Showing posts from November, 2015

The angry WASPIs

Back in 1995, the UK government made what was widely regarded at the time as a sensible and long-overdue change to state pension legislation. Since World War II, women had retired five years earlier than men, a sop to compensate them for their inability to clock up pensions of the same size as their spouses - and incidentally to enable men and women to retire at approximately the same time, since it was assumed that most men were older than their wives. But by the mid-1990s far more women were working, married women's income was taxed separately from their husbands', many were paying NICs large enough to qualify for pensions the size of men's, and - most importantly of all - they were outliving men. Many people, both men and women, believed that the earlier retirement of women was an anomaly which desperately needed eradicating. I was one of those people: when the Pensions Act 1995 raised women's retirement age to 65, I was pleased - even though it meant that I pers

Those elusive welfare spending cuts

The Chancellor's Autumn Statement contained an apparent U-turn on the cuts to tax credits outlined in the July budget. Predictably, this was presented as the Chancellor "listening" to those concerned about the impact of sudden large falls in income for working families at the bottom end of the income spectrum. The Conservatives continue to position themselves as the party for "hard-working families". However, this isn't quite what it seems. The income cuts for low-income working families are not cancelled, they are merely delayed. The Chancellor has effectively hung his hoped-for reduction in tax credits expenditure on the roll-out of Universal Credit (UC). Because the UC changes announced in July have not been reversed in parallel with the tax credits climbdown, many new UC claimants will receive less than they would have received under the tax credits regime. As this chart from the Resolution Foundation shows, rollout of Universal Credit by 2020 would

Grexit, Brexit and financial stability

On October 30th 2015, I gave a keynote speech at Birmingham University's Finance Forum on the implications of Grexit and Brexit for financial stability. I've now written this up as a paper. I start by outlining the purpose of financial stability. Since the 2007-8 financial crisis, “financial stability” has been all the rage. We must prevent another crisis: we must solve the problems that make our financial system “unstable”.  But what exactly do we mean by “financial stability”? Most people would define a stable financial system as one which doesn’t fall over when it is hit by a major shock; doesn’t cost us huge amounts of money in repair bills when it is hit by a major shock; doesn’t draw in its horns and refuse to lend when the going gets tough; doesn’t become over-exuberant and lend far too much at too high a risk when times are good.  But financial stability is not an end in itself. Rather, it is a means to an end. What we really want is a financial system

If we are terrified, the terrorists win

In this post, Tom issues a timely reminder that there are much worse threats to our freedom than terrorists. Like Tom, I remember as a child disappearing with my friends all day long, only coming home for lunch and tea - a freedom my own children never had. We seem much more fearful of loss (of all kinds) than our forebears. Perhaps that is because we are much less used to it. - Frances Guest post by Tom Streithorst. For the past four days, the city of Brussels has been on lockdown. The metro is closed, schools are shut, the authorities are telling citizens of the European and Belgian capital to stay home. They fear that “Eight to ten men”, armed and dangerous, might be planning a Paris style attack. This is not the first time an entire city has been shut down because of a terrorist threat. After the bombing of the Marathon in 2013, Boston was under curfew as police searched for one man. This is nuts. Charles Glass, after the 7/7 bombings in London went walking through Soh


In my last post, I warned about "siren voices" calling for tighter monetary policy while the Eurozone economy is stuck in a toxic equilibrium of low growth, zero inflation and intractably high unemployment. Specifically, the so-called "German Council of Economic Experts (GCEE)" has called for the ECB to reduce or unwind QE: ...the European Central Bank should slow down the expansion of its balance sheet or even phase it out earlier than announced. Of course, the GCEE is only concerned with Germany. Perhaps, given that their focus is entirely national, they are justified in expressing concern about the continuation of monetary stimulus if the German economy doesn't need it? Well, no, they aren't. The ECB's concern is the Eurozone as a whole, not one particular bit of it. If the Eurozone's overall economic performance justifies QE, then the ECB should do QE, and if that means Germans have to tolerate higher inflation and lower interest on thei

Euro area depression, charted

" The euro area economy is gradually emerging from a deep and protracted downturn. However, despite improvements over the last year, real GDP is still below the level of the first quarter of 2008. The picture is more striking still if one looks at where nominal growth would be now if pre-crisis trends had been maintained." So said Peter Praet, Member of the Executive Board of the ECB, in a recent presentation to the FAROS Institutional Investors' Forum. He's not wrong. From his presentation, here is a chart showing the difference between current output, current (estimated) potential output and projected output prior to 2007: That is indeed a striking gap. It is reflected in this chart from Eurostat (August 2015): So, the fall in GDP growth between 2007 and 2015 has resulted in a rise in unemployment of nearly 4 percentage points. Currently, across the Euro area as a whole (population about 340m), adult unemployment stands at 11% and youth unemployment

The European Union must reform before it's too late

At the Bank of England's Open Forum in London's Guildhall on Wednesday 11th November, an increasingly desperate-sounding Mario Draghi said this : As the majority of money is issued by private banks - bank deposits - there can only be a single currency if there is a single banking system. For money to be truly one, it has to be truly fungible, independent of its form and independent of its function. This is far from being the first time that Signor Draghi has pushed the case for common supervision of banks, common deposit insurance and a common resolution mechanism. He has warned repeatedly that fragmentation of the monetary system along national lines undermines the fabric of the common currency and threatens its very existence. But in reality, Europe does not have a common currency. Indeed it has never had one. The price of money is different in the various nations of the Eurozone. The "Euro" in Greece does not have the same value that it does in Germany, a