So what’s driving the deficit reduction mania?

January 25th, 2015 [link]

I’m not a conspiracy theorist, but…

Neither is Simon Wren-Lewis, the Oxford economist. But consider this interesting post on his blog:

I have searched hard to find a macroeconomic rationale for Osborne’s policy stance. A belief that QE is as effective as conventional monetary policy (there is no liquidity trap) comes close, but as I explained here it does not really fit with what Osborne has said (or not said). Osborne is certainly no market monetarist, as he has shown no interest in nominal GDP targeting. So there does not appear to be a coherent case for Osborne’s fiscal proposals that a macroeconomist could take seriously.

Second, the idea that the real motive is a small state is not the preserve of some small group of left wing conspiracy theorists. Here I quote Jeremy Warner, economics editor of the Telegraph (for non-UK readers, a newspaper firmly to the right): “In the end, you are either a big-state person, or a small-state person, and what big-state people hate about austerity is that its primary purpose is to shrink the size of government spending.” He also wrote: “The bottom line is that you can only really make serious inroads into the size of the state during an economic crisis. This may be pro-cyclical, but there is never any appetite for it in the good times; it can only be done in the bad.” I also think many of my non-UK readers will wonder why I am having to justify what is obvious in their countries.

Third, it must have become clear to many people now that reducing the deficit cannot be the overriding priority when there have been so many tax giveaways (50p rate, Help to Buy which creates large contingent liabilities, Cameron’s conference commitments, stamp duty changes that are far from fiscally neutral, pensioner bonds). Putting these down to ‘politics’, but counting spending cuts as ‘economics’, will not wash. (See Brad DeLong for the equivalent in the US). You cannot pretend that deficit reduction is driving government policy, when that driver only operates on the spending side of the accounts.

Economists in the media are beginning to realise this. It is really important that political commentators do so as well, so that those without an economics background get a clearer idea of the nature of the choices they will have to make in 100 days time.

Of course, it’s also conceivable that Osborne & Co don’t really know what they’re doing. It’s been known to happen with British governments.

And then, later this from Joseph Stiglitz:

For the past six years, the West has believed that monetary policy can save the day. The crisis led to huge budget deficits and rising debt, and the need for deleveraging, the thinking goes, means that fiscal policy must be shunted aside.

The problem is that low interest rates will not motivate firms to invest if there is no demand for their products. Nor will low rates inspire individuals to borrow to consume if they are anxious about their future (which they should be). What monetary policy can do is create asset-price bubbles. It might even prop up the price of government bonds in Europe, thereby forestalling a sovereign-debt crisis. But it is important to be clear: the likelihood that loose monetary policies will restore global prosperity is nil.

This brings us back to politics and policies. Demand is what the world needs most. The private sector – even with the generous support of monetary authorities – will not supply it. But fiscal policy can. We have an ample choice of public investments that would yield high returns – far higher than the real cost of capital – and that would strengthen the balance sheets of the countries undertaking them.

The big problem facing the world in 2015 is not economic. We know how to escape our current malaise. The problem is our stupid politics.

Bill Clinton was famous for his mantra “It’s the economy, stoopid”. The mantra we need now is “It’s the politics, stoopid”.

Jason’s First Rule of Start-ups

January 25th, 2015 [link]

Jason Calcanis is one of the shrewdest tech investors around. He’s just published an insightful essay on why founders of start-ups need to keep their investors informed — really informed — about what’s going on. “Jason’s Rule of Startups”  goes like this:

“If your startup isn’t sending you monthly updates it’s going out of business.”

How does he know this? Answer: Bitter experience

I know this because with two of my investments I found out that they were out of business because I emailed them over and over asking for an update. When the update finally came it was, “can we talk?”

When someone says “can we talk?” it’s over.

Today I keep a spreadsheet. The columns are the months of the year and the rows are the startups I’ve invested in. We check off the date in the month that we got the last update.

When we look at this spreadsheet — and we look weekly — we know instantly who is in trouble and who is rocking. If someone misses their second month I instantly call them on the phone — so I can help!

And that’s the big lesson for founders: if you’re not sending the report because you’re ashamed of how bad your startup is doing, you’re making a big mistake. I know, you want to clean things up a bit before sending your update — that’s reasonable.

I get it. I’ve done it. Don’t do it.

When you have problems, that’s when you should lean on your investors most. Nothing is more refreshing than getting an update from a founder that says:

  1. We lost our CTO to Google.
  2. The product is four weeks behind schedule.
  3. We have only nine months of runway left.
  4. I’m really frustrated at how slow this is going.

Awesome! Welcome to entrepreneurship … it’s really fucking hard! We know, we’ve been there and we know how to solve these problems. Let’s roll up our sleeves and get to work!

Great stuff. He’s right: I’ve been there, done that, got the tee-shirt.

We know the answer to “who blundered?”. So why the delay?

January 25th, 2015 [link]

Lovely column by Simon Jenkins on the fiasco of the Chilcot Inquiry into Britain’s involvement in the Iraq war, which has taken longer to write than War and Peace and looks like coming out at twice the length. He argues that we all know who blundered — it was T. Blair with his personal infatuation with George W. Bush and the need to play poodle to the US. All of which seems obvious to most observers, but worth saying again. I particularly like this crack:

The Chilcot inquiry was a ploy of Blair’s successor, Gordon Brown, somehow to get his own back. At the time, in 2009, David Cameron said it was “an establishment stitch-up”. He little imagined it would be still be there when he was the establishment, and had to defend it.

Inequality is a feature, not a bug of neoliberalism (contd.)

January 25th, 2015 [link]

Even the masters of the neoliberal universe are beginning to fret about this, as Seumas Milne reports:

The billionaires and corporate oligarchs meeting in Davos this week are getting worried about inequality. It might be hard to stomach that the overlords of a system that has delivered the widest global economic gulf in human history should be handwringing about the consequences of their own actions.

But even the architects of the crisis-ridden international economic order are starting to see the dangers. It’s not just the maverick hedge-funder George Soros, who likes to describe himself as a class traitor. Paul Polman, Unilever chief executive, frets about the “capitalist threat to capitalism”. Christine Lagarde, the IMF managing director, fears capitalism might indeed carry Marx’s “seeds of its own destruction” and warns that something needs to be done.

The scale of the crisis has been laid out for them by the charity Oxfam. Just 80 individuals now have the same net wealth as 3.5 billion people – half the entire global population. Last year, the best-off 1% owned 48% of the world’s wealth, up from 44% five years ago. On current trends, the richest 1% will have pocketed more than the other 99% put together next year. The 0.1% have been doing even better, quadrupling their share of US income since the 1980s.

What they’re really worried about, of course, is that the hoi-polloi might finally tumble to what’s been going on. Democracy has a slow-burning fuse, but in some places, notably Greece, it’s beginning to fizz.

“Escalating inequality”, continues Milne,

has also been a crucial factor in the economic crisis of the past seven years, squeezing demand and fuelling the credit boom. We don’t just know that from the research of the French economist Thomas Piketty or the British authors of the social study The Spirit Level. After years of promoting Washington orthodoxy, even the western-dominated OECD and IMF argue that the widening income and wealth gap has been key to the slow growth of the past two neoliberal decades. The British economy would have been almost 10% larger if inequality hadn’t mushroomed. Now the richest are using austerity to help themselves to an even larger share of the cake.

But there is one area of the world where this grim cycle doesn’t appear to operate:

The big exception to the tide of inequality in recent years has been Latin America. Progressive governments across the region turned their back on a disastrous economic model, took back resources from corporate control and slashed inequality. The numbers living on less than $2 a day have fallen from 108 million to 53 million in little over a decade. China, which also rejected much of the neoliberal catechism, has seen sharply rising inequality at home but also lifted more people out of poverty than the rest of the world combined, offsetting the growing global income gap.

And the implication of all this? The economic system doesn’t have to produce inequality. It’s just one version of it that does. So we need a change in the system. And for that we need a new politics. The big question is when will it arrive? And will the current intensification of ‘security’ stop it in its tracks?

Facebook’s fantasy economics

January 25th, 2015 [link]

This morning’s Observer column.

Last week was Davos week, the time of year when 2,900 movers and shakers (only 17% of whom are women, incidentally) congregate in a small town in Switzerland to talk the talk. It also means that it’s the week in which Facebook issues its annual Bullshit Report, claiming that it is not only a Force for Good but also one of the world’s economic powerhouses. In 2012 the report claimed that Facebook – an outfit which then had a global workforce of about 3,000 – had indirectly helped create 232,000 jobs in Europe in 2011 and “enabled” more than $32bn in revenues.

Now, two years on, Facebook has more than 1.3 billion users, and its claims have become correspondingly more extravagant. This year’s Bullshit Report asserts that in the year ending October 2014 the company’s “global economic impact” amounted to $227bn – which is roughly equal to the gross domestic product of Portugal – and that Facebook accounted directly and indirectly for 4.5m jobs.

These numbers were plucked out of the air by Deloitte, the consulting company regularly employed by Facebook’s fantasy economics division. I use the word fantasy advisedly, having read the disclaimer at the head of Deloitte’s document…

Read on

The world’s archivist

January 24th, 2015 [link]

Seb Schmoller pointed me to this lovely New Yorker essay by Jill Lepore about Brewster Kahle and his astonishing Internet Archive project. Lepore’s piece is well worth reading in full, but you can get a flavour of it from this clip from a BBC film made by Alan Yentob.

What David Cameron doesn’t get: the difference between privacy and secrecy

January 23rd, 2015 [link]

My colleague Julia Powles has a terrific essay in Wired on the implications of, and fallout from, the Charlie Hebdo massacre, in which she says this:

Cameron claims that there should be “no safe spaces for terrorists to communicate”. What he expects in technical and legal terms is unclear, but the sentiment is stark: no safe spaces for “them”, means none for us. Security is cast as the ultimate law and first priority, while privacy is something for bad people to hide bad things. In truth, privacy is fundamental to all of us, individually and collectively. It is the foundation of trust, relationships, and intellectual freedom. It is a core tenet of a free and healthy society — security’s ally, not its enemy.

It’s strange how the political establishment in most democracies now seem unable to distinguish between secrecy and privacy. Privacy — as Cory Doctorow observed last week on Radio 4′s Start the Week programme — is the ability to control what other people know about you. It’s the state of being unobserved. Secrecy is the act of keeping things hidden for various reasons, some of which may be legitimate — and some conceivably not. We are all entitled to privacy — it’s a human right. Secrecy is a different thing altogether.

She goes on to remind readers that Cameron’s political assertions

are propped up by a formidable line-up of security officials from MI5, MI6, and the ISC, who have been notably more vocal in the last two weeks than at any moment in the last two years. They echo the tone set by the GCHQ director and Metropolitan police commissioner in November. It is only if we can get at everybody’s communications data, they claim, that we can tackle the terrorist problem. But mass data collection, the necessary precursor to recent and proposed laws, can be shown mathematically to make it more difficult to catch terrorists, plus it has a very significant and irrecoverable environmental cost. It is in clear breach of human rights. It also creates unnecessary, unwanted, and costly data storage — and, with it, new vulnerabilities to malevolent actors that far outnumber plausible terrorist threats. What works, by contrast, is well-resourced, targeted intelligence, complemented by strategies directed at mitigating the causes of disaffection and social unrest.

Well worth reading in full.

Quote of the Day

January 20th, 2015 [link]

“What liberal values have going for them is liberty and value.”

Adam Gopnik, writing in the New Yorker about Michel Houellebecq’s Francophobia.

It’s a terrific piece, well worth reading in full. Contains this delightful paragraph:

In the novel that made Houellebecq famous, “Les Particules Élémentaires” (1998), he proposed that a society with an unchecked devotion to economic liberalism and erotic libertinism would come to a daylong oscillation between fucking and finance, where bankers would literally break their backs in the act of having sex for the hundredth time that day. The satire seemed ridiculously heavy-handed and overwrought—and then came Dominique Strauss-Kahn, the head of the International Monetary Fund, who, in the brief time before dining with his daughter and boarding a plane, turned out to have budgeted fifteen minutes for sex (coerced or not) with a total stranger. D.S.K. was a character only Houellebecq could have imagined, and already had.

Yeah: and he might have been President of France today if he hadn’t slipped up in New York.

Reflections on a winter’s afternoon

January 19th, 2015 [link]


Reflections of the cantilevered platform of the West Cafe in late afternoon on the West Cambridge site.

The multitasking illusion

January 19th, 2015 [link]

When asked to describe myself I often say that I’m a multi-tasker with a faulty algorithm. (To which Quentin once responded, “Don’t worry: we can always have you re-flashed”.). But it’s true, alas.

So it’s comforting to read this:

Although we think we’re doing several things at once, multitasking, this is a powerful and diabolical illusion. Earl Miller, a neuroscientist at MIT and one of the world experts on divided attention, says that our brains are “not wired to multitask well… When people think they’re multitasking, they’re actually just switching from one task to another very rapidly. And every time they do, there’s a cognitive cost in doing so.” So we’re not actually keeping a lot of balls in the air like an expert juggler; we’re more like a bad amateur plate spinner, frantically switching from one task to another, ignoring the one that is not right in front of us but worried it will come crashing down any minute. Even though we think we’re getting a lot done, ironically, multitasking makes us demonstrably less efficient.