The Yorkshire Ranter http://www.harrowell.org.uk/blog A non-kinetic onslaught Mon, 16 May 2016 10:42:23 +0000 en-US hourly 1 #Brexit: strategic incompetence for fun and profit http://www.harrowell.org.uk/blog/2016/05/15/brexit-strategic-incompetence-for-fun-and-profit/ http://www.harrowell.org.uk/blog/2016/05/15/brexit-strategic-incompetence-for-fun-and-profit/#comments Sun, 15 May 2016 10:26:26 +0000 http://www.harrowell.org.uk/blog/?p=5104 Out funder Peter Hargreaves thinks leaving the European Union would be “like Dunkirk” and would turn us “into Singapore”.

That he mentions two of the most catastrophic disasters in our history is surely Freudian. Dunkirk saw the British Army booted off the continent of Europe, forced to sabotage every bit of its equipment heavier than a Bren gun, let down by a serious failure to prepare adequately. But at least they made good their escape. You couldn’t say that about the Singapore campaign, during which the total means of national power were all comprehensively thrashed, jointly and severally. In this case, there was a strategy, laid down years before, and a huge investment in infrastructure, but it was profoundly unrealistic and poorly thought through. This time, there was no escape.

Does that remind you of anything? It should. People keep saying how much the referendum campaign reminds them of the Scottish referendum campaign. In the Scottish campaign, it became painfully obvious that despite having had 40 years to think about it, the SNP hadn’t managed to answer a question as basic as what currency would circulate in an independent Scotland. In the referendum campaign, it is painfully obvious that despite having had even longer to think about it – right back to the 1950s – the Outs haven’t come up with anything like an alternative. As @Scientists4EU says, with 40 days to go, the SNP had published a 670-page white paper on independence detailing how they planned to unpick Scotland from the UK, and do you see anything like that from the Outs?

PS I AM NOT A CRANK

No. Instead you either get this sort of swivel-eyed loon newsletter stuff, or vacuous rah-rah like the Vote Leave activist who told me on Saturday that “I’m a democracy guy”. He also spent fifteen minutes telling some poor woman that the EU “is a beast”. And it wasn’t even his leaflet.

Ideas there are. Part of the problem is that they are entertaining quite so many options. Perhaps we could be like Norway, Switzerland, Canada, Singapore, or Albania? Each one comes with a little national flag, a sort of enamel lapel pin, for the sake of easy reference. But they have next to nothing to do with the countries named.

Take Norway. Being like Norway sounds pretty sweet! Anyone for some prosperous, egalitarian Nordic social democracy? It goes without saying that none of the Outs have any intention of, say, legislating that all public companies should have 50% women on their board of directors, or worse, that their boards should include worker representatives. It also goes without saying that there’s no way Brexit would cause more oil to appear in the North Sea.

What “Norway” means here is that we’d leave the EU but stay in the European Economic Area, thus keeping (mostly) tariff-free access to EU markets so long as we respected EU regulations. I say “mostly” tariff-free, because in fact there are nontrivial tariff barriers between the EU and Norway on agricultural products. Actually, one of the main selling-points here is that we could be more protectionist towards farmers and fishermen. On the other hand, we’d still have to pay into the EU budget, respect the rules, and accept freedom of movement for labour. Also, financial firms in the UK would have to get regulatory approval for each EU country where they wanted to do business.

To put it another way, we wouldn’t be much like Norway at all. In fact we’d be so little like Norway we might as well be Switzerland, which has basically the same set-up. Perhaps ski-ing makes you into an Out? Is all the falling over affecting their brains?

What about Singapore? This is the one that really gets on my nerves. A lot of right-wing people imagine that Singapore is a libertarian utopia because the public sector share of GDP is quite low. But this is silly. Singapore doesn’t have big spending ministries, but it does have a huge sovereign-wealth fund that owns major industrial and infrastructure projects in the country as well as financial investments worldwide. Rather than pay welfare benefits out of tax money, Singapore made it compulsory to pay into private insurance, through the so-called central provident fund, a little like a much more comprehensive version of Obamacare. Oh, and basically everyone lives in a council flat.

After independence (from Malaysia, and Britain) the Singaporean political and business class took a joint decision to develop the port as the major regional transport hub, and to take advantage of that to build up industry around it, notably chemicals and computer/semiconductor manufacturing. Their thinking was that economic development in Asia would create a huge opportunity for this role. This worked really well, but it’s worth noting that it was very much a succession of joint decisions by government technocrats, political leaders, and investors rather than some sort of idealised libertarian hands-off process. That is supposedly more true of Hong Kong, but I wouldn’t be surprised if that was a myth too. You’ll note they didn’t start off by creating a new tariff barrier between their massive port facility and the market it serves.

Also, Outers tend to imagine that the Singaporean financial centre is completely unregulated. Financial people find this intensely funny. Anyway, it’s much more accurate to think of Singapore as one of the so-called “coordinated market economies”, like Germany or the Netherlands. Now, does anyone think the Outers have any plan to be more like Germany? Thought not. They want to get Out precisely in order to avoid being more like Germany.

In the end, this shows us two things about Out. One thing is that they have failed – haven’t even tried – to put forward a coherent strategy to avoid their Dunkirk moment turning all Singapore. The second is that, as with the SNP, there are reasons for that.

Sticking with their original plan to join the Euro would have shown up that an independent Scotland might be a lot less nice than they made out, and certainly no haven of protection against recession. Using sterling would mean admitting that independent Scotland wouldn’t be all that independent. Inventing a new currency would mean admitting that the social basis of independence would be a huge bet on the oil price. They didn’t answer the question, because the question threw light on all kinds of other questions they didn’t want asked.

Similarly, the Outers don’t want anyone to ask about their post-Brexit plans because the content of their plans, such as it is, is invariably vastly unpopular. How many people want to turn the country over to Mosseck Fonseca as a libertarian tax-haven? Well, Peter Hargreaves probably does, and he has a billion reasons for that. What is it that first attracted billionaire financier Peter Hargreaves to Brexit? It looks like we found the missing link between Out and ski-ing – money! But let’s not pretend he is normal. Similarly, does anyone want the common agricultural policy but with more farm subsidy? Only people who stand to collect, and they’re a tiny minority.

The answer, then, is strategic incompetence. You can avoid having to answer the difficult questions about your post-Brexit policy by simply failing to have one. That this strategy appeals to Boris Johnson ought to be obvious.

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Tory election spending and the #codgerbonds. Can you help? http://www.harrowell.org.uk/blog/2016/05/15/tory-election-spending-and-the-codgerbonds-can-you-help/ http://www.harrowell.org.uk/blog/2016/05/15/tory-election-spending-and-the-codgerbonds-can-you-help/#respond Sun, 15 May 2016 10:10:12 +0000 http://www.harrowell.org.uk/blog/?p=5108 Everyone is talking about the Tory election spending thing. Apparently, there are MPs who fear they might go to jail. The latest break involves letters sent out over David Cameron’s signature, which may count against the local spending limit because they addressed the reader as living in the constituency in question.

But that wasn’t the only Tory campaign involving direct mail that took the form of personal letters from a very senior government minister. There was another one, signed by George Osborne, that literally offered the reader hard cash and came very close to offering unauthorised financial advice. I filed a Freedom of Information Act request to find out about it, and discovered that Osborne went to some lengths to claim it was exempt from the regulations but the civil service pushed back.

The codgerbond campaign was effective. The Daily Mirror got a FOIA disclosure to the effect that the biggest sales of the bonds were in seats the Tories targeted at the election, presumably because that was where the letters were distributed. Or you could just ask the Economic Secretary to HM Treasury, Conservative MP for West Worcestershire, Harriet Baldwin:

If you bought them, you will find that once they mature, the special interest rates are no longer available, because there isn’t a general election on any more. Also, NS&I changed the terms and conditions of the offer to make it harder to withdraw your money rather than roll it over into the new issue, which This Is Money describes thus:

The short-term rates are lousy compared to what is currently on offer by challenger banks. Since the summer, there has been a battle in the independent This is Money best buy fixed-rate savings tables, with a glut of better deals on offer. In fact, the one-year rollover rate offered by NS&I is so low, it wouldn’t feature in our table, beaten by at least 18 providers.

You used to be able to ring up and cash in your investment straight back to your current account. Now you need to send in a form, or use their website. Because, you know, the Debt Management Office loves £13bn of cheap funding, what with Omnishambles Budget 2016 to pay for. It’s not a bit…Angolan, though, as Alan Clark memorably put it?

Really, everyone in the UK ought to be jointly ashamed of this. This is the kind of polity we’ve ended up living in.

Annoyingly, I can’t find a complete letter, because I am fascinated to find out if they were localised in any way. If they were, they might constitute yet another spending limit violation. The original Guardian piece just contains a cropped detail but I’m convinced I saw a full version at the time.

can you help?

Update: Can you help, I said, and they did! Here’s an image of the whole letter. It didn’t, as it happens, contain a locally-targeted message, so it wasn’t illegal. Only shameful. Thanks to Rich Greenhill on twitter.

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One good thing: a better electoral forecasting model http://www.harrowell.org.uk/blog/2016/05/06/one-good-thing-a-better-electoral-forecasting-model/ http://www.harrowell.org.uk/blog/2016/05/06/one-good-thing-a-better-electoral-forecasting-model/#comments Fri, 06 May 2016 14:34:09 +0000 http://www.harrowell.org.uk/blog/?p=5100 So it looks like the local elections didn’t go so badly. While we’re in the intermediate phase between Corbyn’s Labour doing something reasonably well, and them throwing it all away through some sort of terrible cake-and-arse juggle, I’d like to take note of something.

John Curtice reckoned we should expect a net-loss of about 170 seats. Jeremy Corbyn said very publicly that he didn’t believe Labour would lose any seats at all. I’m not sure whether he intended this as a prediction, or just felt he should put a brave face on things and cheer up the troops, but it amounts to predicting a net-loss of zero seats.

One thing pretty much everyone agrees on is that the bad polling had a profound, if subtle, effect on the 2015 election campaign. Right up until the last minute, it was possible to believe – even necessary, on the grounds that you should base beliefs on the best available evidence – that we were going to win.

People who worried about a coalition with the SNP were worried because the polls looked like that might happen. People who worried that Ed Miliband wasn’t keen enough on coalition with the SNP and decided to go Green or not bother voting did so because the polls looked like a Labour/SNP alliance would be necessary. I know at least some of these people existed because they used to shout at me on Twitter. Tories who thought the public was scared of the SNP acted as they did because the polls looked that way. Sizable chunks of the Tories’ policy agenda that just look weird in the post-2015 context only existed because the polls looked like another coalition was the only way they had a hope of getting back in. So much of the ambiguity and chaos of the 2015 election is down to the fact that politics is largely perceived through polling, and the polling was crap.

Blaming the pollsters is futile. For a remarkably policy- and data-oriented Labour team, Ed Miliband’s staff seem to have comprehensively failed to be intelligent consumers of polling. As a result, it wasn’t until final canvass returns from the West Midlands were analysed with two days to go that anyone realised the polls might be wrong, and the result was the Edstone. For those of us who weren’t privy to those data sets, we just had to wait for the epic punch in the guts that was the 10pm exit poll on the night.

If Corbyn meant it about not losing any seats, that forecast was off by 23 net seats out of 866 contested or 2.6%. That’s pretty good. I recently reviewed a market share forecast I prepared in 2012, and was more than pleased – in fact, ecstatic – to be within 4%. The nature of forecasting is that it’s very hard to tell quality (the technical term is skill) from good luck. The nature of forecasting is also that when I started drafting this post, the score was -2 out of 866 or 0.23%, and my point was stronger by a factor of 10 or thereabouts. Either way, it’s not 170.

But Labour would have been vastly better off in 2012-2015 had it been able to derive quality forecasts from polling or canvass data. If party HQ has a much better analytical capability, or the quality and coverage of canvassing is much better, this is an important fact about the practicalities of politics.

It’s just a pity we keep going on about Hitler. Also, the e-mail hasn’t been quite as bad as the leadership campaign, but as of yesterday 21 out of the first 50 messages in my inbox came from different bits of Labour. I’m having words with Tom Watson about it. Seriously:

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Policy Exchange plagiarised me…and I loved it http://www.harrowell.org.uk/blog/2016/02/17/policy-exchange-plagiarised-me-and-i-loved-it/ http://www.harrowell.org.uk/blog/2016/02/17/policy-exchange-plagiarised-me-and-i-loved-it/#respond Wed, 17 Feb 2016 15:34:06 +0000 http://www.harrowell.org.uk/blog/?p=5094 It looks like everyone’s favourite Tory thinktank has a plan to solve the housing crisis, and it’s pretty simple!

It said acquisition of the land would be financed by a private-public joint venture, with the government contributing 49 per cent – about £3.1bn a year – alongside institutional investors. It would represent the largest government investment in housing since the 1970s, but the report argues such commitment is required to involve private developers.

So it’s got a financial vehicle funded from the LHA bennies stream, it’s centred on either the GLA or London Councils, and it’s about buying up surplus properties for housing. So far, so indistinguishable from the Simple Plan.

There’s more emphasis on new building and conversion vice municipalising existing stock. That’s actually a cogent criticism of the original Simple Plan; I implicitly assumed the market would slide further and a lot of BTL investors would bite the dust. There’s also a pickled egg or two chucked in to make up the numbers, like prefabrication.

And naturally, no suggestion that anything might end up being anything as monstrous as yer actual council housing. But what do you expect? Anyway, it’s not actually evil, and it might even deliver some more houses, so I’m just going to chalk it up as the price of intellectual hegemony.

Nobody’s mentioned it, but if the PolEx guy is reading this, one place to look for the money would be the local authority pension funds. I nicked the idea from Danny Alexander MP.

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The Hitchens has spoken, and he said “You go first” http://www.harrowell.org.uk/blog/2016/02/05/the-hitchens-has-spoken-and-he-said-you-go-first/ http://www.harrowell.org.uk/blog/2016/02/05/the-hitchens-has-spoken-and-he-said-you-go-first/#comments Fri, 05 Feb 2016 12:26:33 +0000 http://www.harrowell.org.uk/blog/?p=5090 This Peter Hitchens post is fascinating. First of all, there’s the massive degree of psychological projection on show. He spends hundreds of words berating literally the whole of the nation for lacking the courage to leap out of the European Union in favour of….whatever it is the Outs are in favour of.

And then he announces that he’s going to abstain, because he doesn’t really think we could do it. In a word, he’s just as scared as he thinks everyone else is. Dare we conclude that when he talks about “so many people, even the ‘Eurosceptics’ in law, business, politics and the media” he actually means “me”? Tous les mêmes. Tous pourris. Même moi!

Secondly, it is of course true that in all the long years of Eurosceptic whining, nobody has ever articulated anything like a coherent policy. Ideas there have been, usually several at a time contradicting each other, never worked out beyond glib cliché. Are we meant to be a libertarian tax-haven, subsidise farmers even more, turn into a big Norway, or somehow revive imperial preference? Why not all four at once, and introduce a uniform for taxi drivers, as the UKIP manifesto once memorably promised? What could be more consistently conservative than to turn down the option of risking everything on this collection of ramshackle utopias?

Thirdly, Hitchens seems to think that the Outs aren’t going to win, and that Euroscepticism is going to disappoint at the polls yet again. He makes the good point that for a movement that constantly claims to be hugely popular, they can’t get elected dogcatcher. This also tells us something about Hitchens, though. Rather than put his back into it, he’s going to slink off and dodge any responsibility for failure that might be floating about.

Fourthly, he complains…well, he never fucking stops, but he specifically complains that after the Ins win the referendum, the issue will be considered closed for years. Well, yes. Elections have consequences. The upshot of this is that he’s going to do nothing at all to help his side win, and when they lose, keep on whining about the EU and pretending the revolution is coming real soon now like nothing happened.

The question, in the end, is whether he ever really believed in it, or whether it was always just a pose. People say this about Boris Johnson, and when you read things like this interview it does look like he’s preparing some sort of face-saving formula to line up behind the prime minister.

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Software is not a painting. http://www.harrowell.org.uk/blog/2016/01/24/software-is-not-a-painting/ http://www.harrowell.org.uk/blog/2016/01/24/software-is-not-a-painting/#comments Sun, 24 Jan 2016 22:43:59 +0000 http://www.harrowell.org.uk/blog/?p=5086 Two exhibitions on Saturday: Calder at the Tate and Big Bang Data at Somerset House.

There was something I didn’t like about both. Calder’s curators are apparently convinced that none of the motorised works can be allowed to run in case something terrible happens. Weirdly, they don’t draw the matching conclusion and weld the mobiles solid to stop them moving. But that’s a proper artwork and the other is a mere engineering artefact.

If it was, though, preservation by operation is exactly what would be advised. The National Museum of Computing folk will be more than delighted to fire up a 1940s computer and demonstrate it. People preserve whole, flying De Havilland Mosquitos by operation. Surely we could look after a hobbyist electric motor and some simple belt drives. But instead, a lot of them are hung against a wall as if they were paintings, so you can’t even reason about how they would move if they were allowed to.

Over at Big Bang Data, there’s a related problem. A lot of the projects on view are pretty crap if you can’t interact with them. A lot of the ones you can interact with are broken, or just agonisingly slow. The issue here is that the kind of data visualisation projects they want to treat as artworks just aren’t. They are tools, or games, or journalistic projects. As tools or indeed as games, they are closer to dance than painting; what happens, happens afresh at every performance. In this case, it is the user who interprets the original work. How are you meant to exhibit a tool for deliberative budgeting developed by Podemos’ geek wing without demonstrating it?

This means, however, that it damn well better work. Instead, a lot of them were very clearly taken to the point of a demo and some screenshots, and no further. They ended up, therefore, nailed to a gallery wall, and neither optimised to the point of being acceptable as tools or games, or taken up and used to pursue a story as journalism.

I wonder if there is a question of grant-making here. If the funder pays out when something like a painting is delivered, that’s what they will get, and the artist will already be working on the next pitch a while before the demo is finished or rather “finished”.

Finally, in a show full of teenagers gagging for Snowden, what was the app that drew the most attention and engagement? FixMyStreet, operational for nine years so far, attributed to the late style works of the Master of Cambridge, Chris Lightfoot, and his students Anna Powell Smith and Matthew Somerville. People clustered around it with real enthusiasm.

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#ischanging: the KEEP CALM of the future 2010s revival http://www.harrowell.org.uk/blog/2016/01/24/ischanging-the-keep-calm-of-the-future-2010s-revival/ http://www.harrowell.org.uk/blog/2016/01/24/ischanging-the-keep-calm-of-the-future-2010s-revival/#comments Sun, 24 Jan 2016 22:02:46 +0000 http://www.harrowell.org.uk/blog/?p=5081 Has anyone else noticed all the signs of change? Of course, it’s terrible. None of us is getting any younger.

That isn’t quite what I mean, though. I mean signs, signage, graphic design in the public realm. There are a hell of a lot around that say something like X – it could be benefits, refuse collection, Tate Modern – “is changing”. Bam. Full stop, an end stop heavy enough to bury any possible conversation. #ischanging pisses me off. I have the impression they appeared around 2011-2012, and I don’t think this is a coincidence. I think they will be a visual icon of the Cameron years, rather like KEEP CALM AND CARRY ON is for the Second World War.

So, these are signs. What is signified? Nothing much; after all they never say how it is changing, or what about it is changing, or why it is changing, or why I should care, or what I should do?

You could compare the platonic ideal of a public information campaign, the British government’s AIDS ads. That told you that you should be scared, why you should care, that some people were especially endangered but everyone was affected, and what you should do about it. It was complete in itself, fully utilising both the reach and the richness of television.

On the other hand, #ischanging doesn’t tell you why you should care, what is changing, or what you should do about it. It’s just visual noise, getting in the way. In that sense, it’s very close to the terrorist alert levels of the Bush years, or indeed the UK one that’s always on Black Special. You are asked to be vaguely anxious, but you aren’t informed of anything, and there are no actions-on the alert that need doing.

change-management-institute-keynote-change-is-changing-111115-simon-terry-1-638

KEEP CALM, of course, was meant to do the opposite; inspire confidence in a context where everyone knew damn well what they should be doing and wouldn’t need telling they needed to care. Interestingly, it was also explicitly a message from the Government, issued nationally in the same format. #ischanging drips out from a thousand councils and quangos, vastly diverse in design, united in the refusal of responsibility.

Why do they do this? Well, there’s such a thing as a performative speech act. The public authorities that put up #ischanging signs usually have a legal duty to inform the public, and sometimes also to consult us. Once they go up, the duty to inform is discharged although no information has actually been communicated. The sign is a placeholder for actual content. This is handy when the changes are so complicated they defy summary, so controversial any actual discussion would get out of hand, or just so damn depressing because if something #ischanging you bet #ischanging for the worse.

And once you’ve had your chance to realise it means you and you’ve got to burrow into some awful pile of PDFs, well, it’s your fault isn’t it? You were informed and it’s your responsibility. Tough.

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Paxman is Ziggy Stardust. http://www.harrowell.org.uk/blog/2016/01/20/paxman-is-ziggy-stardust/ http://www.harrowell.org.uk/blog/2016/01/20/paxman-is-ziggy-stardust/#comments Wed, 20 Jan 2016 19:36:02 +0000 http://www.harrowell.org.uk/blog/?p=5075 This BBC interview between Jeremy Paxman and David Bowie has gone viral, and with good reason. Partly this is because Bowie’s remarks about the Internet were prophetic and funny. But it is also fascinating for what it shows us about Paxman.

It is only too obvious that Paxman knew nothing, literally nothing, of what he was saying. Everything he says is comically wrong, and in the same silly-clever soft reactionary way that betrays he hadn’t thought about it much. At best, he had memorised some talking points – Bowie: reinvention, the Internet: just another delivery mechanism, or tiresome kids spraffing off – at worst he just responded to keywords. In fact, there is a moment in the video where he seems to falter and glances downwards, as if he was referring to a crib sheet. He has nothing constructive to offer, and nothing destructive that wasn’t glib cliché even in 2000.

Of course, this doesn’t mean for a moment that he is going to drop the Manningham-Buller Bullying-Manner act. What this shows us is that the Paxman persona has about as much to do with reality as Ziggy Stardust. His confidence isn’t drawn from mastery of his brief, but rather, from out of his backside. It is a style trope, a performance of scepticism, rationality, and authority rather than the real things. We are seeing a confrontation, or better, a collaboration between two great performers, rather in the way that rodeo judges give points to both the bull and the rider.

But the authentic fake here is Paxman. Bowie’s remarks during the interview about the way the Internet would transform the nature of celebrity and the relationship between the audience and the artist were of course right, but his manner is even more so. He is very obviously fascinated by the project, irrationally certain it was going to work, and willing to burn money by the sack. Paxman is a television personality, Bowie has become a geek, over-enthusiastic, obsessive, hyper-informed.

And of course this is the future we’re swimming in. Nothing gets across better than hyper-engagement and obsessive enthusiasm, for good or ill. Cool detachment is out, has been for a decade. Of course you can always fake this, but then authenticity is always a style trope. Who better to make the point?

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when the facts change… http://www.harrowell.org.uk/blog/2016/01/15/when-the-facts-change/ http://www.harrowell.org.uk/blog/2016/01/15/when-the-facts-change/#comments Fri, 15 Jan 2016 12:20:11 +0000 http://www.harrowell.org.uk/blog/?p=5072 This economic paper is strange:

Over the past thirty years, a great deal of business cycle research has been based on purely real models that abstract from the presence of nominal rigidities, and so (at least implicitly) assume that the Phillips curve is vertical. In this paper, I show that such models are fragile, in the sense that their implications change significantly when the Phillips curve is even slightly less than vertical. I consider a wide class of purely real macroeconomic models and perturb them by introducing a non-vertical Phillips curve. I show that in the perturbed models, if there is a lower bound on the nominal interest rate, then current outcomes necessarily depend on agents’ beliefs about the long-run level of economic activity. The magnitude of this dependence becomes arbitrarily large as the slope of the Phillips curve becomes arbitrarily large in absolute value (closer to vertical). In contrast, the limiting purely real model ignores this form of monetary non-neutrality and macroeconomic instability. I conclude that purely real models are too incomplete to provide useful guides to questions about business cycles. I describe what elements should be added to such models in order to make them useful.

Isn’t this…obvious? Keynes, after all, expected that at full employment the economy would be basically classical.

In the Phillips curve context, that is to say that the slope is shallow with significant unemployment, gets steeper as we approach full employment, and is vertical thereafter. If you relax the assumption of a vertical Phillips curve, of course you’ll get different results. What on earth would you expect otherwise?

And it’s pretty common in economics that changing a parameter estimate has profound qualitative consequences. I remember learning IS-LM as a student and being really impressed by the insight that changing the slope of the LM schedule implies a fundamentally different world – if it’s steep, we’re in a monetary dominance, Brad DeLong-ish republic of the central bankers, if it’s shallow, we’re in a Keynesian or at least Hicksian world. Uh…better be right on that one!

That said, the second half of the abstract seems to suggest Kocherlakota’s point is more fundamental and there’s a domain of unusually great instability where the slope is high, but less than unity. Which makes me think about the fixprice/flexprice distinction and what institutional arrangements would be associated with different Phillips curves.

Anyway, I guess I better think of a way of reading the whole paper.

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Sound finance http://www.harrowell.org.uk/blog/2016/01/07/sound-finance/ http://www.harrowell.org.uk/blog/2016/01/07/sound-finance/#respond Thu, 07 Jan 2016 17:30:10 +0000 http://www.harrowell.org.uk/blog/?p=5066 Back in 2011 the government had been proposing to spend £190 million on a flood defence scheme for Leeds. Instead, they cancelled the scheme and only did £50m worth of the work.

The scheme was based on a hypothetical worst-case flooding scenario. In 2011, the economic losses from such a flood were estimated at £500 million. To put it another way, the additional £140m was expected to return £500m in savings when such a flood occurred, or about £3.57 for every £1 invested. Pretty decent.

Of course, you’d have to pro-rate that over the lifetime of the project and consider the annual probability of a really big flood happening in any given year, because we might never need it. If it’s never needed, it will look like a white elephant. But it’s fair to make some allowance for the risk that big floods start coming along unexpectedly frequently, or that they turn out to be bigger than we assumed. If that happened, the scheme would be more valuable than expected. Floods can be very bad, but there is no scenario in which they would do Leeds good, so our thinking about this should be biased to the high side, the so-called tail risk.

PwC estimates that the UK flooding event of December 2015 amounts to an economic loss of £2.8bn for the whole country. Very roughly, we might allocate 80% of that to the flooding of Manchester, Leeds, and their suburbs because there’s a lot of valuable stuff there to wreck and a lot of people to inconvenience.

I’ll make the mightily charitable assumption that Manchester is of equal value with Leeds, and split that 50/50. This gives us a billion-pound loss for West Yorkshire alone, or more precisely, 40% of £2.8bn, £1.1bn.

That’s twice the estimate in the reference scenario. We’re well into the tail risk here. It’s possible the PwC accountants included things that the Environment Agency modellers didn’t – they reckon insured losses to property are about half the total, so the rest must be things like disruption to transport and emergency response spending. I’ve no idea if the EA tried to estimate those.

Whether they did or they didn’t, though, they’re costs and somebody will have to pay them. So, for the £140m additional investment, we could have spared ourselves a bit more than a billion in out-of-pocket losses. To put it another way, every additional £1 spent on the flood scheme would have saved us £7.86. And I thought we were short of cash!

As we say in Yorkshire: Buy cheap, buy two.

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