that their government spent public money on supporting the private sector. It was a very good investment for the people of France. We had oil while they didn't but through investment they now have a better energy future. We have a chance to do something about it if we invest heavily in renewables. The private sector can not do it alone
61. rumble said...
Hey Flash,
Regardless of how a project is financed, if it's not economic, it's not economic. It doesn't become economic just because we can shift the cost onto subsequent generations. (Unless it is economic). And if the government can't predict finances over a couple of terms, how on earth do they predict the finances of future generations? Never mind whether they have the right to impose financial burden on future generations who have no say in the matter. Borrowing from your grandchildren - why does that sound familiar?
What is wrong with the current broadband network? Are you sure it's not economic? Is granny smith browsing web pages off in village x really in need of broadband? Or joe soap mid-dales needing to watch porntube? I reckon the broadband network is probably quite economic, present where it returns value, not present where it doesn't - just because people don't have what they want does not mean it is not economic.
Bearing in mind that the private sector would have (not even fag pack) 250% of current cash to invest if the government weren't stealing it all, it would be able to fund substantially bigger projects. I suspect red tape is the primary pita. Probably also some unfair competition with gov-favoured corps. And what about opportunity costs - what would we have done with all our extra cash - nuclear might not be necessary if individuals could spend would-be tax on solar panels. Another example of my preference for decentralisation - energy.
You have raised the question: how are the germans and french so much better at managing public finances than the english?
62. flashman said...
Hi rumble:
It all seems to hinge on how we are using the word "uneconomic". In this instance, I am using it to suggest that some things/investments might not be affordable under the current system but that these same things might be very economic/profitable for us if the system were changed. Maybe we could achieve the required investment by burning our poxy government system to the ground or maybe we need to tweak the system. That, however, is another debate.
The broadband thing is a very small matter that I used to illustrate a point. I have very little interest in it but I am forever reading articles about how behind we are with our broadband system. Our government has issued a paper on the urgency of improving the system. They and other government’s seem to think that it is a very important piece of infrastructure for future growth and efficiency. Obviously the cun*s wont do anything about it but that is also another matter. I am more interested in investments in energy and modern industry/infrastructure. We really need these things for our future prosperity but the private sector can't deliver them under the current system. Maybe they could if the government weren't useless and oppressive but that is beyond the scope of my comments. I want to see my country do well and for that we need investment that the private sector cannot deliver under the current system.
Why are the Germans and French better? That is a huge subject but generally they are more patriotic and forward thinking. They protect and nurture their national assets. They would never have allowed national treasures like Rolls Royce, Bentley, Aston Martin, Jaguar, MG, Triumph, Rover, Mini etc to fall into foreign ownership or disappear. Obviously some of them might have been outdated but I’m sure you get my drift. The nuclear power industry is a better example. We virtually invented the thing but the French now have the whip hand. Their government subsidised the industry for years and it is now a real and lasting source of profit for them. If the government had not helped it would have been “uneconomic” for the private sector to proceed
63. rumble said...
I was being tempted by a triumph just a couple of days ago... hmm... Brand value, built up over decades, then handed away. On the nuclear front there are traveling wave reactors which the UK may be able to implement to catch up. A generation or two of a technology can often be skipped to financial benefit.
64. flashman said...
Which Triumph? I once had a Triumph Herald. Lovely car but I got ripped off because the previous owner had done a beautiful job of filling the wheel arches and floor pan with filler and black gunk. The MOT man poked a screwdriver right through everything and it got sold for parts. Those were the days
I'll have look at travelling wave reactors
65. 51ck-6-51x said...
LTF, yes I would be inclined to agree with you that given the standard system of a democratic government and capitalism tussling the Nordic countries seem to have struck a pretty good balance; but maybe it just comes down to the people they have doing the public work more than anything else* - in which case maybe it's the way their public servants are remunerated?
* a left-wing government tends to perfection if those that are in power are saints and have time to do their jobs.
66. 51ck-6-51x said...
LTF ...continued: Note that if one has regulation, more regulation is indeed generally better as distortions are pushed around more. The bigger picture, though, is to follow the externalities - does the Nordic way end up making for a worse third world, for example? Something to think about.
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