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.

Correlation and Causality

I just posted this on the blog I write for my 1st year undergrad students in Birmingham, but as I finished up, I realised how appropriate it was to be posted here also, as it shows yet again the kind of dangerous deception put forward by right wingers. In that blog I'm pointing out an article by John B Taylor, who has recently become a staunch proponent of government austerity. He's supported/encouraged by Greg Mankiw, who is another Republican poster child.

For those more averse to all things US, the Republicans are much more right wing than any of the mainstream UK political parties, although their closest equivalent would be the Conservative Party.

John B. Taylor is the man who proposed the Taylor Rule, a rule that monetary policymakers should follow when setting monetary policy. He strongly believes the sole cause of the Financial Crisis was that monetary policy was too loose, according to his model (scroll through old posts on his blog and you'll get a sense of this, I can't find the original article).

In the main linked article though, Taylor takes us through some scatter plots. Now these are interesting scatter plots - they show that government purchases are positively correlated with unemployment, and that investment is negatively correlated. From this, Taylor draws the conclusion that austerity is fine and should be encouraged (since it means lower government purchases) while at the same time investment should be encouraged.

This is all well and good, but a scatter plot shows correlation and not causality. Why does this matter? Well, Taylor proposes austerity (cutting back government purchases drastically) because in his mind it will cause lower unemployment. But what if the causality is the other way? What if high unemployment causes higher government purchases? Now this is hardly controversial really, since if people become unemployed, the government will have more to do: Higher benefits, likely higher other costs too, and naturally we might see some attempt by government to stimulate the economy by increasing purchases (data is 1990 on). If this happens, the purchases happen at the same time as the unemployment exists, hence we get a correlation like in the plot.

So does Taylor's plot really tell us much? Even if the government purchases worked, this plot wouldn't tell us that since it's a dynamic picture - i.e. the reduction in unemployment wouldn't necessarily come instantaneously! So the plot has ignored causality and also the dynamic nature of cause and effect in the macroeconomy.

It's another example of why it's very hard to know who to trust when doing/reading economics. Blogs are great - they contain the opinions of top economists who can comment on real world events as they are happening. But they are not what we call peer reviewed. For a paper to get into a journal, it must be read by a number of referees who decide on its quality. Shoddy data work like that shown in this blog post, would not get past the referees and editors at a top journal.

The conclusion to draw - be careful, and in particular if you do read blogs (and I'd recommend it!) try to read a balanced selection of them. There is little doubt that those on both sides of the debate will try to twist and distort things to suit their prior prejudices - the kind of shoddy data work used in Taylor's blog post is not something confined to the right by any means.

More Dubious Right Wing Matter

The usual person I read has again put forth a number of the assertions that are simply plain wrong and deceptive, as I've pointed out before using genuine, actual data as opposed to unlinked assertions. The main thing is the usual blather about the deficit - apparently, to run a deficit in the largest economic downturn in 80 years is not Christian. That's right: To refuse to pay benefits to unemployed because it will lead to a budget deficit.

Apparently, Christians should be all for the current government's "more targetted" reforms, which actually mean simply having a tighter budget and imposing cuts, making many more mistakes along the way. The current government's more targetting immigration strategy (a cap, often zero for individual firms regardless of their multinational status, on non-EU immigrants) is keeping out Christian missionaries from settling in the UK I found out last weekend on the St Ebbes Church Weekend Away. So that's the Christian response is it? The more botched targetted EMA will likely also cut out plenty of people the previous system would have covered.

I'm not going to object to every cut, but instead I'll say that the Christian should be in favour not of what the Conservatives propose (some cuts here and there but the essential framework unchanged), but nor should the Christian be simply trying to uphold the status quo. Education and health probably should be done differently than we do in the UK, and in doing them differently we can improve efficiency - but not in the way the Conservatives think. I will try and write a little more on this in the coming weeks - right now I have to prepare lectures and meet students.

But the fundamental thing Cranmer always misses out on is that charity will not be up to scratch for the kinds of things he and the Big Society are supposed to provide. Yes you can go on about, and assert without any supporting evidence, how the state has crowded out charitable giving and activity, but the fact is the kinds of things charities do tend to have positive externalities (when providing, like health and relief) and negative externalities (when trying to discourage, like homelessness and prostitution). This means that the private sector outcome of simply relying on charitable giving will be underprovision of healthcare and education amongst other things, and an overprovision of other less desirable things like homelessness. This is basic, simple economics, the kind the right wing tends to ignore - instead they blithely (and again without any supporting evidence) insist that poverty is defined by absence of flat screen TVs and BS like that.

Hence these are the kinds of cuts to government provision that Christians should think a lot more about instead of simply (a) going out and protesting and (b) writing blogs like Cranmer does. Think about how the government provides and whether the government is the best provider but in finding solutions recognising these externalities. This is why economics is so central to thinking about these matters.

Zombie Economics

John Quiggin of Crooked Timber has published a book and more, and often talks about Zombie Economics - bad economic theories that just won't die.

He's been taken to task by David Henderson, a prominent libertarian, recently, over his faith in government - Henderson asking well, isn't that a zombie idea that won't die - that governments can be benevolent? 

The easy retort of course is that equally, the belief that governments are always and everywhere malevolent, which underpins all libertarian dogma thinking on anything, is equally a zombie idea by that logic - both points of view are essentially beliefs and some evidence has to be discarded to support each.

Today marks 100 years since a horrific fire at a factory in New York which killed over 100 workers. In the account linked, the horrifying part is that workers couldn't get to the stairway because the doors were locked by factory owners unwilling to let them take breaks for fear of shirking. The more modern practice of timing call centre workers taking pees is kind of similar. In the years since, as the linked article points out, regulation has increased, but attitudes of owners of workplaces hasn't. Limiting pee time may be a whole lot less deadly than locking the only exits from a workplace with flammable materials, but it exposes the same kind of attitude of managers and owners of businesses - a callous disregard for the humanity of this particular input called labour.

So I challenge the libertarians and right wingers around regarding your blind assertion that markets do best and governments are always evil. How are such work practices not evil also? What makes a government so much more malevolent than this? Of course I'll hear a response about health and safety (though maybe I won't since right wingers don't really like that concept any more), but even if you pass legislation on health and safety, it still needs to be enforced. What is the hope of that when Cabinets are filled with MPs with clear corporate ties and interests, exactly?

More Right-Wing Nonsense

I really should avoid reading what he says as this blog might become simply a responding to the imposter Cranmer blog, which I don't want it to be. But he is the epitome of the right-wing Christian that needs to be countered. Not with left-wing nonsense but with some simple economic facts.

So today Cranmer goes on about Portugal, which looks set to have to accept an EU bailout package. It's one of Cranmer's favourite topics, the Eurozone.

He tends to spout the usual stuff about how because various parts of the PIGS consortium (Portugal, Ireland, Greece, Spain) are in the Eurozone, they can't change interest rates to deal with domestic problems and hence let the currency in their country depreciate (careful non-use of the word devalue there).

As usual, it's the EU that is the bad guy in all of this. It's not, by any means, the same bankers all around the world that acted on the moral hazard created the world over by the "too big to fail" mantra that caused the Portuguese mess. Nope, the EU is entirely to blame. But that's an aside.

Cranmer goes on in usual right-wing style, about economic sovereignty, which apparently Portugal surrendered to the EU. By sovereignty he means ability to make decisions on one's own without interference from outside one's borders.

But what is he proposing instead? Does the UK have sovereignty? Does Japan? Does the US even? Probably the only country that has sovereignty in the world is the one that shuts itself out of all global financial movements, notably North Korea.

Because simple economic relationships like covered and uncovered interest rate parity make it abundantly clear that in a world of free capital markets, interest rates in any country are not determined within that country alone - if that country wishes to maintain a steady exchange rate. In other words, had Portugal still its own currency, then had it decided to cut interest rates (in a sovereignty manner) to respond to this crisis then like the UK, it would have seen a dramatic currency depreciation (we've lost 25% in two years).

Now, you may say, that's just great. Imports more expensive, exports cheaper, the trade balance will improve and we'll head towards an export led recovery. But that didn't happen for the UK. The problem is that any country is heavily dependent on all its trading partners in such a strategy: To export, you need buyers, and if those buyers aren't there (as they generally aren't right now since few economies are growing strongly) then you are in trouble. You still have a stagnating economy, and worse still, you have higher inflation from those higher import prices - just what the UK has.

Yet again, and I've repeatedly made this point whenever Cranmer, as the representative of wrong-headed right-wing Christianity, spouts on the EU and the PIGS, it's just not that simple. It's a globally inter-dependent world Had Portugal been out of the Eurozone (and even the EU), there is no guarantee it would have avoided this. The blatantly obvious case in point here is Iceland. Need I really say any more? At least Portugal has a chair at the table in the ECB, which is more than it had before joining when it simply followed Germany.

I just wish anti-EU right-wing Christians would stop using bogus arguments that just don't stack up to try and support their prejudices. The only way any country can recover sovereignty is to cut itself off from the rest of the world and go for autarky - and I think we all know the general, not particularly pleasant, results of that...

More Right-Wing Libertarian Straw Man-ism

Brian Caplan has been reading up on North Korea, which sounds like hell on earth. He finds it hard to grasp that those who got out of the North still hanker for their homeland and thinks socialised medicine (so anything less than a free market in healthcare) is the reason. But he draws, as I think libertarians almost always do, inferences for state intervention from the most grotesque distortions of economic activity that simply cannot hold in less extreme cases. He is also probably misguided in thinking it was just the healthcare system that they hankered for.

Who doesn't hanker for home? Many Brits can't stand the NHS and we constantly moan about dirty hospitals, waiting lists and the like. And I doubt when ex-pat Brits think about home that the NHS is the main thing on their mind. You think about friends, places etc when you think of home. Free healthcare at the point of use is nice, but that's about it.

But there is little reason why socialised healthcare doesn't work given other than this unrepresentative example, and Caplan doesn't pull any examples from Western Europe, funnily enough. As Paul Krugman points out though, mocking such proponents of a free market in healthcare, over here we do actually also have decent standards of healthcare (arguably better than they have in the US).

For me it's typical. Libertarians try to find the most grotesque distortion of something and say "look how terrible it is!", "we shouldn't have that!", etc. What they should instead do is argue why a free market is better for healthcare. They should try and explain why the imperfect information issues (hard to understand procedures, high cost of mistaken choice) are not that important that they need some intervention, and why the insurance problems (adverse selection meaning that premiums for all are higher, moral hazard meaning that there is over-consumption) which essentially make a free market in health insurance impossible aren't so important (and more than just "market solutions" for the latter problem). Maybe they already do; I'd be delighted to be pointed in the direction of some of these cases.

Christians who happen to fall into this camp of proposing to cut the state back savagely from all involvement in the economy ought to be thinking particularly carefully about these issues since they are precisely social justice issues. The kinds of people that suffer from what happens to health insurance premiums tend to be those most ill (who actually would not be insurable since their probability of claiming is near certain) and those least well off. Often such Christians say charity will do the business and we should let charitable giving fill the gap. The problem is that it won't fill the gap because of our sinful hearts - we free ride, and we don't give as much as we should. In economic theory terms there are positive externalities to a good healthy population, and this means the market (including charitable methods) will underprovide.