Friday , April 3 2020
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Chris Dillow: Stumbling and Mumbling

Stumbling and Mumbling is a personal blog of Chris Dillow, an economist who spent eight years with one of Japan’s largest banks. He blogs about British politics and provides thoughtful analyses on the British economy and sports.

The Tories’ dilemma

Matthew Parris in the Times raises a challenge for Tories – but not, perhaps, the one he thinks he does. The government’s willingness to borrow to get through the crisis, he says, undermines the traditional “Conservative case for prudence in public spending.” And if there are not the limits the Tories thought on public spending, then: The Tories had better brace themselves serious questions about how we can do it for a virus but not to save a shipyard, or the planet from climate...

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Another wasted crisis?

In the immediate aftermath of 9/11 there was much talk that the real heroes were firemen rather than hedge fund managers. That talk soon disappeared, and Americans’ indulgence of plutocrats continued as normal. This warns us about clapping for carers: it might prove to be a brief emotional spasm with no lasting social effect. Yes, crises can be turning points. But those of the 1970s and 2008 tell us that, for the left, they can also be wasted opportunities. Here are five uncertainties...

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Against “aggregate demand”

One legacy of the 2008 crisis has been that firms have built up big cash piles. Bank of England data show that non-financial firms now have over £425bn of sterling deposits. That’s equivalent to over two months of GDP and over 12 months of profits. You might think this is a great comfort, as it suggests that companies can respond to their loss of revenues not just by borrowing but by simply running down these cash piles: isn’t that what they are for? But, but, but. There’s a huge problem...

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Against one-trick ponies

Those of you who believe that bourgeois economics is mere ideology have had two data points of corroboration recently. First, Stephen Moore, Art Laffer and Steve Forbes said: "don’t expand welfare and other income redistribution benefits like paid leave and unemployment benefits that will inhibit growth and discourage work." This contain layers of nonsense. For one thing, during the current public health crisis we want to discourage people from working so they don’t infect others. But...

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Winning the argument?

The reaction of many on the left to the big spending rises in yesterday’s Budget is that they show that Labour has “won the argument” for higher public spending. This is partly true. On current plans (pdf), total public spending will rise to 40.8% of GDP by 2024-25*. That’s a bigger share than Labour spent between 1997 and 2008. The Tories’ justification for this is correct: low borrowing costs make it sensible to borrow to support economic growth and improve our infrastructure. But this...

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On (un)predictability

It’s a cliché that stock markets have been in panic mode recently. But why? The answer is not as obvious as you might think. And the issue matters not just for equity investors but for everybody interested in social science. My chart shows the point. It shows that the All-share index has been largely predictable simply by the dividend yield. Since 1985 the correlation between the yield and subsequent five-year changes in the index has been a humungous 0.8. With the yield now over 5%,...

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On centrist decline

One of the BBC’s most successful comedy shows of recent years is Radio 5’s 6-0-6, wherein actors pretending to be football fans phone in to spout gibberish about the game. A recurring trope is the need for “passion”: managers are expected to be passionate, and teams lose because they “didn’t want it enough.” I was reminded of this by a tweet from Andrew Adonis, that Labour must “get real about winning” – as if the party would win elections if only they wanted it more. This is yet another...

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On capitalist stagnation

One of the problems with even the best journalism is that it reports day-to-day events without putting them into context, thereby telling us about the weather but not the climate. So it is with the news that ten-year Treasury yields have hit a record low. Although the latest move is due to increased risk aversion triggered by the coronavirus this merely continues a long-term trend. Nominal yields have been trending down since the 80s, and real yields probably since it 90s. Why? Standard...

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Incentivized stupidity

Two good things I’ve read this morning raise an under-appreciated point – that people can be incentivized to behave in ways that seem stupid. First, there’s Tom Chivers’ review of Mervyn King’s and John Kay’s Radical Uncertainty. He says it is “completely terrifying” that they thought their book needed to be written, because economists and finance types shouldn’t need to be told that “models are not 100% precise representations of reality.” Of course, he's right. Models are unreliable...

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Immigrants as scapegoats

Several observers believe that insofar as the government’s points-based immigration system reduces immigration (which as Jonathan says is “far from certain”), it will do real economic harm. Ian Dunt says it “is a bitterly stupid and small-hearted thing to do.” And Anthony Painter writes: The scale of the change and its suddenness risk very significant negative impacts. Businesses and public services could struggle to fill vacancies, seasonal businesses could especially suffer, and...

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