Angela Calling Update

Well, it seems the EU leadership have finally been able to take a decision on what to lend and what to charge (see original post here). According to initial press reports the German government has decided in principal to participate in loans to Greece at below-market interest rates, dropping its original opposition to the idea. The loans – which are said to total 30 billion euros from the Eurogroup countries at an interest rate of around 5% – will still be priced above the rate charged by the International Monetary Fund, which will also participate in the rescue, and will lend an additional, as yet unspecified, sum, although according to Olli Rehn, EU monetary affairs Commissioner, the IMF contribution is likely to be around 10%. Rehn also said the funds will be available if and when Greece makes a formal request for financial assistance, something it has yet to do.

So now we know how this begins. We have yet to see where and how it will end.

Angela Calling

Angela Merkel is a Chemist. In her doctoral thesis – entitled “Untersuchung des Mechanismus von Zerfallsreaktionen mit einfachem Bindungsbruch und Berechnung ihrer Geschwindigkeitskonstanten auf der Grundlage quantenchemischer und statistischer Methoden” – she demonstrated herself to be a thoroughgoing expert when it comes to analysing the speed of disintegration of chemical compounds once the bonds which hold them together are weakened. Unfortunately she is now having to apply all this acquired expertise and know-how in a determined attempt to avoid the break up and falling apart, not of a highly complex chemical substance, but of an even more complex economic and political one, and the bonds which are the focus of all her attention right now are not chemical, but financial and social. Continue reading

Demographics and the Anatomy of International Capital Flows

In a week where the deck of cards that make up the Eurozone got its so far largest jolt and where there is now not only an imminent danger of a total economic collapse in Greece but also, much more worryingly, signs that Germany herself is beginning to tire of a common monetary union , I thought it would be nice to take a longer term and structural perspective on the global economy. And what better way to do this than to dig into the world of academia.

As some of you may know I recently earned my degree from the Copenhagen Business School and on that occasion I also produced a thesis which I’d like to share here.

This thesis is built upon two core arguments. The first is the notion that the demographic transition should be narrated through the perspective of ageing rather than population growth and the second is that ageing on a macroeconomic level represents a strong driver of international capital flows. These two arguments are used to discuss the standard prediction in a life cycle framework that ageing leads to dissaving in the aggregate and thus how old economies should tend towards running current account deficits. Using Japan and Germany as the subjects of analysis, this thesis develops the idea that rapidly ageing societies are not, in the main, characterized by dissaving but rather by the fight against it. Finally, a small empirical exercise acts as a perspectivation on the results to suggest why ageing might lead to a reliance on exports and foreign asset income to achieve growth and what this means in a global context.

In many ways, the ideas, thoughts and arguments that have gone into this work are shaped by the discussions and the activity here at this space and my interaction with the people I have come to know through my online presence. In this way, it is only apt that I present it here I think. Continue reading

Tories’ marriage policy

Well if this is right, and it is the Telegraph, the policy is as expected, it’s not a support to marriage but a subsidy to not working. And it will be paid for by a tax on successful banks. What’s not to like?

I’d say Lord Carey has been duped.

Last night, Lord Carey of Clifton, the former Archbishop of Canterbury, said: “The recognition of marriage in the tax system is a long overdue restatement of the centrality of this institution to the common good of our society.

But that describes his entire life. A subsidy to marriage would be – e.g. – a £200 cash payment to married couples. This simply penalises the hard working couples.

Margins of error

The election of 2010 really came to life towards the end of the campaign, most observers noted as Labour closed the gap, ‘winning the campaign’. However it was said the whole month was a fascinating battle, with with each party winning on some issues and days and losing on others.

The most accurate pollster YouICMMoriulus had tabulated the ups and downs of each party’s fortunes and the narrative of key events was reasonably clear.

This was especially the case when one examined the Tories’ volatile lead over Labour.

The campaign started with the Tories on 40%, 10% clear of Labour on 30%, with the Liberal Democrats on 20%, and others, mainly the nationalist parties and UKIP, on about 10%. The Tories had the best start, gaining support from business leaders on their policy to scrap an increase in National Insurance, and by day 3 they had taken an 11% lead, easily enough for a Commons majority. This increased to 12% by day 5, as Labour struggled to defend their economic record (the blip on day 4 taking the lead to just 7% seemed attributable to a fleeting reaction to a gaffe by Boris Johnson on plans for a new runway at Heathrow).

Between day 5 and day 14 the main campaign story was a surge higher by the Liberal Democrats on day 11, and a move higher by the BNP (counted in others) on day 12, taking votes from the Lib Dems. The Lib Dems rise, to 24%, was short-lived and sowed the seeds of its own destruction. That day Nick Clegg announced he would work only with certain members of other parties in (what then seemed likely) a hung parliament. This seemed to backfire and the Lib Dems were back down to 19% the following day. The BNP’s rise in the polls was nipped in the bud by a hastily arranged ‘Rock against racism’ concert. Both parties flatlined after that.

By day 14, the Tories had kept their 12% lead and Labour were getting increasingly desperate. Yet that day is what the history books will term “Mandelson Monday”. Labour’s veteran campaigner produced pictures of a member of the Shadow Cabinet in a compromising position with women and drugs. That no-one had heard of the Tory didn’t seem to matter – next day’s polls showed the Tories down at 37% from 42%, Labour up to 34% from 29%, and the lead slashed to just 3% – enough to see Labour home with a majority.

The mood of euphoria didn’t last long, however. On Tuesday (day 15) the Tories showed that the pictures were a crude forgery. Their bounce was immediate and sustained, taking them up to 43% and a 13% lead by day 18, leading to talks of a 1997 or 1983 style majority. This too went down badly with voters, and the Tory lead subsided to 7% by day 22, although a wave of strikes on the railways and at the airports saw the lead back to 13% by day 26, May Day, with the Labour vote share down to just 28%, its worst of the campaign.

That was to be the Tories’ high point, however. It had been little noticed but economic optimism had been rising significantly since the release of initial Q1 2010 GDP data, and the Bank Holiday weekend was the busiest in the nation’s shops on record. Why this suddenly showed up in the polls remains a mystery, but by Tuesday, the Tories were down at 38%, Labour on 32% and the lead slashed to 5%. David Cameron’s advisers told him that Labour might even scrape a majority, especially given the marginals were looking less good.

Cameron consulted former leader Michael Howard, who argued that the Tories needed to put clear blue water between them and Labour. He was thinking about a crackdown on immigration. Cameron’s speech initially went down well, with the Wednesday morning polls showing the gap returning to 9%.

The impact was, however, short-lived. The Tories hastily arranged poster campaign, “Are you thinking what Michael is thinking” reminded voters of what they didn’t like about the old Conservative party, and by polling day the polls were showing just a 3% lead for the Tories, 37% to 34%, with Labour gaining directly and from the smaller parties, whose share fell to 9%. On that basis Labour would have a working majority.

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Unfortunately for the pollsters the final result was Tories 40%, Labour 30%, Lib Dems 20%, and Others 10% and Cameron got his big majority. Everyone blamed the polls, but it was pointed out that such a volatile race was bound to be difficult. Academics argued over whether Cameron’s immigration appeal had worked, but people were too ashamed to admit it to pollsters. It was agreed the economic news had benefitted Labour, but not enough.

In fact, unbeknown to the pollsters, US search giant Giggle had developed a system which allowed them to know everyone in the country’s voting intention on each day of the campaign. The chart below shows this and their remarkable finding – the campaign made zero difference. Throughout 40% supported the Tories, 30% Labour, 20% the Lib Dems and 10% others. No-one changed their mind at any point.

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Apologies for the Andrew Roberts style fantasy, but I expect we’ll get a lot of this kind of ‘explanation’ of poll movements, and yet voting intentions are probably quite rigid (if not as rigid as in this example). The movement in the polls discussed was entirely a function of polling error, I simply ran an opinion poll on a UK electorate whose views were entirely fixed. As
Anthony Wells says:

Party support from a single pollster should randomly vary a couple of points in either direction from poll to poll (the lead will be even more volatile, since you’ve got random variation on two numbers).

This is the margin of error, which typically says something like 95% of the time the figures will be within 2-3% (above or below) of the actual figure (depending on how large they are) where the actual figure is the whole population’s voting intention. So all the movement in the polls was because they are polls, and the final poll was clearly a rogue, i.e outside that range. Here’s the chart of true public opinion and the polls.

Vince gets it right

Businessmen on inflated salaries lecturing the rest of Britain on how to run the country are "utterly nauseating" and "being used" by the Conservative party, the Liberal Democrat Treasury spokesman, Vince Cable, says today.

via.

Not that this is particularly hard to get right, and that the businessmen are probably more users than used. And note that this critique has now been delegated to the party that will definitely not form a government. The Guardian adds its own spin:

Cable's condemnation comes as study by the Guardian found that bosses at 10 of the largest companies to have endorsed Cameron's tax plans would be forced to take a combined £74m cut to their pay and bonus deals if they worked in the public sector, where the Conservative leader intends to impose stringent pay caps.

Good point. Except that it specifically refers to a comparison between public sector bosses and their private sector peers, rather than anyone lower down the totem pole – to the people who decide to spend their local authority’s recruitment budget in the Guardian rather than the people who execute the decision, for instance. Maybe Vince is making a head fake in that direction.

The cruelty of Polish history

News itemIn the village of Gorzno, in northern Poland, the streets were largely empty as people stayed home to watch television.

“It is very symbolic that they were flying to pay homage to so many murdered Poles,” said resident Waleria Gess, 73.

“I worry because so many clever and decent people were killed,” said high school student Pawel Kwas, 17. “I am afraid we may have problems in the future to find equally talented politicians.”

The much over-used word “irony” doesn’t capture the link between a Katyn forest commemoration and the deaths of so many people from today’s government of Poland.  God bless Poland.