Recently in Grumpy Category

I've just read the most compelling argument I've yet seen in favour of AV, made by Kate Kate Smurthwaite in her blog.

The problem is that voting every five years for a person you know next to nothing about just isn't a very good way of aggregating individual preferences into communal action. With 60,000 people in a typical constituency there is no way that an MP has any meaningful dialog with his constituents and increasingly is a creature of his party machine.

I do not suggest that MPs are evil, or corrupt or particularly bad men (or women). I am just saying that whatever technical form of voting you choose,  a few numbers scrawled next to people's name on a piece of paper every five years is a pretty useless way of communicating what you'd like to see your taxes spent on.

The solution has to be to delegate power down to local communities, but there is no incentive for anyone with power now to do this. The Big Society remains a meaningless slogan, largely because it's about devolving power to local communities without central government having any less of the stuff. Maybe tax raising powers and proper transfers of powers to local communities will happen, but I think this is highly unlikely. Currently Parish Councils get to spend approx 0.2% of the taxes raised from local residents. If this even doubles I'd be astonished. District and County Councils get to spend a lot more, but nearly all of their spending is regulated to death, notably education spending, where schools are very tighly controlled by the Dept of Education for example.

Related articles

• Yes? No? What actually is AV? (johz.wordpress.com)
• AV referendum: David Cameron says 'most voters have not even heard of it' (dailymail.co.uk)
• Full transcript | David Cameron | Speech against AV | Hampshire | 18 April 2011 (newstatesman.com)

I'm helping a close relative to obtain finance for a property he wants to buy. I have bought a lot of properties in my time, but every time I look for finance I am disheartened. The market is dominated by brokers, there are extremely few lenders, and those that are do not seem to give any kind of bonuses to those who want to borrow direct.

Brokers seem stil to push very short-term products, trackers or fixed rate deals that last for a two or three years, seemingly with the sole intention of forcing endless refinancing with endless refinancing fees. It's hard to see that any actual borrower would ever actually want a 2- or 3-year deal: transaction costs around house purchase would make it a disaster if you actually were going to move on that kind of interval. Although APRs are quoted there are so many flavours of fee that attach to mortgages that it's hard to be confident that the APR represents any measure of real cost. Especially given that the STV that kicks in after the fixed term might be competitive now but might be utterly usurous after a couple of years, especially if the lender decides that it's not interested in the UK market any longer.

The spreads over LIBOR or Bank of England repo rates being offered are still three or four (or five) times higher than a few years ago, except that lending criteria have been immeasurably tightened up, especially for commercial lending. 

The whole industry is a stitch up, the result of heavy regulation that prevents the likes of Zopa and other peer-to-peer lenders operating in this space. I wouldn't mind so much if these monopoly profits flowed to shareholders: at least then I could buy shares and get a benefit. It seems that all the excess income goes to pay very high salaries to senior managers in these banks.

The market has expressed it's take on the Vickers Report: it will be another piece of regulation that entrenches bank's anti-competitive position in the UK.

David Benson, writing in the FT, wrote:

"Regulatory barriers to entry in investment banking are now higher than before the credit crunch, creating an ever-stronger oligopoly still capable of generating supernormal profits. Following the bail-out of the banking system, the scale of public subsidy to the industry is also unprecedented, creating moral hazard from explicit state guarantees to unsecured creditors."

Lots of writers and bloggers, including John Kay in the FT, have pointed out that more regulation is not the answer to the question. The banking industry, and investment banks in particular, are some of the most highly regulated entities on the planet. The budget for the FSA is about half a billion pounds (here) which the FSA coyly states "is met from a levy on the firms we regulate", but of course in reality is met by customers of the regulated firms: do you imagine that when the FSA levy was introduced shareholder returns and staff salaries dropped to take up the strain?

I'm surprised that Benson was allowed to tell it as it is: investment banks get their supernormal profits from their privileged position in the provision of financial services, largely as a result of the very regulation that is designed to protect their customers, and taxpayers. Yes, it's true. Bankers don't get paid enormous salaries because they are smarter than the average worker, it's because they work in an industry where barriers to entry prevent economic rents being competed away.

So, it's just a matter of time before we start the cycle again, and banks build up a huge head of pride before they fall. There is an alternative though. Disintermediation is now easier than ever. It is perfectly possible for you to open your own dealing account and build up your own portfolio and do a lot better than that highly paid fund manager that you used to keep in Porsches. The City adds no value in routing funds from savers to borrowers. Just refuse to be part of it.
 

This letter is a classic plea bootlegger and baptist campaign. All the authors stand to receive, directly or indirectly, some tax pounds channelled into carbon capture and storage. They really don't care what the economics are and feel that we should all be grateful to pay something towards saving the planet.

The Treasury presumably wants to apply some rigorous cost benefit analysis to the subsidy. Politicians hate this kind of exercise, because voters vote on emotional grounds, and nothing is more emotionally charged than the environment. Well, OK, maybe the NHS, but that's more like a religion than a political issue. Why else would David Cameron charter a jet to travel to Greenland to be photographed hugging a husky?

A recent BBC Radio 4 documentary suggested that CCS cost around twenty times the current price of carbon emission permits.

In case you're too old to get the reference in the title, MRD refers to Mandy Rice-Davis and something she said when interviewed. Google her if you are not familiar with the story!

"Attending elite universities is not education--it's access to the peer group. There's a lot of truth to that. The actual education you get is pretty generic. If you were really diligent, you could open books and read it. What you are really selling is access to other students and to colleagues. Gateway to certain things--that's what you charge for, can't charge for knowledge. Does that hearten you? We've found a way? That's the way it is. Would prefer a world where people pay professors giant amounts of money to strew knowledge and enlightenment around to people who need it. But that's not the world we live in, so I make my way as I can. "

From Laughlin on the Future of Coal and Climate.

Education is a funny thing. It is expensive but is consumed by people who have no, or very little money. It is paid for by parents or the state, in loco parentis. The service consumed is never directly experienced by those paying for the service. It's a bit like law or medicine, where the there are very large asymmetries in knowledge between the supplier and the consumer. It's quite the opposite of some entertainment or a piece of cheese.

I remember discussing with some other parents the excellent university education that was on offer in the USA. Immediately they said to me that they would never want their children to go to abroad to study because the main point of the studying in the UK was networking opportunity. Implicitly the assumption was that the place of study would be Oxford or Cambridge.

It seems that there is some evidence for this view. I am pretty sure I've come across studies that suggest that the school you attended has more influence on your future earnings power than the university you went to, and a lot more than the class of your degree.

Another widget from the TPA (aka 'debt clock'):

I'm too lazy to write anything, so I cribbed this from the Taxpayers Alliance site.

Darling's budget was the usual politics-as-theatre show that so damages politics as a means of deciding about things in a grown-up way. As usual it comes down to individual bloggers like Wat Tyler and independent pressure groups like the Taxpayers Alliance to make sense of what is happening.

The major problem is that we, like Greece, cannot run up debts indefinitely without suffering the consequences. That is, we, the taxpayers, cannot dodge the consequences, but of course the politicians can, with their 'resettlement allowances' and consultancy fees.

Amazingly the BBC put a lot of emphasis on the fact that the deficit for this year will actually come in slightly below the forecast £178 billion. No mention, naturally, was made of the off-balance-sheet liabilities that mean that the public sector debt of £1.4 trillion is actually only around half of the true figure. Yes, we are talking about £2.8 billion here. Just to put that in context, that means around £47,000 for every man woman and child in the UK. According to the ONS there are 22.76 million people employed in the private sector, which means that out of their taxes, and the taxes of their private-sector children they are going to have to come up with a sum of £120,000 each.

But it's actually a lot worse than that, because before long interest payments on the national debt alone will be costing 10% of GDP. The unfunded liabilities held off the balance sheet will also be growing at some inflationary rate, so will increase the burden just as much as the on-balance sheet liabilities. The end result is a huge, utterly huge, burden of debt for the country for a generation or two.

I know that Gids rambles on about how serious the deficit is, but I think that most voters just think 'yeah, yeah, yeah, but we can just introduce a caviar tax, or stamp duty on Rolexes and everything will be fine'. I suppose this is a rational response to the fact that there are around 40 million people in the UK who are either not working, or working in the public sector. Of these, approx 14 million are under 18, leaving 26 million voters who may well be dependent on the generosity of the government (i.e. the taxpayer) for their income. Obviously there will be some non-working spouses and people with private income in there somewhere. However, what we are left with is around twenty six million out of a total of 48 million voters who, on balance, will prefer to see taxes go up than go down. This is about 54%. No wonder all parties are being economical with the truth.

I have heard a theory that, actually, David Cameron would prefer to see Gordon Brown win the next election, on the basis that the pain and suffering that is going to be inflicted on the population, through 'cuts' and increased taxes is going to be so severe that whichever government is in power when this is happening will be then unelectable for a generation: the so-called 'poisoned chalice election' theory.

There is, of course, an alternative to all this pain. We look to that master of economic theory, Robert Mugabe, and let the pound take the strain, stitching up those nice Chinese lenders, but, as an unfortunate side effect, wiping out the savings and pensions of a vast swathe of the population through rampant inflation. Currently the gilts markets don't buy into this theory, but Bill Gross, who has made more than his fair share of good calls on government bond markets in his long career is not so convinced.

A former landlord who staged a "smoke in" protest at the grossly illiberal smoking ban which is a result of the 2006 Health Act has now gone to prison (as the result of a refusal to pay fines arising from allowing smoking on his premises). Old Holborn is running a campaign to pay Nick's fine and thereby release him from prison. If you go to this page on his site you can read all about it and contribute.

I occasionally went to a bar in Singapore. Its walls were heavily nicotine stained because people frequently smoked there. The interesting thing is that it was, and I have no doubt still is, to smoke indoors in a public place in Singapore. However, even with the draconian approach to enforcement for which Singapore is famous, the barman felt perfectly relaxed about allowing people to smoke because he knew that everyone who drank there was aware of what was going on and had a huge choice of bars nearby where they could drink in a smoke-free atmosphere. How sad it is that the UK health fascists cannot tolerate such an approach.

I actually think that in some ways the longer Nick stays in jail the better, because it will highlight how bad this act is, but I feel sorry for the guy, so perhaps you'd better cough up. I have done so. At least your money will do no harm, unlike the money raised by that useful idiot Bob Geldorf in Live Aid, which, like so much aid money and charity that is given to Africa, principally was used to buy guns.

Three white-collar convicts are chatting over their daily prison meal.

"What are you guys in for?" asks convict one.

"I set my prices too low and was convicted of predatory pricing" says convict two.

"Funny, my prices were higher then my competition and they hit me with monopoly pricing" says convict three.

"Ha! My prices were exactly the same as my competitors and they threw the book at me for collusion" says convict one in response.

This is a joke shamelessly stolen from the What the Hell do I Know? blog.

Basically, the argument is that there is no evidence that "competition authorities" have ever actually done any good in terms of levelling the playing field between producer and consumer. The reason is that cartels and monopolies naturally implode as economic rents attract the interest of firms in different industries, and different countries. Of course trade barriers in the form of tariffs slow down this process, and heavy regulation of the industry within a country also does. Clearly, in the case of services that Google provides, neither of these factors apply.

The political class of course is much more comfortable launching this kind of investigation than one into competition, say, in banking services, or utilities, or telecommunications services, fixed or mobile, or broadband provision, because the management of companies in these industries have taken great care to develop strong relationships with politicians. Did I really say that?