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Source: (consider it) Thread: Is there a money-tree? Have we looked hard enough?
Dafyd
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# 5549

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quote:
Originally posted by Sarah G:
By 'ten sigma event', I assume you're referring to probability/statistical distribution mathematics to denote an event extremely unlikely to occur. If so, I'm not sure what your point would be here. Some unpacking would be helpful.

I presume the point is that in the last fifty years there have been ten crashes or other recessions that have been rated ten sigma events.

The point is that the equations used to assess the probability of crashes, recessions, etc, clearly underestimate the likeliness of such things and are therefore based on faulty assumptions. Fundamentally they model the movements of financial variables as being the outcome of lots of independent decisions whereas in fact they are responsive to each other.

quote:
My musing is that investment firms have very well paid economists on board who are being asked inter alia to predict the likely outcomes of Labour versus Tory governments to the health of the economy. These firms make money by getting it right. If they invest in sectors tied to the health of the UK economy, and it goes wrong, they lose money. Or make money if it goes right.
People in the past have paid astrologers a great deal of money to get it right.
The profit motive is not I think sufficient to rule out bias in other respects. I don't believe the salaries of managing directors are really in line with their contributions to the success of the companies they manage. In this case, investment firms might be biased towards hiring economists that favour economic models that flatter investment firms.

The test is not to ask whether the well paid economists are well paid, but to ask to what extent the pay of the economists correlates with their future success in prediction.

The other thing to note is that the financial markets are not reacting solely to the probable future of the economy but also to perceptions of the probable future of the economy.

The stock markets rose in response to Trump's inauguration. I'm not convinced that's a sign that Trump will be good for the economy.

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we remain, thanks to original sin, much in love with talking about, rather than with, one another. Rowan Williams

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Crœsos
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# 238

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quote:
Originally posted by Dafyd:
The stock markets rose in response to Trump's inauguration. I'm not convinced that's a sign that Trump will be good for the economy.

Virtually all of that rise (at least in the American markets) was in stocks in financial services companies. I'd guess they were optimistic that a lot of Obama-era regulations were about to be reversed. This may be good for the bottom line of financial services companies, will almost certainly be good for the bonuses of high-level finance executives, but is unlikely to be beneficial to "the economy" in the long run.

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Humani nil a me alienum puto

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Leorning Cniht
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# 17564

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quote:
Originally posted by Sarah G:
By 'ten sigma event', I assume you're referring to probability/statistical distribution mathematics to denote an event extremely unlikely to occur. If so, I'm not sure what your point would be here. Some unpacking would be helpful.

Everybody starts by assuming that things are distributed with a Normal (Gaussian) distribution. So you expect to fall within one sigma of the mean 68% of the time, within two sigma 95% of the time, and so on.

"Ten Sigma" events happen one time in 10^23 (one time in one hundred sextillion) - or at least, they do if you assume a Normal distribution.

In reality, it's very hard indeed to estimate the shape of the tail of the distribution, but almost any reasonable assumption tells you that tails are significantly larger than the Normal distribution, and so incredibly rare "ten sigma" events aren't actually quite as rare as that. But it's still very very hard indeed to predict exactly how rare they are.

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Sarah G
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quote:
Originally posted by Dafyd:
I presume the point is that in the last fifty years there have been ten crashes or other recessions that have been rated ten sigma events.
The point is that the equations used to assess the probability of crashes, recessions, etc, clearly underestimate the likeliness of such things and are therefore based on faulty assumptions.

That strange things happen doesn't alter the fundamental point that these highly paid ecomists are saying that JC will very probably be bad for the economy.

quote:
The test is not to ask whether the well paid economists are well paid, but to ask to what extent the pay of the economists correlates with their future success in prediction.

Rather well, I would think. If you keep getting it wrong, you're going to be out of a job; if you regularly get it right, you get a better paid one.

quote:
The other thing to note is that the financial markets are not reacting solely to the probable future of the economy but also to perceptions of the probable future of the economy.

But surely that would work in reverse. If you're an investment firm whose economists are saying that actually JC would be good for the economy, you start buying UK stock regardless of what everyone else is doing; in fact as it gets cheaper, because everyone else is selling it cheap in error.


I would still be interested to know what the economic grounds are, on which the advice about JC being bad for the economy is being given by some very clever economists.

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Jane R
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# 331

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Economists are human too, and have political views, and are therefore subject to confirmation bias just like everyone else.
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Sioni Sais
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# 5713

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quote:
Originally posted by Sarah G:


I would still be interested to know what the economic grounds are, on which the advice about JC being bad for the economy is being given by some very clever economists.

In that case you had better ask economists rather than politicians, economics commentators in the media and Shippies too, unless they are bona fide economists, and even then, you had better check the their standpoint, because IIRC economics is no more than a branch of statistics developed to justify policies. Everyone has an axe to grind in this game.

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"He isn't Doctor Who, he's The Doctor"

(Paul Sinha, BBC)

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Dafyd
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# 5549

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quote:
Originally posted by Sarah G:
quote:
Originally posted by Dafyd:
I presume the point is that in the last fifty years there have been ten crashes or other recessions that have been rated ten sigma events.
The point is that the equations used to assess the probability of crashes, recessions, etc, clearly underestimate the likeliness of such things and are therefore based on faulty assumptions.

That strange things happen doesn't alter the fundamental point that these highly paid ecomists are saying that JC will very probably be bad for the economy.
They are strange things that these highly paid economists who are highly paid to predict such things didn't predict. And they're not out of a job despite not having predicted them.

quote:
quote:
The test is not to ask whether the well paid economists are well paid, but to ask to what extent the pay of the economists correlates with their future success in prediction.

Rather well, I would think. If you keep getting it wrong, you're going to be out of a job; if you regularly get it right, you get a better paid one.
That may be how it works in theory. Is it how it works in practice?
If you are the only person in your profession who gets things disastrously wrong then you'd be out of a job. If everyone in your profession regularly gets it wrong then they're not going to sack everybody.
It wouldn't be the only profession in which people regularly employ people who've a history of getting things wrong. Astrologers. Pollsters. We keep hearing that nobody believes pre-election polls any more, shortly before new polls get published.

quote:
quote:
The other thing to note is that the financial markets are not reacting solely to the probable future of the economy but also to perceptions of the probable future of the economy.

But surely that would work in reverse. If you're an investment firm whose economists are saying that actually JC would be good for the economy, you start buying UK stock regardless of what everyone else is doing; in fact as it gets cheaper, because everyone else is selling it cheap in error.
If you're working in the short term then what you do is try to do what you think everyone else will do before they do it.
If everyone else is offloading stocks then in the short term you try to offload yours first.

quote:
I would still be interested to know what the economic grounds are, on which the advice about JC being bad for the economy is being given by some very clever economists.
As I understand it, there's a general economic dogma that the existence of the public sector is bad for the economy, that it constitutes interference in the market and that interference is bad as such.
There's I suppose a general perception that the economy isn't Corbyn's focus of interest. It's probably true that even if the economy as a whole gets larger the relative slice of the economy held by the people employing these economists might get smaller and this looks like the economy getting smaller from that perspective. Corbyn's not a known quantity and unknown quantities make economists nervous.

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we remain, thanks to original sin, much in love with talking about, rather than with, one another. Rowan Williams

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chris stiles
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quote:
Originally posted by Sarah G:
That strange things happen doesn't alter the fundamental point that these highly paid ecomists are saying that JC will very probably be bad for the economy.

What those 'strange things' happening points to is that in general city economists are very bad at long term predictions, spotting bubbles and correctly gauging risk. This is partly because of group-think, and partly because the inevitable position they are placed in of 'speaking truth' to their own paymasters mean that they self select for certain viewpoints.


quote:

Rather well, I would think. If you keep getting it wrong, you're going to be out of a job; if you regularly get it right, you get a better paid one.

The point is - going back to the tail risk example - there are certain investment strategies that can make steady returns for long periods of time, until the inaccurately gauged risk wipes them out. Writing credit default swaps was seen to be an easy way of making steady money - until it suddenly wasn't (because a 'ten sigma' event happened), buying credit default swaps was seen as the kind of thing cranks and fools did, until they were suddenly proved to be wise after the event.

quote:

But surely that would work in reverse. If you're an investment firm whose economists are saying that actually JC would be good for the economy, you start buying UK stock regardless of what everyone else is doing; in fact as it gets cheaper, because everyone else is selling it cheap in error.

Not really. If you are at a big bank it's far better to go with the herd than face the inevitable questions about why your unit isn't performing like that of your peers, and why you aren't getting on board the new hot strategy.

Banks for the most part don't make money on just straight forward bets on 'economic growth' [*], but out of leverage and volatility. Additionally, the banking sector in general is full of people who buy into the ideology of 'government bad, market good', so it's not hard to see that they'd only happily support a very narrow range of economic options that may or may not be good for the country as a whole.

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alienfromzog

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It's really important here to separate out City Economists from Academic Economists ; they are really not the same thing.

The job of a City Economist is simply to make money for the investment fund/bank/etc... What is good for the city is not the same as what is good for the economy at large. Sometimes the interests coincide, sometimes they don't. An academic economist will be someone who researches and publishes in peer-reviewed journals. A city economist usually doesn't have any research experience in economics and advises companies on investment opportunities.

As far as I can see, there are no Academic Economists saying Corbyn would be bad for the economy. Quite the opposite in fact.

On my Facebook memory feed today was this video, I posted 2 years ago.
Oxford Said Business School Lecture 8th June 2015

If you have the time, it's well worth it. Professor Sir David Hendry's talk on economic choices in response to climate change is really interesting. It's from this lecture that I quote Martin Wolf (hardly a lefty): "My basic view is that the British economy is in an appalling shape...[here is] what a government might do if it was run by sane people but it isn't..."

AFZ

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Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]

An Alien's View of Earth - my blog (or vanity exercise...)

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anteater

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I have now got to, but not finished, Blyth's analysis of modern views of austerity, particularly those championed by Italians of the Boccone school in Milan, which I had never heard of previously but is apparently very influential.

It was started by former President Luigi Einaudi (he with the famous musical grandson) and it's current standard bearer is Alberto Alesina, currently at Harvard. Mario Monte was from this School. And I don't understand it fully but since it chimes in with one prejudice I have, it naturally interests me. You always like it when your prejudices get a bit of intellectual support.

So, under the name of Public Choice Theory, the idea is that the problem with state intervention a la Keynes, is that when the economy is governed by politicians who like to get re-elected, they don't always take the actions that are needed if that means they will become unpopular. How could Italians think this, you may ask?

Well it can't be always true, because I remember the days of Schroeder who steered the German economy through a difficult time and got booted out for his trouble. But it makes sense.

Even Murphy knows that after government action to get the economy going, you must at some time have government action to damp it down. Or big inflation. And even Murphy sees the problem which is why he advocates monetary policy as a dampener, not higher taxes, which don't look could in election manifestos. But you have to do something.

But anything is going to be unpopular. And so, guess what? It tends not to get done. This is why, the founding of the EU was very much on the basis that the economy had to be steered by technocrats who are not subject to elections and so are more likely to do the right thing.

So this may be the problem with the money tree. If your Government was really good, then Keynesian economics can work. But we are at a time of low confidence in government, and that is why Government programs to boost the economy are viewed with distrust.

I'm not say, btw, that Blyth agrees with all of this, but he presents it well. I've not got to the rebuttal yet.

--------------------
Schnuffle schnuffle.

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Russ
Old salt
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quote:
Originally posted by anteater:
Even Murphy knows that after government action to get the economy going, you must at some time have government action to damp it down. Or big inflation...

...So this may be the problem with the money tree. If your Government was really good, then Keynesian economics can work. But we are at a time of low confidence in government, and that is why Government programs to boost the economy are viewed with distrust.

I'm struggling with the similarities and differences between Keynesian economics and "magic money tree" or "voodoo" economics.

Seems to me that Keynes advocated Govt running a deficit in the low part of the economic cycle and a surplus in the high part, and that both halves are beneficial. The deficit to be financed by borrowing (from within the economy ? - government bonds), repaid from extra taxes or spending cuts that generate the surplus. The deficit/surplus doesn't need to be as big as you might think because of multiplier effects.

That all sounds plausible.

Where it gets "voodoo" is the claim that "the debt will take care of itself" - that the multipliers are big enough that borrowing (from outside the country ?) automatically generate the surplus to pay back the debt so government never needs to cut spending or raise taxes. Regardless of what government spends the money on...

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Wish everyone well; the enemy is not people, the enemy is wrong ideas

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Dafyd
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# 5549

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quote:
Originally posted by Russ:
Where it gets "voodoo" is the claim that "the debt will take care of itself" - that the multipliers are big enough that borrowing (from outside the country ?) automatically generate the surplus to pay back the debt so government never needs to cut spending or raise taxes. Regardless of what government spends the money on...

The theory goes like this: The government spends the money on digging pits and filling them in again. The excavators, who wouldn't otherwise be working, knock off after a hard day's pointless work and go and spend the money on beer. So they don't have the money any more. Now, the government gets some of the money back as duty and VAT. The rest of the money goes to the pub owner. After she's paid her staff and suppliers she uses the additional profit to buy a cake for her children's birthday party. That money goes to the baker. The baker uses the money etc etc. Meanwhile, the beermaker passes the money back down the chain to the farmer and the farmer uses it to sow that extra field.
At several points the money passes through transactions which the government taxes. Eventually it all comes back to the government one way or another. But in the meantime, the digger has got some beer, the pub owner has got a birthday cake, the farmer has sown an extra field, and the baker and the pub staff and so on and so on have all got extra things that they want. In addition, because all of those extra things are being made there is now an extra job available in the economy to make those things. The farmer hires the original digger to work the field.

Two points to note.
Firstly, this is all economic activity that wouldn't have happened if the government weren't spending the money. That's why Keynes thinks governments should only deficit spend in recessions because Keynes thinks that what happens in recessions is that the economy has spare capacity that isn't being used. People who would like to work are out of work. If everyone is already doing economically productive work then there's no point in the government spending anything.

Secondly, if the government taxes too many transactions the effect is limited. The government wants to keep things like duty and VAT low. On the other hand, if the money gets into the hand of someone who is saving money and that person saves it - puts in under their mattress or invests in some other high liquidity activity - then the money gets lost. The government wants to tax the money when it gets into the hands of people with money to save.

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we remain, thanks to original sin, much in love with talking about, rather than with, one another. Rowan Williams

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Sarah G
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# 11669

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quote:
Originally posted by Dafyd:

They are strange things that these highly paid economists who are highly paid to predict such things didn't predict. And they're not out of a job despite not having predicted them.

No, these 10 σ events are by definition the sorts of events that no-one could have reasonably predicted, and if regular advice had been given to assume them, would have proved wrong very very nearly all the time. Therefore silly advice, and you lose your job.

quote:
That may be how it works in theory. Is it how it works in practice?
If you are the only person in your profession who gets things disastrously wrong then you'd be out of a job. If everyone in your profession regularly gets it wrong then they're not going to sack everybody.

Even if this were correct, if it were obvious to all these clever people that Corbyn's economic policies were going to benefit the UK economy, they would all go with that. They're not. They're going the other way.

quote:
If you're working in the short term then what you do is try to do what you think everyone else will do before they do it.
If everyone else is offloading stocks then in the short term you try to offload yours first.

No, you play the long term game (The Dukes strategy in Trading Places!). You watch everyone else sell while you buy, and then make a killing when the price goes up.

quote:
As I understand it, there's a general economic dogma that the existence of the public sector is bad for the economy, that it constitutes interference in the market and that interference is bad as such.
Everyone sees the need for a public sector.

JC has been very clear that he intends to do the sorts of things that require money, hence the existence of this thread. The economists don't seem to think it's a good economic plan.

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Sarah G
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# 11669

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quote:
Originally posted by Sioni Sais:
In that case you had better ask economists rather than politicians, economics commentators in the media and Shippies too, unless they are bona fide economists, and even then, you had better check the their standpoint, because IIRC economics is no more than a branch of statistics developed to justify policies. Everyone has an axe to grind in this game.

I think you're right about where to ask. This is very much an argument with two sides. No-one has popped up to argue the other side. No-one seems to know what the other side is. Indeed, people seem to be denying that another side exists.

So we have all these highly intelligent, highly trained economists with firsts from Oxbridge. They're working in a ruthless environment where getting it right is everything. And they are all simply ignoring an obviously correct economic strategy on the grounds it's not what some other people think?

Sorry I don't buy that for one minute. They have their reasons, and I would think very good ones.


I do hope that the Labour economic team has a better idea of the potential problems with their strategy, but I worry they do not. Which sends me to what Enoch and PaulTH said on the first page; the UK may have yet to rerun the awful economy of the Sixties and Seventies.

From what they say, that's not going to be fun. The most vulnerable, as always, will hurt the most.

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chris stiles
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# 12641

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quote:
Originally posted by Sarah G:
No, these 10 σ events are by definition the sorts of events that no-one could have reasonably predicted

No. Plenty of people who - if they were in finance at all - were at hedge funds predicted these things in each case, and had repeatedly pointed out that the risk models being used were incorrect.

Nevertheless your phrasing reveals why 'mainstream city economists' continued to buy into that group think in the use of the word 'reasonably', after all if everyone blows up at the same time you can justifiably point out to your managers that no one could have reasonably predicted the crisis.


quote:
Even if this were correct, if it were obvious to all these clever people that Corbyn's economic policies were going to benefit the UK economy, they would all go with that. They're not. They're going the other way.

Or it would require a paradigm shift to make work - or the people who think they could make money off such a change are keeping quiet (in the manner of Goldman Sachs late in 2006).

Your arguments - ad naseaum - seem to amount to little more than the repeated claim that as those in the city are earning large amounts because of their 'cleverness' and ability to competently predict the macro-economy, do you have any rational basis for such a claim? Specifically, in order to do so you have to ignore the counter-claims of academic economists.

I just want to point out that in the main the people you laud work for an industry that just blew up on a massive scale and had to be bailed out by the tax payer. I personally would be disinclined to take advice from a bunch of failed gamblers.

Or in other words you are trying to argue the George Parr view here:

https://www.youtube.com/watch?v=mzJmTCYmo9g

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chris stiles
Shipmate
# 12641

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quote:
Originally posted by Sarah G:

Sorry I don't buy that for one minute. They have their reasons, and I would think very good ones.

Their reasons are that their 'models tell them so' - they have a habit of coming up with models that miscalculate risk though.

At one point borrowing on the overnight market to lend out for 25 year mortgages was seen to be a sound, risk-less way to make lots of money.

I imagine that there quite a few people who retired midway to eventual blow up whose natural over-confidence has now been boosted by the thought that they had an inkling that the crisis was coming.

Bankers exist - strictly - to make money for their institution - I don't know why you would assume they would have competences beyond that.

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alienfromzog

Ship's Alien
# 5327

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quote:
Originally posted by Sarah G:
JC has been very clear that he intends to do the sorts of things that require money, hence the existence of this thread. The economists don't seem to think it's a good economic plan.

[Roll Eyes]

This is simply not true.

Please find and link to an economist who says this.

I want to be clear, I am not asking for a city economist but an academic economist who argues your point.

The point is, there isn't really two sides to this, not in mainstream macroeconomics.

I will offer you:
Paul Krugman (Nobel Prize winner)
Joseph Stiglitz (Nobel Prize winner)
Simon Wren-Lewis (Oxford Professor)
Mark Blyth (Professor of International Political Economy)
Martin Wolf (OK, so technically he's not an academic economist as he hasn't got a body of his own research to point to but I like the way he presents his analysis...)

AFZ

--------------------
Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]

An Alien's View of Earth - my blog (or vanity exercise...)

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Doc Tor
Deepest Red
# 9748

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quote:
Originally posted by Sarah G:
They have their reasons, and I would think very good ones.

Roughly £1trn of public money. That's an awful lot of good reasons.

--------------------
Forward the New Republic

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alienfromzog

Ship's Alien
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I'd forgotten this quote but it's so appropriate here: Sinclair Upton,
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

AFZ

--------------------
Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]

An Alien's View of Earth - my blog (or vanity exercise...)

Posts: 2099 | From: Zog, obviously! Straight past Alpha Centauri, 2nd planet on the left... | Registered: Dec 2003  |  IP: Logged
anteater

Ship's pest-controller
# 11435

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Sarah G:
quote:
No, these 10 σ events are by definition the sorts of events that no-one could have reasonably predicted, and if regular advice had been given to assume them, would have proved wrong very very nearly all the time.
I can't let that one pass as an excuse, even if I haven't got a PhD in statistics (maybe you have - but I bet I could pass 11+).

The point is, we haven't had a lot of 10-sigma events happening. What we had is events wrongly classified as 10-sigma when they were nothing of the sort.

As previously stated somewhere, the whole 6-sigma (and 10 sigma) mantra is based on the Normal (Gaussian) distribution, but has become a lazy way of estimating probabilities when there was no reason at all to suppose they followed a Normal curve. We used to do this all the time in Software and Telecommunication. What is the 95%-ile packet delay across a network. Well the distribution is certainly nothing like Gaussian and we all knew that. For a start it was Bi-polar and nobody could analyse it. So to give a figure to management we just say what it would have been if it had been Gaussian which we knew full well it wasn't, because Management demanded a Janet'n'John level analysis.

Which is what happened in Finance. And I have no doubt that any Economist who was not dumb knew full well that there was no evidence to justify using the Gaussian curve, which assumes independence of events - like Mortgage defaults and Bank balance sheets are independent. Yeah - right.

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Schnuffle schnuffle.

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anteater

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# 11435

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AlianFromZog:
quote:
The point is, there isn't really two sides to this, not in mainstream macroeconomics.

I will offer you:
Paul Krugman (Nobel Prize winner)
Joseph Stiglitz (Nobel Prize winner)
Simon Wren-Lewis (Oxford Professor)
Mark Blyth (Professor of International Political Economy)
Martin Wolf

Well as Krugman said in a recent interview, there's everybody else and then there's Alberto Alesina.

Summarizing the next bit of Blyth's book, he sadly does not engage a lot with the public choice theorists, but does devote a lot of time to the Expansionary Austerity ideas coming mainly from Alesina who has had huge influence within the corridors of Ecofin and the EU in general.

His idea, backed by several other (always Italian - it seems) economists is that there is such a thing as Expansionary Austerity (or Contraction) which is basically that a Country can get out of a recession by Austerity, and this should be by spending reductions, not by tax rises, and works because Rational People (that semi-mythical beast) see that the government is "getting out of the way" of private initiative (i.e. not getting the best to work for them) and is balancing the books and so the future is rosy and people invest and get the economy off the floor. Georgie O. was obviously a huge fan.

So imagine, you politically like the idea of a small state because you believe public employees are muppets and private businessmen are brilliant, and along comes a group of economists (Alesina at Harward and others) who say the best way for recovery is to shrink the state. Add to that, all the Best Minds in the EU are convinced and you have it.

Makes you wonder why lefties like Corbyn support the EU. Oh, I forgot. He doesn't, really.

Now, Alesina and his colleague did put together an impressive list of countries and events that they would say prove their point. Denmark and Ireland in the 1980's, Australia and Canada, and more recently the REBLLs (the mirror image of the PIIGS - Romania Bulgaria and the three baltic states).

Unfortunately, analysing the original documents is time consuming and beyond most people's capability, and this part of Blyth's book is the least easy read. The usual suspects think Alesina is basically off his head (Paul Krugman calls his idea the Confidence Fairy).

The main negative for Alesina is that the IMF after initially being enthusiastic have distanced themselves. But I think the EU still gives it a lot of cred, although Draghi is not a Bocconi alumnus so may not.

To me the whole idea of this Confidence Fairy is so counter intuitive that I would need overwhelming proof, which isn't there.

But it is not true that no academic economists favour austerity. They have little clout in the US but a lot in the EU.

[ 26. June 2017, 08:20: Message edited by: anteater ]

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alienfromzog

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That's a reasonable summary Anteater.

My point remains, that whilst there is this minority position in economics (in all academic disciplines, minority positions should not be silenced), the idea that economics is against Corbyn et al. is simply not true. Quite the opposite in fact.

There are some important cultural factors in the EU, I think. I can't remember if it's Blyth or Krugman or Stiglitz, or even Wren-Lewis where I've read about how separate German economic academics are from the rest of the world and how this thinking dominates the EU because Germany dominates the Euro.

If you have the time, do watch the video I linked to, it's really well presented.

It comes back to what I said before; magic money tree is an excellent soundbite and terrible economics. The pubic sector is not a parasite on the back of the economy but a major and vital part of it.

Clearly this is true in terms of public goods that the private sector and market would never support. Moreover, the evidence from Keynes to Stiglitz to Krugman etc. etc. is that this is true in pure economic terms as well.

Unfortunately, in the 'defeat of communism' of the 1980s/90s, the myth that there is only unfettered capitalism or communism and nothing in between has been born. And the key point here is that the evidence shows that the government is a key agent in the economy and there are choices about how we build our economy and how we frame our markets. Stiglitz is really big on this point - markets are not natural phenomena but shaped by the rules we place on them.

AFZ

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[Sen. D.P.Moynihan]

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Alan Cresswell

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# 31

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quote:
Originally posted by anteater:
Sarah G:
quote:
No, these 10 σ events are by definition the sorts of events that no-one could have reasonably predicted, and if regular advice had been given to assume them, would have proved wrong very very nearly all the time.
I can't let that one pass as an excuse, even if I haven't got a PhD in statistics (maybe you have - but I bet I could pass 11+).

The point is, we haven't had a lot of 10-sigma events happening. What we had is events wrongly classified as 10-sigma when they were nothing of the sort.

As previously stated somewhere, the whole 6-sigma (and 10 sigma) mantra is based on the Normal (Gaussian) distribution, but has become a lazy way of estimating probabilities when there was no reason at all to suppose they followed a Normal curve.

What is more, if those so-called "10 sigma events" were all economic downturns then it clearly isn't a normal distribution - if it was there would be a corresponding number of extremely unlikely economic booms.

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Doc Tor
Deepest Red
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Looks like the DUP have found the magic money tree. Someone should give them a call and ask them where it is.

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Sioni Sais
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# 5713

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quote:
Originally posted by Doc Tor:
Looks like the DUP have found the magic money tree. Someone should give them a call and ask them where it is.

With their solid Biblical background they may realise it is equivalent to the "Thirty pieces of silver".

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(Paul Sinha, BBC)

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quetzalcoatl
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Well, the Tories cleverly didn't cost their manifesto. So a billion pounds is neither here nor there. It's not a money tree, just a rounding error.

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everything must go.

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anteater

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So the final related issue I'd like to raise here is Public Interest Theory, and it is disappointing that Blyth makes no real analysis of this, because it appeals to common sense, and let's be honest - to cynicism about politicians.

Basically what it says is that a lot of economic theory, particularly Keynesianism, seems to assume that whilst the investors and consumers are motivated by personal maximisation of resources, somehow the public servants who control economic policy are corruption-free and do "what is right".

This is behind the design of the EU with it's supranational bodies of technocrats who are not subject to the corrupting effects of needing to be elected, and therefore are "above all that", the whole resignation of the Commission in the wake of corruption at the time of Santer, and the fact that its accounts are not audited and everybody known corruption is endemic, notwithstanding.

So Public Choice theory is saying that Government Officials and Politicians are no better than anyone else. Some will be relatively straight (mainly it seems where the weather is cold) and others will be where the weather is hot (i.e. the garlic belt).

Which may be why one of the earliest proponents was (yet) another Italian (Puviani) who coined the term "Fiscal Illusion" to describe how Governments will attempt to persuade people that there taxes are not as onerous as they look when compared to be benefits they receive. Basically by sleight of hand.

And of relevance to the current debate, deficit financing is seen as a subtype of fiscal illusion because what it does it give benefits which will be paid by future generations, and this is precisely one of the charges most often levelled against deficit spenders.

So Corbyn's manifesto is very re-assuring, because he wants to get into power. So nobody earning less than £80k will be taxed more, and you'll get all these benefits. How? By increasing public debt which will be paid for by future generations.

Of course, we could also include devaluation of the currency, and to be fair this does move resources from the rich to the poor to a reasonable extent. But it's still a con.

And of course, if the US had been constrained to finance its wars by current taxation, they never would have happened.

Which is why Corbyn's greatest USP is his apparent saintliness, and one has to credit him in this respect. It's not nothing to have been consistently the least expensive MP. He may indeed be uncorruptible.

But are there many others?

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Doc Tor
Deepest Red
# 9748

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Kicking debt into the long grass is a perfectly reasonable way of dealing with it.

1850: Here, my good man, a crisp £1 note the size of a pocket handkerchief for you. Go seek your fortune!

2017: A pint costs how much?

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Forward the New Republic

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Sioni Sais
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# 5713

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Someone else has shaken the Magic Money Tree.

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"He isn't Doctor Who, he's The Doctor"

(Paul Sinha, BBC)

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alienfromzog

Ship's Alien
# 5327

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quote:
Originally posted by Doc Tor:
Kicking debt into the long grass is a perfectly reasonable way of dealing with it.

1850: Here, my good man, a crisp £1 note the size of a pocket handkerchief for you. Go seek your fortune!

2017: A pint costs how much?

Yep.

The point is that all other things being equal, of course you should reduce the debt. (Like Brown did in 2001 with the revenue from 3G licences). However if the cost of reducing the debt is greater than the savings (and at this point in time, it's several orders of magnitude greater) then it's a really stupid thing to do. Especially when real interest rates are negative. (In real terms, people who buy government bonds are paying us to look after their money). In the video I linked to, Martin Wolf says that the UK doesn't really have any debt (in historic terms). He's using hyperbole but he says that with a chart of UK national debt to GDP going back to 1690, so it's certainly got perspective - the debt levels are not record or extraordinary or any other flowery adjective you may wish to use...

AFZ

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Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]

An Alien's View of Earth - my blog (or vanity exercise...)

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Dafyd
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# 5549

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quote:
Originally posted by Doc Tor:
Kicking debt into the long grass is a perfectly reasonable way of dealing with it.

If the government wants people to lend them money it wants to do so in such a way that they get their money back with interest. For each individual lender it needs to repay the loan before it becomes valueless. That doesn't mean it needs to clear its entire debts: the government can take out new loans.

For many governments, including the UK, the reason for lending to them is that you're sure to get your money back and because they have a large volume of money loaned out they're reasonably relaxed about giving you your money back when you want it. So the UK doesn't need to offer any kind of onerous interest rate.
(It was even less onerous before Osborne got into power. Remember how Osborne originally made it a priority to keep the UK's AAA lending rate?)

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we remain, thanks to original sin, much in love with talking about, rather than with, one another. Rowan Williams

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anteater

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# 11435

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If the Tories had half a brain . . .

They would row back on austerity, hire more police, put more money into the NHS and all these good things, pushing up borrowing in the hope of stealing Labour's clothes.

They could also make it harder for Labour to maintain the middle-class incentive on university fees, by ensuring that there would be "no money left".

And it would all be for the good of the country.

Who knows? Apparently they are "considering the public sector pay cap". Why wouldn't they? Surely they can see that if they are going to continue with Austerity which anyway was a policy of George [Devil] Osborne, they'll lose.

Why not?

[ 28. June 2017, 16:15: Message edited by: anteater ]

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quetzalcoatl
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I suppose they have to adapt to Corbyn, without seeming to, and meanwhile, slagging him off as likely to bankrupt the country, and anyway, he's still a Trot.

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everything must go.

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chris stiles
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# 12641

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quote:
Originally posted by anteater:
If the Tories had half a brain . . .

They would row back on austerity, hire more police, put more money into the NHS and all these good things, pushing up borrowing in the hope of stealing Labour's clothes.

...

Why not?

Possibly. OTOH it's also that the particular electoral coalition that they have assembled doesn't give them the room to manoeuvre in this way.

The core of their base are older people who have been hit over the head with the austerity message (and the narrative that they worked really hard to get where they did, whereas the feckless young did not). They need to continue to get them out to vote, because even when they do they have only got fairly narrow majorities.

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Russ
Old salt
# 120

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quote:
Originally posted by Dafyd:
The theory goes like this...

At several points the money passes through transactions which the government taxes. Eventually it all comes back to the government one way or another. But in the meantime...

...because all of those extra things are being made there is now an extra job available in the economy to make those things...

That's why Keynes thinks governments should only deficit spend in recessions because Keynes thinks that what happens in recessions is that the economy has spare capacity that isn't being used. People who would like to work are out of work. If everyone is already doing economically productive work then there's no point in the government spending anything...

... if the money gets into the hand of someone who is saving money and that person saves it - puts in under their mattress or invests in some other high liquidity activity - then the money gets lost. The government wants to tax the money when it gets into the hands of people with money to save.

The argument about the borrowed money coming back to the government doesn't seem to depend on there being a recession.

You're right that this doesn't happen if people put it under the mattress.

They may also buy imported goods. Or buy any goods/services that are subsidised by the government

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Jay-Emm
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# 11411

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quote:
Originally posted by Russ:

They may also buy imported goods. Or buy any goods/services that are subsidised by the government [/QB]

That ones not such as problem (the import and mattress cases are, although both are less likely for the poorer).
It only adds an extra link on the chain, with money going in and out. Which side of the chain you need to focus depends on the item.

___(case 1 fixed cost subsidy)
If it's something that the government is subsidising at near fixed costs (e.g. a half empty bus line) then the money they're giving to the people (who then pay) can be taken off the subsidy.

Of course if the government ignore the change, and that they've added that link, then there's trouble. And you'd probably need to allow some room for error. [So in our bus example there be expected to be some 'loss' to the more, now successful, lines. Which would have complicated effects, because otherwise there'd be no incentive.]

____(case 2, unit costs)

If it's something the government is subsidising at unit costs, Then it's a bit more complicated.
You basically have to chose whether to cut the subsidy letting the price rise till demand is back at the same (which is then a bit unfair on the people who were using it before).

Or you have to pay extra staff and costs, in which case you have to look at what of these comes back (I.E if it means hiring someone who would otherwise be on the dole, you can instantly discount Income Tax, NIC Tax, and the dole amount). But of course some will be 'lost'

Even there the subsidy exists for a reason, so the lost money may come back in the long run (e.g. if they buy subsidised oranges and hence save on scurvy drugs*)

*of course then they need to do something with the chemists they were indirectly supporting.

[ 29. June 2017, 07:11: Message edited by: Jay-Emm ]

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Rocinante
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# 18541

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ISTM that government debt is in a completely different category to household debt, for the simple reason that governments never retire. In the average nuclear-family type household, the main wage-earners will wish to retire at some point, for which they need to have paid off their major debts (notably mortgage) in order to be able to make ends meet on a reduced income (pension).

Governments do not face the same need to pay off their debts, as they will continue in the same form, barring changes of political slant, effectively forever, and will always have income from taxation with which to service debt. Indeed I gather that for a nation which, like the UK, runs a substantial trade deficit, it would be a very bad idea to pay off all our debts as government borrowing is one way of recycling money back into the economy. (The other main way is personal debt, now regarded as A Bad Thing)

At the moment the effective interest rate on government debt is less than zero, and debt is not at a particularly high level by historical standards, therefore there is no particular urgency to pay it down.

I'm sure Phillip Hammond is well aware of this, and given Theresa May's well-known contempt for George Osborne she will have no qualms about throwing his policies into reverse. I would not be surprised if Austerity is comprehensively dumped in the next couple of years. However this is a Tory government, so any largesse will probably be directed at pensioners and the middle classes, with a few baubles for the Police and other "respectable" public servants. The poor will always be with us.

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Martin60
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# 368

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quote:
Originally posted by Sioni Sais:
Someone else has shaken the Magic Money Tree.

You think HM has for decades if ever do you? And she benefits how exactly?

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Love wins

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Sioni Sais
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# 5713

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quote:
Originally posted by Martin60:
quote:
Originally posted by Sioni Sais:
Someone else has shaken the Magic Money Tree.

You think HM has for decades if ever do you? And she benefits how exactly?
Put it this way: The Crown Estates pass a stack of cash to HM Treasury and when HMTQ wants a larger than usual slice, the Treasury pays up. OTOH I work for a fairly profitable part of the Civil Service and we also pass a sum to the Treasury. Do we get extra when we happen to need extra, such as when the economy takes a nosedive? No, we do not. 80 redundancies, pay restraint, all the usual. At least our CEO fell on his sword.

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Martin60
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# 368

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I'm surprised. Government spending during a nosedive is the most profitable thing you can do.

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Love wins

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Dafyd
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# 5549

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quote:
Originally posted by Russ:
The argument about the borrowed money coming back to the government doesn't seem to depend on there being a recession.

The money comes back to the government. But it would have come to the government anyway even if the government hadn't spent anything.
The distinction is between an economy in which the only people looking for work are the the usual people between jobs or entering the job market - who all have some prospect of finding a job, and an economy in which there are people looking for work with no prospect of getting any. In the first case, any money the government spends is taking up economic capacity that would be used anyway. It may be worth doing that anyway if the government is using that capacity for something more socially constructive than it would be used for otherwise. But there's no benefit to the economy as such. In the second case, where there are people who are not getting work, there is an economic benefit to government spending even if the government spends the money on something with no constructive purpose.

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we remain, thanks to original sin, much in love with talking about, rather than with, one another. Rowan Williams

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Baptist Trainfan
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# 15128

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A topical take on this theme: here.
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alienfromzog

Ship's Alien
# 5327

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quote:
Originally posted by Baptist Trainfan:
A topical take on this theme: here.

[Big Grin]

I sometimes feel Matt doesn't belong in the Torygraph. But only sometimes.

AFZ

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Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]

An Alien's View of Earth - my blog (or vanity exercise...)

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anteater

Ship's pest-controller
# 11435

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I'd like to include in this thread, the issue of blatant lies that get accepted and then influence public opinion because they become accepted facts, although they are total BS. For instance: Ungorgeous George claimed that cutting top-rate tax from 50% to 45% caused a tax revenue increase of £7-8bn in the next tax year "proving" that cutting tax can raise revenue.

And it is true that the tax was cut and the revenue did rise. Point proven? Err . . no.

Well I got all this (because I suspected a porky here) from fullfact.org who refer to the blog from tax barrister Jolyon Maugham whose blog entry is here (in case you thought I worked it all out). The essence is:

quote:
As Osborne well knows, if you tell people in March 2012 that you’re going to cut their tax bill by a tenth (from 50% to 45%) in a year’s time, people will choose to delay payment until April 2013 when their bills will be lower. And they did. . .
In other words, tax receipts were artificially low in 2012-13 (because people delayed receiving income until rates fell) and were artificially high in 2013-14 (when those delayed receipts were received). Combine those two numbers and you may well explain your £7bn jump . . .
Osborne could have taken measures to prevent these delaying tactics – which remember only benefited those earning over £150,000 per annum – but he didn’t.

And this cost the country £2.4bn in 2012-13

Personally I find this quite discouraging. Because I've repeated this BS and believed it. So people running the country and knowing the facts still lie without shame, and more depressingly, it isn't routinely exposed and held up to ridicule, as it should be.

No doubt there are more. Sigh. [brick wall]

[ 06. July 2017, 10:14: Message edited by: anteater ]

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Sioni Sais
Shipmate
# 5713

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What you have described is just another example of economics, which is little more than the political branch of statistics.

Objective economists are about as common as objective football supporters.

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"He isn't Doctor Who, he's The Doctor"

(Paul Sinha, BBC)

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alienfromzog

Ship's Alien
# 5327

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quote:
Originally posted by anteater:
I'd like to include in this thread, the issue of blatant lies that get accepted and then influence public opinion because they become accepted facts, although they are total BS. For instance: Ungorgeous George claimed that cutting top-rate tax from 50% to 45% caused a tax revenue increase of £7-8bn in the next tax year "proving" that cutting tax can raise revenue.

And it is true that the tax was cut and the revenue did rise. Point proven? Err . . no.

Well I got all this (because I suspected a porky here) from fullfact.org who refer to the blog from tax barrister Jolyon Maugham whose blog entry is here (in case you thought I worked it all out). The essence is:

quote:
As Osborne well knows, if you tell people in March 2012 that you’re going to cut their tax bill by a tenth (from 50% to 45%) in a year’s time, people will choose to delay payment until April 2013 when their bills will be lower. And they did. . .
In other words, tax receipts were artificially low in 2012-13 (because people delayed receiving income until rates fell) and were artificially high in 2013-14 (when those delayed receipts were received). Combine those two numbers and you may well explain your £7bn jump . . .
Osborne could have taken measures to prevent these delaying tactics – which remember only benefited those earning over £150,000 per annum – but he didn’t.

And this cost the country £2.4bn in 2012-13

Personally I find this quite discouraging. Because I've repeated this BS and believed it. So people running the country and knowing the facts still lie without shame, and more depressingly, it isn't routinely exposed and held up to ridicule, as it should be.

No doubt there are more. Sigh. [brick wall]

I think the problem here is not that politicians are mendacious as such. Even the ones with whom I strongly disagree, rarely would I accuse of this. However having watching people like Hunt and Gove and Osborne particularly, I think there are two specific problems:
1) they believe the end (in this case; small state=good) justifies the means and
2) never underestimate the ability of humans to lie to themselves.

Yes, the income tax revenue figures were fiddled. Either Osborne knows this and he's a liar or he doesn't and he's incompetent.

You pays your money and...

... the rich often don't

[Biased]

AFZ

P.s. politicians of all stripes are vulnerable to this weakness. Even when I agree with the ends, I don't always accept the means. Obviously if I disagree with the ends as well...

--------------------
Everyone is entitled to his own opinion, but not his own facts.
[Sen. D.P.Moynihan]

An Alien's View of Earth - my blog (or vanity exercise...)

Posts: 2099 | From: Zog, obviously! Straight past Alpha Centauri, 2nd planet on the left... | Registered: Dec 2003  |  IP: Logged



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