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Showing posts from September, 2016

A dent in the surface of time

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This chart has been fascinating me for ages. It was produced by the Bank of England to illustrate a speech by Andy Haldane. Shock, horror - we have the lowest interest rates for 5,000 years. Even in the Great Depression they were higher than they are now.

These are, of course, nominal interest rates. Real interest rates are even lower - though not by much, since inflation is close to zero in all major economies.

Note also the divergence of long-term and short-term interest rates. This is encouraging, since it suggests that investors view future prospects as brighter, though hardly scintillating. Central banks have been trying to close that gap with various monetary policy tools, the idea being to bring forward some of that future enthusiasm into the present day. But so far, all they have succeeded in doing is depressing expected interest rates far into the future.

Now, policy makers are beginning to talk about interest rates remaining permanently lower than their long-run average. He…

Some unpleasant trade realities

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Well, this is fun. YouGov has asked the public which countries the UK's new trade negotiators (if and when they are recruited) should prioritise in their quest for free trade deals.

Unsurprisingly, the US and the EU (considered as a whole trading bloc) came top of the list. But as ever, the devil is in the detail. These charts show the difference between the public's perception of the importance of a country versus its exports and GDP rankings:


Now, of course the exports ranking is the current situation. We would expect free trade agreements to change this ranking, since countries with which the UK has free trade agreements should move up the exports ranking, and those with which it does not should correspondingly move down. The EU is currently top of the exports ranking because the UK is part of the single market. Once the UK is no longer part of the single market - as seems increasingly likely - the ranking might change. The GDP ranking is therefore possibly more important,…

Are inheritance taxes unfair?

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Are inheritance taxes unfair? Many people think they are. "Why should I be taxed twice on money I've earned during my lifetime?" they say.

This is, of course, a fallacy. Dead people don't pay taxes. Living ones do. So inheritance tax is not double taxation of money the dead person earned while they were still alive. It is taxation of an unearned windfall for the people to whom they leave their assets, usually their children. Other forms of unearned income, such as interest on savings and capital gains, are taxed. Why should someone be taxed on unearned income they receive as a result of investments made from their own earnings, but not on unearned income they receive as a result of investments made from someone else's earnings? That doesn't look very fair, does it? Surely taxing that unearned windfall must be fair. 
No. According to the economist Greg Mankiw, taxing inheritance is fundamentally unfair: From my perspective, the estate tax is a bad way to tax …

Austerity and the rise of populism

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This post has been brewing for a long time. It reflects my attempt to make sense of the growing political confusion and chaos in the world today. William Butler Yeats's poem The Second Coming well expresses what I see:
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.  But how have we come to this pass - and where are we heading?

Post-crisis panic

In the deep recession that afflicted the Western world after the 2008 financial crisis, government debt built up as financial and other corporations were bailed out, tax revenues fell and unemployment benefits rose. Government debt is usually quoted in relation to GDP: the recession knocked a huge hole in the GDP of many Western countries, inflating the debt/GDP ratio.

Suddenly, countries that had previously looked like paragons of fiscal rect…