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#defenduss arrives at an unsatisfactory compromise

So yer #defenduss.

The UCU delegation came back with a new offer, the same stuff but with a slightly higher accrual rate, some more money from the other side, a higher cap, and promises to use any improvement in the scheme finances to put back the cuts and also to review the valuation methodology. And it looks like two-thirds of one-third of the membership voted for it. One third of the membership that ever received a ballot.

Nobody seems to have any idea about the people who voluntarily put more money in, about what this further review means, or about how the defined contribution fund above the cap would work. On the other hand, nobody had any idea what the UCU’s strategy was if the dispute went on. The marking boycott had already been turned down by a lot of universities and nobody liked it in the first place.

There is now a statutory consultation period, for what it may be worth. The lesson, though, is that negative numbers are scary, and that the UCU can’t manage to send out e-mail. No song, because I’m not feeling it.

#simpleplan begins to scale up

A bit of #SimplePlan in action.

Enfield set up a wholly owned private company called Housing Gateway this year. Officials have viewed 122 properties, made offers on 77 and had 48 accepted. The company currently owns 22 homes and has tenants in five of them.

Oykener said he ensured tenants in those homes would not be eligible to take up the right-to-buy offer. “I specifically ensured that was the case. These special purchase vehicles, along with other benefits, are exempt from right-to-buy so that we won’t end up in this predicament in three years. We are not alone, councils all over are doing this.”

Other councils taking the radical step include Sheffield, Sutton and Ealing, according to Labour MP Gareth Thomas….

“Given the huge loss of affordable homes in London, in part because of the failure to replace those sold under the right-to-buy, the next mayor of London needs to consider setting up a London housing company to help build high-quality social housing, particularly co-operative housing of the sort found on London’s South Bank,” said Thomas.

I know Owen Hatherley will hate me for saying anything nice about Coin Street. But hey, it’s an emergency, dammit. (Speaking of him, not only is this a good piece, but most of the below-the-line screamers seem to think it’s by Owen Jones, who is not the same person.)

I note that Enfield has managed to double its properties viewed, close to double its offers, more than double its accepted offers, and multiply its closings by 10 since end-August (see discussion). The dream is alive.

Has anyone got numbers for the Sutton, Ealing, or Sheffield deployments?

#defenduss: so now we know.

Thanks, as always to Mike Otsuka, we have some insight into how the USS Trustees arrived at their valuation. Really briefly, they seem to have chosen a methodology appropriate for valuing a defined-benefit fund for closure, as opposed to one that will run on, and bish bosh, it becomes absolutely necessary to demand immediate closure.

If your plan is to close the fund, then it starts to look like an individual DC account just before retirement, and selling up the equities is obviously sensible. Selling them and buying government bonds hugely reduces the returns you might expect, and therefore, bang, you have your crisis.

I think the emphasis is now shifting from “fight the valuation” to “sack the board”. Here’s the message for them.

Meanwhile, the petition is handed in at Glasgow University in front of Adam Smith’s statue.

And here’s a new group for useful documents.

the wider relevance of #defenduss. defined contribution is the new sugar

As a spin-off from #defenduss, Martin O’Neill circulated this report by a US thinktank, which demonstrates that final-salary pensions are actually cheaper to provide than the defined-contribution sort.

The point is simple, but far from trivial – as Max Sawicky is fond of saying about US Social Security, a defined-benefit system is insurance, not mere saving. As such, it needs to finance payouts for the average life expectancy of its members, not the right tail out beyond the 97th percentile. This makes a huge difference to how much cash you need to contribute for each pound of pension entitlement. Further, because it’s a risk pool, the defined-benefit plan can stick with its higher-yielding investments for longer rather than flogging them and buying government bonds.

In fact, the only way moving to a defined-contribution system ever saves money is if it’s also a massive cut in benefits. Further, if it’s better in theory, it’s much better in practice, because multi-billion pension funds will always get a vastly better deal in the financial markets than individual savers, and it reduces the opportunities to fuck it up. Here’s the killer chart.


The maddening thing about this document is that I see absolutely no reason why it couldn’t have been issued in 1986, 1996, or 2006. Actuarial science is not new. Neither is insurance. These are technologies that are hundreds of years old now. But I can’t remember anyone making these points out in the public square in any of the endless rounds of Very Serious Debate about pensions, government and corporate efforts to wriggle out of their final-salary plans, and financial sector efforts to convince everyone that they can be trusted this time if we just buy a boatload more of their products. Even the opponents usually opted for either denial that anything was wrong, yelling harder, or else just whining that it wasn’t fair and why not do it to somebody else.

Nobody ever seemed to challenge the notion that defined-contribution was cheaper, which turns out to be not even close to true, for reasons that are inherent in its basic structure. Even I thought there must be some truth to it. It’s not that it would work with better investment returns, more contributions, lower admin costs, or some sort of tweak. It’s that insurance is a far better way of protecting yourself against risk than just putting cash in a shoebox, which is why it exists! And this is a big, fundamental difference. It takes a lot of Harberger triangles to fill an Okun gap, and it takes a hell of a lot of marginal improvement to make up the kind of gap they find here. It’s like when the medics realised it was the sugar that was killing people all along.

There’s nothing else to say.

The damage is done, of course, but this is one reason why #defenduss is a fight worth having, not just some bunch of entitled profs whining. And looky here! Even UUK seems to be weakening.

Imperial turns on the EPF – #defenduss news

A bit more #defenduss blogging. Imperial College, that most monopoly-minded of schools, has come out against the USS valuation and the EPF proposals. And it’s come out swinging, too – check out the statement here.

We are disappointed that you appear to be focused on trying to fit your current proposed benefit solution to the perceived problem without first sufficiently challenging all the assumptions.

We are concerned that without this challenge you risk recommending a major downgrading of one of our employees’ most important benefits based on numbers which are as likely to be modelling artefacts as a reflection of the underlying economic reality.


As you will see in the attached paper, our simplified model includes additional cases to those presented in the USS paper, and those that have used the
actual salary increments and investment performance of the last decade show the model fund in surplus

OUCH. And the hits keep coming. Go read, and push it on anyone you can in UCU, university management, etc. They might meet us half way, after all.

How transparency met total corruption and they beat Napoleon

Reader Simon Hinrichsen’s MSc thesis on the Bank of England in the Revolutionary and Napoleonic Wars is here. He argues that the UK paid for the war by borrowing as much as France, but on better terms, and by printing much more money, but it also succeeded in keeping inflation lower and more stable. Inflation in France was both very high, and also incredibly volatile.

I think what we’re getting at here is the evolution of a financial system, comprising a monetary authority and a finance ministry, that was able to manage the currency, collect taxes, and issue government debt of a quality that made it an attractive financial product (the 3% Consol) to what seems to have been a pretty big market for fixed-income securities, and one that grew substantially over time.

All this printing and issue had to go somewhere. One explanation is that the UK was running a trade surplus. Money issued for the use of the army deployed in Flanders, Portugal, and Spain, King George commands and we obey, was spent there. Somebody eventually held it because they could buy goods coming from or through Britain. This is a bit like the US in the high postwar.

Another is that there was a transition from a gold standard, before the suspension of convertibility, to a chartalist tax standard. The announcement of suspension made it very clear that paper money would be accepted in payment of taxes. With the huge expansion of public spending, you can see why this would work as a sink for the money supply.

A third, perhaps more interesting, is financial deepening and economic growth. Erik Lund has an interesting post up about Anson’s circumnavigation and the financial history of the UK just before the period covered by Simon Hinrichsen’s paper. This was a bit wild, but you can see the evolution towards the institutions that worked so well in the late 18th century, especially the standardised government bond and the central bank rediscount window. Erik also points out that economic growth picks up, which you can also see in Simon Hinrichsen’s paper – the biggest reason why the debt-to-GDP and M0-to-GDP ratios don’t go crazier than they do is that the real economy grew.

So what’s going on? I reckon that there are a lot of transactions that were nonmonetary, that now become monetised. That would explain part of the demand for all those notes. I also think that constraints on investment have been loosened by the emergence of a managed currency, a standard financial product for both wealthy savers and also local banks (which started to emerge a bit later), and a government that was determined to spend or die.

The first two are, in a really grandiose geosynchronous orbit view, either products of increased social trust, or else substitutes for it. Either people are willing to buy into the nation-state polity, or else they’re willing to delegate trust to it – perhaps it’s the same thing. And a big deal here is that the economy is getting more legible, taxable, knowable. Even if the government can inflate the money, it’s worth about the same nationally and borrowing it costs the same. Simon points out that the British government budget is a public document, it’s thrashed out in parliament, and the Bank of England’s accounts are public too. In fact, the Bank Return was published weekly, making it a much higher resolution indicator than, say, GDP.

But here’s the interesting bit. Erik points out that one of the very biggest spending line items, procurement of timber for navy shipbuilding, is restricted by absolutely ridiculous levels of corruption, even though the very survival of the state depends on it. It’s really silly – only oak from the Home Counties will do. Also, the same people who benefited from the timber cartel are also some of the biggest savers into 3% consols.

So there’s an apparent contradiction here between the nicely liberal, Whiggish notion that we beat the French with open data and financial transparency, and the ugly mess of interests on the Weald starving Jack of quality spars if they don’t get enough pork.

Perhaps, though, the crookedness was what convinced them to back the new system, to hold the notes, to put their surplus capital in consols, not to howl for gold. After all they knew the system would look after them, in a sort of Schmittian founding crime behind the launch of modern British public finance. Well, everyone thinks there’s some sort of weird bargain between southern squires, the City, and the defence industries behind everything in Britain anyway! Go read the both of ‘em.