Wednesday, 31 August 2011

Too Pretty for Homework...

I noticed a minor Twitter-storm recently. American retailer, JC Penny was selling a T-shirt, Which bore the Legend "I'm Too Pretty for Homework, so My Brother Has To Do It For Me.

Pretty crass. If I saw it, I would think that I wouldn't want MY daughter wearing that, and I wouldn't buy it. But then I believe in freedom. A lefty seeing the same thing has exactly the same reaction, but adds "... and I think NO-ONE should be ALLOWED to buy it either"

They then accuse the store of Gender Stereotyping and furiously dash off angry screeds, and then bask in the glow of VICTORY when JC Penny put the following up

"JCPenney is committed to being America's destination for great style and great value for the whole family. We agree that the “Too pretty” t-shirt does not deliver an appropriate message, and we have immediately discontinued its sale. Our merchandise is intended to appeal to a broad customer base, not to offend them. We would like to apologize to our customers and are taking action to ensure that we continue to uphold the integrity of our merchandise that they have come to expect."
I mean I sort-of agree, I sort of understand, but it just wouldn't occur to me to give a shit enough to do anything about it beyond not buying it. This endless activism of the left, over mere trifles like t-shirt slogans strikes me as a bit hysterical, and it scares me, as it's more evidence of the left ruling offside speech they deem wrong. Today, a mildly offensive kiddies t-shirt slogan. Tomorrow, criticism of the Sainted Obama. Am I wrong to think like this and fear their tactics?

Risk Fetishisation

Bicycle helmets save lives, don't they?

In any given accident, they have a 16% chance of reducing injury. They have little or no effect, however when you are hit by a car. They do cause drivers to subconsciously assume a cyclist is protected, and less vulnerable and cause motorists to drive closer when passing. They may therefore INCREASE the risk of the type of accident where wearing a helmet won't help. The cyclist himself may too take more risks if wearing a helmet. There is no data on this, but risk-compensation in other areas is well documented.

But by far the biggest effect of the cycle helmet is that it sends a message to non-cyclists: cycling is dangerous. By far the biggest effect on cycling safety is numbers: the more cyclists there are, the more drivers get used to driving with them, the fewer accidents. The fewer accidents, the more cyclists. By far the safest cities to cycle in are on the continent where everyone cycles and no-one wears a helmet. The health benefits of cycling both physical and mental far outweigh the risk of being killed or injured. This is why I cancelled my order for a cycle helmet this morning.

Of course cycle-helmet manufacturers want to encourage their use. Governments, aided by the popular press (who put whether or not a cyclist was wearing a helmet at front and centre of ANY story about cycling injury) assume they help, and are actively considering compulsion. Naturally those disgusting fascists at the BMA are foursquare behind a mandatory helmet law. Who benefits? Cycle helmet manufacturers. The police who have ANOTHER reason to stop someone at will. Other cyclists will not benefit from the safety in numbers as cycling remains a niche mode of transport, and cars will still be mystified by cyclists' behaviour.

Where ever mandatory helmet laws are put in place, the kind of casual cycling for transport you seen in the most "livable" cities in the world - Copenhagen, Amsterdam disappears. Cyclists therefore become the Lycra Nazis. An other tribe of weirdos, bunny huggers. If only the cycling enthusiast cycles, its less safe for everyone. When Copenhagen started "encouraging" helmet use, the growth in cycling stopped. The car, with its particulate emissions and rapacious need for parking has another victory. Melbourne's bicycle hire scheme failed mainly because of a mandatory helmet law, which reduced head-injuries amongst cyclists by amost exactly the same amount as cycling rates dropped. The law didn't make people safer, it made one mode of transport appear more dangerous than another equivalently dangerous means of transport.

We've become scared; it is the fear that keeps people in line. We meekly accept ridiculous security theatre in Airports, ever tougher laws and police powers to "keep us safe" when we live in the safest, healthiest, longest-lived most protected lives in human history. It's not just mandatory helmet laws. It's banning boxing, limiting your right to have a pint in the pub at 23:01. It's about limiting your right to have a cigarette with a pint at ANY time. You cannot even have a sly fag at the end of a train Platform, and you're constantly harangued by disembodied voices and watched over by CCTV. Government sets people against each other in the search for legislative solutions to keep us safe and well. It is not US who benefit, but those who seek to control us.

It all started with the mandatory seat belt law and helmets for motorcyclists, that may have in themselves been good ideas. However we're so far down the slippery slope, now look at us. People are buying helmets for children learning to walk. How long before they're mandatory? And what are the side-effects of such a product inculcating a child with the idea that the world is DANGEROUS, not exciting?

Of all tyrannies a tyranny sincerely exercised for the good of its victim may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated, but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.
I give you our future.

In Case He Falls Over.

Saturday, 20 August 2011

MoneyBox Live

Here's me, talking to the BBC's Moneybox live program, talking about Petrol Prices (5 minutes in) and the chances of a "Lost Decade" for the UK economy (20:30 & 22:45). They let

..."We shouldn't get sucked into a 'Stimulus Trap': Government cannot create demand out of thin air. Economies grow essentially by Government getting out of the way, allowing the Private sector to innovate"...
through, unchallenged. Economic sanity is gaining ground.

Thursday, 18 August 2011

It's the End of the World...

...As we know it.

The Eurozone is bust. Either Germany must shoulder the financial burden of the Empire she has desired since 1871 or the Eurozone must break up into two or more parts.

The USA is reaching the limit of the capacity of the markets to accept its borrowing, and while yields remain low in the AAA rated countries for now (which S&P's show-boating aside, the USA still is), loose monetary policy for most of the last 2 decades means inflation is catching up. If inflation expectations become entrenched, there is no way investors will accept negative real yields as German, British and American government debt currently is. Any monetary stimulus will be short-lived. Swiss debt is now trading at a negative yield BEFORE you adjust for inflation. The "Flight to quality" is smashing the economies of Southern Europe. So Fiscal "stimulus" even were it possible, is utterly unsustainable.

The Euro is a mere distraction to the end of the fiat money system ushered in by President Nixon as a response to the cost of the Vietnam war in 1971. Since that point, inflation has been rampant. Credit expansion, both public and private has fuelled a boom, which has raised living standards. A population bubble, the Baby-Boom stoked up asset prices around the west, but are now downsizing houses and liquidating assets as they retire.

Ideological adherents to Asset-Backed money, free-banking and so-on, or Gold-bugs will not get their way. But Governments are going to have to act more like their currencies are asset-backed. The days of inflationary growth ever eroding never-ending deficits are over. Government as spender of last resort is finished. The Tea-Party caucus in the house of Representatives, head-bangers though they are, have just secured a pivotal victory which makes the debt-ceiling a political tool to weaken the executive. That this was done BEFORE the market turned against the T-Bond is heartening. History will show that as the Turning point. We in the west will remain rich but the effortless credit and Government debt boom is over. It will take several years for this to sink in, and Government will learn to live within it's means, or destroy economies. This is as true for the USA as it is for Greece.

Our Coalition gets it. The Tea-Party gets it, and forced Obama to do so too, so the UK and USA are OK. China and India are growing fast as their per-capita wealth catches up (a process which will take a century or more). Will Europe get it? That is the short-term question - with Long-term implications.

Monetary and fiscal "stimulus" however large will be but a sticking plaster on the gunshot wound of the much larger effects of the end of a 40-year credit cycle. This is the reality: either we can bring public spending under control at the risk of deflation as asset prices fall and banks collapse, or we can have inflation eroding the real spending power of money to reflect the smaller economy. Either way, living standards must fall to reflect the fact that we've been borrowing from our futures for decades and we (yes you and me) are being asked to pay. We, generation X, have to buy houses off the Baby-Boomers at inflated prices, pay for our own pensions, and their pay-as-you go systems which we will not receive. Their shares went up from 1979-2000. Something we are unlikely to enjoy. We will NEVER get out of debt, not till our parents die, well into our sixties.

Thanks, Dad.

We stand at a cross-roads. Financial, political (the rise of the East) and technological (this post is worth re-visiting). We have an opportunity to create a rich, free and dynamic society if technology is embraced to make Government the servant of people, not it's master. The only hope is that public spending cuts and supply-side reform can re-invigorate a dynamic and entrepreneurial economy. But the Minimum-wage, the political impossibility of financial deregulation post Credit Crunch, and the idiotic parties of the left will make this very, very difficult. I remain an optimist, but a new financial order does not come painlessly. The question is - are we 3 years into a great recession and through the worst, or are we about to go into the real dip as major currencies implode? Anyone who thinks they know, is wrong.

Friday, 12 August 2011

The Lunatics are in Charge Again.

When market crashes happen, there is always some politician who blames "speculation" for the fall in share values. Specifically "short-sellers" are blamed. This is where stock is lent (for a fee) to someone, who then sells it hoping to buy it back later at a lower price, pocketing the difference.

By banning this process, governments hope to stop the markets falling so fast. However it doesn't work.

  1. It signals panic, causing long-only investors to sell out
  2. It causes the unwinding of pairs trades (where you go long for example Barclays and Short RBS) - this means buying RBS and selling Barclays.
  3. It forces buying of the bad stock, which often has to be paid for by sales elsewhere.
  4. by removing a significant chunk of the market's power to signal the correct price, volatility often increases.
Europeans often blame "anglo saxon capitalism" for their financial crises. This one, however can be laid squarely at the door of that stupid political vanity project, the single European currency. Banning short selling won't change the end result: The suffering of the People of Southern Europe.

Wednesday, 10 August 2011

Riots. They happen from time to time.

When thinking about the recent riots to have engulfed the country, I tend to agree with the Left-wing analysis of why these kids are looting, but agree broadly with the moderate rights's approach to dealing with it. First, lets be clear. This isn't about race - there are no Asians rioting. Muslims are conspicuous by their absence from the rioting mobs, except as they defend their communities. The Asian community's retention of values, however alien, means their young men don't steal, don't rob, don't smash things up. This is about feral black and white youths who've lost any social guidance, from multi-generational welfare homes who are ultimately rioting because rioting's fun. (No really, it is. Find a riot trained policeman and ask him why he volunteered...). They are rioting for stuff - the lawlessness is presenting economic opportunities for loot. They are therefore rioting because they can, and the consequences they will face, either from the police in terms of violence or the Judicial system, are not to be feared. They are rioting because they are utterly without any moral sense of right and wrong after decades of non-judgmental social workers indulging their behaviour, as left them with a sense of grievance (not your fault), but no means to do anything about it. There are no consequences on the job market for these kids. Few of the rioters will ever hold down any more than a precarious minimum-wage job. What's a few weeks inside to a kid like this who still lives with his mum? Yes these kids are rioting for reasons of economic, moral and spiritual despair, lashing out incoherently against a society which has failed, then abandoned them.

Who is the bloke in the Chinos? We need to know.

So the left will focus on the social deprivation, the right on the moral despair and lax criminal justice. Just because there are economic elements to the despair, though, doesn't mean the state should give ever more money. Likewise, though the manner of the protest, and any expression of it may be violent, nihilistic and incoherent, doesn't mean society hasn't failed these kids and failed them completely. The fact that society has failed them, through lack of opportunity, shitty schools and broken promises, however doesn't excuse their actions, and punishment must be harsh as the law allows, and swift as possible.

The police just need slightly more robust rules of engagement. So the solution in the short term is to rapidly increase the costs of rioting, and that means letting the police, who have so far exercised impressive restraint and discipline, hit them a bit harder with sticks a little more freely. With such a loss of control, a steady escalation of force used is reasonable. A few injured rioters for which the police face no consequences as the higher command back their boys, would make the scrotes think again, and improve both the morale of the police and those who are paying them. Likewise those citizen patrols protecting their communities - from Turks, Sikhs and Milwall supporters people have turned out to say "enough, we're going to defend ourselves" should be given support as there are just not enough Police to be everywhere. However, more excitable commentators have suggested shooting looters, and applying more draconian riot control methods. The solutions do NOT include bringing in the Army, fun though it would be to see the Parachute Regiment go all fighty on rioters. Nor are baton rounds, tear-gas and water cannon going to be much use. The disorder is too dispersed. Plus I quite like living in a country where these things are not allowed. The death penalty will NOT be applied to people who've just nicked some trainers from Foot-Locker.

So the stupid right is talking nonsense, but so's the stupid left, who think state spending is a solution to everything. The solutions do NOT include rethinking "the cuts". These kids are not rioting because the local youth-centre was shut. The people doing the rioting are the ones who burned down youth centres, not use it. Housing too is part of the left-wing solution. More council housing is the cry. But is it really sensible to herd the most despairing people into ghettos of "social" housing? Surely the state getting out of the housing business would mean fewer Broadwater farm estates in which rioters congregate. Subsidise private renting if you must, but demolish these concrete jungles. Part of the solution involves jobs, and that involves a dynamic economy. But as one heckler of Boris Johnson suggested raising the minimum wage, it's clear the left doesn't understand the economics of job creation. Cuts are necessary - vital - to create those jobs. But the primary barrier these young men face are not economic. Jobs for illiterate, uneducated, ill disciplined scrotes are going to be hard to create in any economic climate, but moral. Would YOU employ these feral youngsters? Anyone... anyone... Me neither. The solution is one of tough love, tougher policing and scrapping the economic barriers, such as a minimum wage and generous life-time benefits which prevent them getting jobs.

The longer-term solution is education - fewer failed schools; fewer illiterate, hopeless kids. Education is important, but it's not money, it's improving schools and markets are much better this than governments. Broadly the coalition's academy program, and longer-term, a full-blooded free-school and voucher system will change the face of British education, especially for the poorest.

Broadly these reasons are economic and social. The rioters have so little stake in society they feel justified in smashing it up. There are few consequences that can be imposed to deter, and few opportunities to prevent disorder.

Finally, and most importantly. Riots happen, everywhere from time to time. They are much rarer in ethnically homogeneous Scandinavia or Japan, but not unknown. Riots are more common in big, ethnically diverse cities. Even in Canada or Australia -rich, but relatively low inequality countries, riots have happened - this isn't about GINI coefficients. It's about poor people without a stake in the society, lashing out. Toronto recently had hockey violence, Sydney ethnic violence. The Paris Banlieus often go up in flames as North African youths riot. Los Angeles, New York have all experienced race-riots in the last few decades. Riots once in a while are the price paid for freedoms. They can be avoided, mitigated or controlled, but not eliminated entirely.

So far in the UK summer of rage, 2011, four people have been killed, one of whom appears to have been involved in the riots and three run over protecting their community - I'm not going to comment on their cases, because I have no facts. Crucially none have been killed by the police, while (as of last night) over 100 police officers have been injured. These factors remove the opportunity for more martyrs, more violence, more protests, more repression. The Family of Mark Duggan have been dignified, and deserve answers. Again, best not to comment, as I have no facts, but they're no catalyst for an even greater sense of grievance, for which we should thank them. The fact the police have been so restrained MAY have contributed to the odd burned out building, but it means the rioters are losing legitimacy, even amongst those who might have supported them had the police reacted differently. Ultimately "the moral is to the physical as three is to one".

Riots happen, just like market crashes and for the same reasons - a herd mentality. The British police have handled themselves in an exemplary fashion. The British state, and British people are capable of cleaning up the mess. Life will go on. The important thing is to deal with the effects of riots, punish the perpetrators and help the victims rebuild their homes and businesses. Don't let the bandwagon jumpers agitate for either a reversal of the necessary economic reforms or further curtailments of civil liberties, both of which ultimately will serve to further alienate and disadvantage the communities from which the rioters can't escape.

Saturday, 6 August 2011

That S&P Downgrade. The Music's stopped.

It's important to understand exactly what the ratings agencies do. Their ratings are merely opinions. They are not regulators, though regulators take their work rather too seriously. They do not set rates - the market sets rates - though they take rather too seriously the ratings agencies' opinions, mainly because it allows lazy traders to price the risk of a given security according to their rating without doing that boring maths stuff, or any tedious analysis.

The USA is not about to go bust, but the deficit is rising, the debt is rising, and rising at an increasing rate. This is President Obama's "stimulus" program, and it has failed utterly, just as every other stimulus program everywhere has failed during this crisis. The problem is that of decades of Governmental overspend. In the USA the benefits of relatively low tax-rates are eaten almost entirely on increase health care costs, something Obamacare does almost nothing to address; it just moves the burden a bit from private to public. So the western world entered the financial crisis with Government spending between 40% and 50%, as Governments found it easier to deliver jobs by borrowing to build a bloated state bureaucracy and generous but inefficient state services.

During the cheap-money boom running from the late 90's to 2008 economic growth was accelerated by the money borrowed by Governments, and the money borrowed by people against the rising value of their homes. Public and private debt across the western world grew as Governments and home-owners spent cheap credit. It was the household debt, sliced and diced by ex-ratings-agency employees in ways to game the algorithms to generate the necessary grades to allow investors, who don't look too closely under the bonnet, to buy them.

House-price inflation is just inflation, but this was not captured in statistics used by the central banks to set interest rates. Gordon Brown chose CPI, which excludes most housing costs, instead of the far more appropriate RPI, which doesn't when setting the central bank free to set rates. As a result, British interest rates were too low during the 90's or 00's. Similar sleights of hand happened in the USA. Of course it was the private sector credit which went pop first - and the web of debt, and the financial instruments secured upon it fell apart and banks went bust. Ireland and Iceland were bankrupted by the cost of bailing out the banks.

A chunk, but not the lion's share of the UK's public debt is the cost of bailing out the banks. But the UK was running a deficit BEFORE the crisis, as was the USA. Governments were trying to keep the party running by borrowing money. Eventually the music stopped. The size of the UK's and Ireland's deficit is partially due to the collapse in Bank's tax-bills which had underpinned public spending. In the USA, the Bush-era tax-cuts (and discretionary war-fighting) are the main reasons for the deficits. the Bank bail-outs (and that of motor manufacturers!!!) were the main reasons in the US. Governments desperately trying to keep the music playing by pulling the "stimulus" levers on their monetary (low interest rates) and fiscal (excessive state spending) levers.

So the wheel came off the financial system, leading to lower tax receipts from that sector. The correct response would have been to cut spending to reflect the new reality. But for the last 2 years, countries with open economies and floating exchange rates, whose policy makers surely knew that the fiscal multipliers were probably less than one, sought to "support" the economy with continued state spending.

This attempt to keep the party going was doomed to failure. Now for the good news. The US and UK political systems and indeed democracy, are mature enough to call "enough". The Tea Party caucus stopped Obama's lunatic stimulus program and demanded a return to balanced budgets, and crucially they called for the majority of this fiscal contraction to come from spending cuts, not tax rises. In the UK the electorate was persuaded that ever more spending was not the answer and elected a Conservative-led coalition which had not shied away from the need for spending cuts. In the UK spending cuts are about to start, or "bite" as the BBC keeps telling us. This may be expansionary, if it means that confidence in money and the economy returns.

The UK and USA are going to be Okay. Our public finances will be brought under control. The USA will regain its AAA rating in time, and we may even experience growth while doing it. (This will surprise the Keynesian and the BBC).

The economies of Southern Europe don't have the excuse of bailing out banks for their crisis. That can be laid squarely at the door of the Euro, a political vanity project which is now destroying economies and lives, because sharing a currency doesn't make Greeks or Italians into Germans. The ultimate cause though is the same. Decades of cheap money artificially boosted the economy leading to an asset price boom. Governments unshackled from the constraints of the markets were able to borrow to buy votes, until bond traders noticed that the Greeks and Italians were not behaving like those parsimonious Germans and started to drive down the price of their bonds. The music has stopped, the money must be paid back, and Governments MUST cut their cloth according to their means.

Who's going to spend more to close the gap? Well that's obvious. The Japanese people have to start spending their savings (while their government reins in its spending). The Chinese government will find the returns available on its surplus heading to zero if it continues to buy dollars to keep the Yuan down. They will have to start running surpluses and let their currency appreciate.

It ain't all bad. The world has plenty of demand - 2 Billion south and east Asians are getting richer faster than ever before in the greatest expansion of wealth in history. Why aren't we celebrating this, and seeing it as an opportunity? What we need is Governments to realise they can't and shouldn't run deficits or surpluses for ever, and the less they manage the economy, the better that economy functions in the long-term. Indeed neither should people run surpluses for ever: You can't take it with you. The world's financial crisis are simply shocks which change behaviour to iron out these imbalances. It works, eventually.Link

Monday, 1 August 2011

The Debt Ceiling. What Politicians Say vs What they mean.

What Barack Obama says

"Spending cuts would not come too quickly to hurt the fragile U.S. economic recovery"
Of course, he KNOWS that state spending, in an indebted country with an open economy with a floating exchange rate, like the USA, doesn't support the economy, and quite possibly slows the recovery, the fiscal multiplier probably being somewhere below 1.

What Barack Obama Means
"Spending cuts will be talked about just loud enough to keep the punters buying our debt, but not loud enough to provoke strikes amongst the Democrats' clients in the public sector"
We have similar problems in the UK. There are few economic problems which couldn't be solved by firing 10% of the public sector, the vast majority of whom push paper around or whose job it is to interfere. The problem is that this will cause the entire public sector (probably including the 50% whose work is absolutely vital) to start shouting and breaking things. It may be obvious that half the public sector is useless, but the useless bit is the bureaucracy which is what decides what to cut, & bureaucracies' function is their own perpetu
ation. We're gutting the forces, releasing criminals and cutting police. Why are we not firing civil servants too?

In the USA as in the UK, "the cuts" fall on those without 'agency', the ability to influence the outcome. The problem is these are usually people doing something people value. Money is shaved off waste collection, resulting in outsourced bin-men getting the sack instead of tightly contracted, unionised council prod-noses. This results in the utterly ridiculous sight of the pen-pushers in the MoD outnumbering Soldiers in the Ar
my, who are too busy getting their legs blown off in Afghanistan to fight back. Bureaucrats don't cut themselves. Police numbers fall, whilst ministry of justice headcount remains the same.

The other reason apart from bloated, self-serving public sector b
ureaucracy, for the deficits in are "entitlements" (US-speak) or "Benefits" (UK-speak). Naturally, just like in the UK, the Left won't wear ANY cuts to these. In the US, because red-state America is much poorer than Blue, the Republican base won't wear any cuts to entitlements either. Neither will the republican extremists consider any tax rises, even the removal of loopholes & tax breaks. Nor will the party of supposedly small government (yeah, right) countenance cuts to farm subsidies (Iowa has disproportionate influence in the presidential primary season) or defence, spending on which is running higher than during the height of the Cold War.

In the UK, even the Labour party's position (though it is never stated as such) is for significant cuts, albeit slightly slower than the Conservatives, who are co
nsidering FURTHER amalgamations of storied regiments, cuts to policing, prisons, the Royal navy, RAF. (Some) Labour politicians are thinking seriously about changes to benefits, agreeing with the Tories (in principle) on a Universal Credit. Ignore Ed Balls' partisan Keynesian headbangery, the debate is rather grown-up compared to most countries. However despite, all the agreement, without cuts to benefits, we cannot balance the budget, here or in the USA.

It's not just about where the cuts must fall. Politicians have to stop making the excuse that this is a demand-led recession. We've had the biggest fiscal and monetary stimulus EVER, and it has not produced growth. You can argue that the stimulus has prevented worse; Obama or even the Guy who looked like Baron Greenback who used to live at 10 Downing St. are occasionally credited with "preventing a great depression", but that assu
mes this is about demand.

Gordon Brown

This recession isn't about people not buying enough. This is about an economy that is operating near its productive capacity (unemployment is relatively high, it's just many of the long-term unemployed are effectively unemployable, which is also why jobs go to immigrants), it's just that productive capacity needs to be retooled away from shoving paper around between Whitehall departments or poking your nose into people's sleeping arrangements for the council, and towards doing and making things people actually value. Because the economy is running at near capacity, extra stimulus merely creates inflation. What's that - lots of inflation in the economy? So we can't and shouldn't "stimulate" any more.

WHEN all those diversity mongs have been fired, and they've found jobs in the private sector THEN we will get growth, and not before. It's the moving of people from useless to useful jobs. But politicians rely on the bureaucracy to implement their grand ideas for the rest of us. So there will not be the savage assault on the public sector bureaucracy that's needed, here or in the US. The easy listening of Keynesian demand management is drowning out the supply-side reforms which will allow growth, and creating nothing but inflation. Interest rates need to go up, and bureaucrats (not soldiers, police, bin-men or road-menders) need to be fired, en-mass.

Of course, it won't happen.

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