Wednesday, 29 January 2014

Is the case for Scottish independence in tatters?

Mark Carney’s Scottish speech is too measured a thing for commentators not to aggressively spray it with a mixture of twaddle and tosh in a manner largely reliant on implausible strawmen.

Take the notion of control and how a post-independence Scotland that entered a currency union with the Rest of the UK (rUK) would have no control over its exchange rate. Except, all this means is an independent Scotland wouldn’t gain something it currently doesn't have i.e. there would be no change. Hence, when Robert Peston trots out the following twaddle “Now the value of the pound would tend to reflect economic conditions in the larger economic area of England, Wales and Northern Ireland, not the more recessionary conditions in Scotland. So the pound would not fall to offset the downturn in Scotland and give a boost to the export prospects of Scottish companies”, he is ignoring the fact this is already the case.  

As for tosh, Robert Peston then goes on, in a Treasury paper type styley, to say that “the economies of Scotland and that of RUK would diverge”, this being, it would appear, a terribly bad thing because a Rest of the UK set monetary policy might not suit Scotland.

Except, again this is already the case and besides here’s what Mark Carney actually said about divergence: “Surprisingly, a review of major currency areas suggests that similarity is neither necessary nor sufficient for success. For example, the industrial structures of the core and periphery of the euro area are more similar than those of the constituents of Canada or the US (table 1). Yet few  would argue that the euro area is the most effective currency union of the three. Conversely, the Canadian monetary union works well despite having substantially larger industrial variation than even the US …..being similar doesn’t necessarily help and being different doesn’t necessarily hinder”.

Mark Carney then says there would also be a need for a banking union, which would entail:

1)      Common supervisory standards,
2)      Access to central bank liquidity and lender of last resort facilities,
3)      Common resolution mechanisms, and
4)      A credible deposit guarantee scheme

Now, this is the ideal type scenario, the EU not having all of the above, but anyhoo, lets take each in turn:

1)     Fine, give us a copy of the rule book we’ve already part paid for and that financial institutions already adhere to, sometimes (and because a Scottish financial system would be much simpler e.g. no hedge funds or investment banks, it would also be cheaper to supervise)
2)     Hmm, this is a bit trickier
3)     Nae bother, we’ll get a copy of the rule book when its finally agreed (there isn’t really one at the moment) and/or introduce the necessary laws into the Scottish parliament using the UK precedent.
4)     You mean like the one all the foreign banks already operating in London already have? Oh go on then.

Suddenly independence isn’t an especially daunting prospect anymore and that’s before we get to the meat of the issue and the prize; fiscal policy or to quote Mark Carney “there is an obvious tension between using robust fiscal rules to solve this problem, and allowing national fiscal policy to act as a shock absorber. This reinforces the need for fiscal risk sharing between nations. “

Or to put it another way, an independent Scotland wouldn’t be able to tax and spend exactly how it chose, be that recklessly or not. Except we knew that already and anyway, even if Scotland had an independent currency, the bond markets and rating agencies would make clear what appropriate government debt levels and spending levels would be.

However, even if total government spending could only vary incrementally from the rUK, there is obvious scope for what the total gets spent on to vary significantly, which actually matters a lot.

Two quick examples: First, transport and infrastructure – Right now, Crossrail is Europe’s biggest construction project. At a cost of c.£16bn it will make it easier to commute across London. When Crossrail is finished it looks like the biggest construction project will be HS2, which will make it easier to commute into London. Before Crossrail, the Chunnel was probably the biggest construction project, which made it easier to travel from Paris to - wait for it, wait for it - London. Then there’s the possibility of another Heathrow runway, which would make it easier to travel into London from well anywhere really i..e. an independent Scotland would be able to spend the same amount of money it currently contributes to rUK infrastructure spending, but on things other than the long-term UK commitment to massively subsidising London commuters, like have you seen the state of the roads round Aberdeen, howzabout finally reinstating the Waverly line or having a dual carriageway all the way through the borders?

Second, military spending and foreign policy; in one of his pro-Union speeches Alastair Darling highlighted the phallic size of the British military budget as if spending all that money on being able to kill people was a good thing. Except, whereas Britain had the 4th largest military budget in the world in 2013 and spent a bigger share of its GDP on it than Japan, France, Italy and Germany, the British economy was only the 7th largest. So here’s a mad proposal, an independent Scotland could pay itself a peace dividend by cutting military spending back to a level either in line with its economy or less than. Then, it took the money saved and spent it on mad shit like social housing, education, care for the elderly, economic development and so on without breaching any overall fiscal rules (and not invading anymore countries at the behest of the US).

So does Mark Carney’s speech leave the case for independence in tatters? No it fucking well does not.   

Friday, 24 January 2014

Lies, damned lies and ..... what's the point?

Anyone pointing out that the data released by the Treasury showing pay is actually increasing in real terms is a crock of &*£" is missing the point. The reality is that average pay growth has and continues to lag inflation. The latest (as at 22/1/14) available ONS data shows the average weekly wage (including bonuses) grew at 0.9% per annum (1.2% private sector, 0.2% public sector) vs consumer price inflation of c.2% i.e. real pay, after taking the average increase in the cost of things into account, is continuing to fall, this time by 1%. That is the reality; pay growth continues to lag prices ergo yer average punter is worse off today than he was a year ago (and the year before that and the year before that one). 

But, that's beside the point. Googling over to the Daily Telegraph/Torygraph, Express and and Mail to see what they had to say about the special Treasury release given they’re quite the ones for supporting the current austerity regieme, as of 18.54, Friday, today, none of them were saying anything.

Now, chew on that for a second. And a few seconds more. So the claims and data taxpayer funded government departments are making and issuing currently appear too implausible, too readily contradicted by easily available facts for even the Tory press to actually run with. By contrast, they're not too implausible for the BBC i.e. the BBC now appears less sane/more right wing than the Daily Mail when it comes to the economy.

But, that's still besides the point, which is this; Labour have been scoring political points by going on about the cost of living crisis. This Treasury release muddies the waters, handing every Tory guest on Newsnight, the Today programme etc., for the next however long a time-wasting peg on which to hang their prejudices about the consequences of the current ConDem lot’s economic policies for the majority of people in Britain. FTSE 100 executive pay packages growing at 14% per annum? Ahh, but the Treasury release says its actually only the top 10% that have seen their pay lag inflation. The number of food banks is up? Ahhh, but pay is now growing in real terms according to the latest Treasury figures. And so on.

This release is all about turning the grinding, real terms pay cuts millions of people continue to contend with into a distracting he-said, she-said political debate. Oh and factually its also just wrong, but due to the BBC approach to avoiding charges of bias - see climate change reporting fer instance - of presenting opposing views even when one is garbage, it could well continue to be presented as being in some way credible.

P.S.  Click here for a neat demolition of the claims and here for someone pointing out its actually quite hard to get hold of the Treasury release to check the methodology and numbers. Funnily enough, the story - and associated headline - is suddenly getting a lot less prominence on the BBC website. The whole thing feels increasingly like something out of "The Thick of It"; bright young thing twists numbers into supporting the party line, party press officer gets the BBC to do a big splash, a growing number of people say WTF? and allova sudden - move along now nothing to see here - the actual story is the Prime Minister's Davos speech.

Thursday, 16 January 2014

Banker bonus bollocks balls

It's banker bonus time again, which means there’s the usual political point scoring drivel. My personal favourite so far has been the BBC asking a recruitment consultant for an opinion*; as you’d expect, given his fees are a % of the wages of the people he introduces to new employers, the consultant argued against any pay restrictions. Go figure.

I’ve yet to see the point made about how the total sums due to get quoted include the bonuses paid to the 10s of thousands of relatively low paid bank staff (e.g. a bank cashier starts on 8-11 grand a year and might eventually reach the giddy heights of 24 grand p.a.), but am sure its coming soon. And there’s been no discussion - I’ve seen - as yet of the actual changes to how bonuses are paid and the various clawback terms and access restrictions that have been introduced.

Here though I reckon I’ll query the superstar argument getting made yet again  to justify the big, big, biggie bonuses. According to this bankers are like top footballers, game changing individuals whose world class acumen and expertise generate far more in taxes and profits than they ever get paid. Plus, if they don’t get what they want, they’ll emigrate to Singapore or New York and we’ll all lose out as a result.

Bollocks. Lets take the superstar analogy at face value then only in relation to baseball where the book, then film Moneyball set out how in baseball teams regularly overpaid for underperforming superstars, this being the natural result of whole squads of experts and insiders all buying into a common sense that happened to use the wrong metrics to assess player performance. Now a couple of things follow on from this:

  • Don’t take what “experts” say at face value, especially if they’ve a vested interest in saving the value of their own faces (and bank balances, see recruitment consultant quoted above).
  • Conventional wisdom about what superstar performance looks like or derives from can be wrong in systematic and sustained ways
  • The “Sabremetrics” documented in Moneyball showed up – because it enabled teams to exploit - sustained and systematic market failures when it came to setting baseball salaries.
  • The “Sabremetrics” methodology that eventually challenged conventional baseball wisdom used dozens of metrics to measure how individuals performed over their careers. 
By contrast "Superstar” bankers are never, ever subject to the same degree of scrutiny, not even close (because there simply aren’t the metrics available, plus there would be confidentiality and data protection issues etc.,). So potentially then arguments made in favour of paying superstar bonuses to bankers are largely, make that primarily grounded in prejudice and vested interests.

Except, there have been some studies only these don't make for especially superstar reading. These have looked at how “top” financiers perform over time and when they move between employers. In both cases it transpires many move randomly from having good years to bad years i.e. luck is a big factor (though some private equity firms are a notable exception here when it comes to the ability to outperform on a sustained basis). And that rather than individual star performers, you're actually looking at strong teams in a positive environment, neither of which being especially transferable across the road to a different bank's Canary Wharf office let alone over the sea to Singapore or New York

And then there's the wee cheeky bit of fiddling that appears to have gone on in recent years. Like if they’re all so good why do so many appear to have (allegedly) committed fraud to make money what with the growing number of enquiries into  foreign exchange trading, libor, euribor etc., i.e. whole swathes of bank trading activity appears to have been utterly bent. Thankfully, every cloud has a silver lining;  those banks that have sacked, resigned, put on leave etc., traders provide a lovely experimental opportunity to test to what extent (a) the irreplaceable staff who have been replaced are actually perfectly replaceable and (b) whether overall trading profits derive from gaming the various systems, luck or actual expertise (this, by the way, would not be hard to do, there are oodles of microeconomists who would do this sort of assessment for the price of a PhD i.e. for a damn sight less than the fees the regulator would otherwise pay to the consultancy arm of a big accountancy firm)

In the meantime, the "superstar" rhetoric needs put on hold., now. It's nastily insidious, because it taps into notions of natural talent, and for the most part is based more on prejudice than fact. So sure, sure, pay “superstar” bankers “superstar” bonuses if you want, only subject them to “superstar” scrutiny as well, if only to drown out the annual chorus of bonus bollocks we now get inflicted on us at this time of year (and save shareholder funds).

* This whole BBC notion of balance whereby people with opposing views are asked about the same thing doesn't achieve balance, it simply exposes double the volume of prejudice.