Transparency is a Wonderful Thing

Apparently the current government is ratcheting up transparency, particularly for financial accountability of public bodies. Which is a good thing of course. From the ramblings of this man, you'd think that the only thing that this process could ever uncover was more sinister activity by the previous Labour government.

So it's particularly interesting to find out which companies contributed to Conservative MPs and their election campaigns, and which have subsequently been rewarded quite nicely. 

All the more interesting given just how much the Conservative Party has talked about the Big Society, getting local charities to do things and be pro-active. Not when it isn't in the interests of the big businesses bankrolling the Conservative Party though, it seems. I had a discussion in the Blenheim a few weeks back with some friends (one of whom votes Tory) about these business conflicts of interest. It was suggested there and then that codes of conduct should sort these kinds of problems out. Hmm.

Favouritism?

This guy still really concerns me. Today he comments on David Cameron's latest hot air on immigration.

What I'm really unsure about is the following. In the Book of James, chapter 2 verse 9 says "But if you show favoritism, you sin and are convicted by the law as lawbreakers." In fact, the whole passage from verse 1 through the 13 is pretty clear: Do not show favouritism.

Now, what are limits on immigration other than favouritism? Letting one person in because he has the fortune of having been born in a particular place, but refusing someone else.  Verses 2-4 say "Suppose a man comes into your meeting wearing a gold ring and fine clothes, and a poor man in filthy old clothes also comes in. If you show special attention to the man wearing fine clothes and say, “Here’s a good seat for you,” but say to the poor man, “You stand there” or “Sit on the floor by my feet,” have you not discriminated among yourselves and become judges with evil thoughts?"

The passage concludes with "Speak and act as those who are going to be judged by the law that gives freedom, because judgment without mercy will be shown to anyone who has not been merciful. Mercy triumphs over judgment."

Now I find it really hard to understand how plucking a number out of thin air like 50,000 is consistent with this, and particularly how this imposter Cranmer can say that even that is too much. The original Cranmer of course was a Christian minister, hence ought to be reasonably well versed in the Bible, you would have thought - not just pandering to right-wing prejudices.

More fundamentally, this Cranmner always rants on about how apparently nowadays (only since 1997 though of course) all Northern cities are no-go zones, immigration has totally wrecked the fabric of our society and things are almost beyond repair - the only thing would be just to shut those doors. Is he really that unthinking? Does he really think that before 1997 all parts of Northern cities were fine and pleasant areas where you'd happily let your children go and play in?

It is human sinfulness that means that for decades many parts of our cities have been desolate places, both at the individual and corporate level, and that sure as anything isn't going to change any time soon, with or without a 50,000 cap on immigration. If anything, it will get worse if it means that the currently higher inflation remains in place (of course, the positive sides of the 2.2m influx since 1997 aren't mentioned by Cranmer) since cheap labour is no more and instead lazy Brits are mollycoddled (probably still sulking about it) into jobs. 

I grew up in Middleton, Manchester, which certainly isn't a Moss Side or Wythenshawe, or even a Werneth, but yet it had its areas where you would not sensibly go if you expected to come out without some kind of material loss. And I certainly grew up there before 1997.

Showing favouritism and shutting the doors is not a Christian response, and it certainly is not an economic response either - something I'm not even able to touch on in this post as it's already getting much too long.

 

A Little Bit of Looking at the Data

Today the Daily Mail is again talking about how the UK was on the edge of an economic apocalypse before George Osborne saved the day! Some things never change.

What would be more interesting would be to actually look at the economic data beneath the political and journalistic hyperbole, wouldn't it?

I'm writing up some long overdue notes for some lectures I did on fiscal policy, and I figured I'd just have a little look at the government deficit in the context of real GDP growth in the UK over the past 30 years. Here's what the two data series look like:

Why am I doing this? Well because when an economy enters a recession, things economists call automatic stabilisers kick in: Benefits are paid to people made unemployed, and income and corporation tax receipts fall since less profits are made and less income is earned. These two effects will make a budget deficit worse regardless of how profligate a government is, so long as it provides unemployment benefits, and runs an income and corporation tax system.

So what about the biggest recession in 70 years kicking in? Surely that's going to have quite an impact on government finances, right? Looking at the two series above, we can see that indeed the recession we just emerged from was deeper than anything since 1980, and indeed the government deficit was also deeper. It's interesting to note the 1992 recession, post-ERM. After that, there is quite a large budget deficit for quite a while. Interestingly enough, that deficit only becomes a surplus after 1997.

However, we should really think about taking the data seriously, shouldn't we? Eyeballing only gets one so far. Now both series are probably stationary (econometric speak), but clearly show persistence - GDP growth is strong for a while, then weak, deficits tend to hang around like bad stains. So we should think about a dynamic econometric model. The real beauty of such models (say, an Autoregressive Distributed Lag model) is that we can let the data tell us about the long run solution, or error correction reformulation as it's called in the linked paper. This is the long-run relationship between the two variables: So if real GDP growth is at its expected value, what do we expect the deficit to be?

This way we can say: How far out of equilibrium are we right now, compared to economic history? I'm not going to bore anyone with the details (email me if you'd like them, I'm more than delighted to provide), but of course it's fascinating to look at something like this and see just how much we are currently teetering on the brink. The red line in the following diagram shows us exactly how far out of equilibrium we are currently:

The deficit and real GDP growth are also plotted there still. The red line is equilibrium, or how much too high or too low is the deficit given the state of the economy. The important thing is that this is estimated over real data, and it should also be said that this is data starting in 1981, so 16 years of a Conservative government then followed by 13 years of Labour - it's a nice mix of the two.

So we see the impact of the financial crisis with a big positive movement which looks bad, right? That is until you realise that this is saying that the deficit was not large enough given the size of the contraction in real GDP! Calculations, based on the data, says that at the height of the recession, when real GDP contracted at 6%, the correct deficit given past UK economic history (16 years of Conservatives), excluding all economic theories, the deficit should have been an eye-watering 22% of GDP, not the trifling 9% it was at this point (2009Q2). Only as we entered 2010 did the equilibrium relationship (called ECM) turn negative, suggesting the deficit is too high now, and even by 2010Q3 it had not reached the depths of disequilibrium (a deficit too high) it reached in 1994.

Interesting stuff. Are we teetering on the brink of an economic apocalypse? Were Labour reckless with public finances? Not if you consider economic data taking into account Conservative policies between 1981 and 1997, at any rate.