Coppola Comment

“What do they teach them at these schools?” wondered the Professor in C.S. Lewis's The Lion, the Witch and the Wardrobe.  The Professor, of course, was concerned about logic. But I wonder too - not about logic, but about maths. Especially among journalists writing about life expectancy and other long-term trends. Here is the FT proclaiming "Average life expectancy falls". This is the headline for a chirpy piece about how reduced life expectancy could make things easier for pension funds facing big deficits.  There's only one problem with this. Life expectancy isn't falling. And the report the FT cites does not say that it is. This is how the press release from the Institute and Faculty of Actuaries summarises the findings of their report: Recent population data has highlighted that, since 2011, the rate at which mortality is improving has been slower than in previous years However, mortality is expected to continue to improve and there is signi...

The last published accounts for the NI Fund show that, contrary to popular mythology, it does not have an enormous surplus. In fact it is currently running a deficit, as it has been for the last five years . Its reserves have fallen to the point where the Government was forced to top them up to prevent them falling below the statutory minimum of 1/6 of payments out of the fund. So I was somewhat surprised to read written evidence to the Work and Pensions Select Committee which appeared to contradict the accounts. The evidence comes from Rita Abrahams and references the Social Security Up-Rating Report by the Government Actuary, published in January 2016. Here is how Ms. Abrahams has interpreted the Government Actuary's findings: The latest Actuary report published in January projected that by April 2021 our National Insurance Fund will have a balance of £58 billion; thus after setting aside the working balance requirement of £18.52 billion (1/6th of payments) a surplus w...

There is a great deal of confusion over National Insurance - what it is, how it works and what it funds. I have attempted to clear up some of the muddle elsewhere . But partly, it stems from the existence of something called the NI Fund. If there is a Fund, surely this implies that National Insurance contributions are invested? If so, those (like me) who insist that state pensions are unfunded are talking gibberish. There is indeed a NI Fund. But it is badly named. It would be more accurate to call it the NI Clearing House. It receives NI contributions from workers and employers, and it disburses payments to pensioners and benefit recipients. As long as NI receipts exceed pension & benefit payments, the Fund runs a surplus. But when pension & benefit payments exceed receipts, the Fund runs a deficit. When a clearing house like the NI Fund runs a surplus over a number of years, it builds up reserves. The NI Fund has significant reserves, mostly built up since the start of th...

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 ...

No , says  The Times ' David Smith . He says that the notion that there was a pause in austerity is an "austerity myth". He points to this chart  from the Office for Budget Responsibility  that shows fiscal consolidation as a percentage of GDP (relative to the 2008 Budget) continuing on   throughout 2013 and 2014 and 2015: But the OBR's chart doesn't actually show what I would define as austerity. It shows the size of the government budget as a percentage of GDP relative to previous budgets. That's a good deal of moving parts. And that creates a good deal of ambiguity. Under such a definition, if the economy grows and government spending stays constant, there has been fiscal consolidation. In fact, if the size of the budget  grows  but the economy grows more, there has still been "fiscal consolidation".  What I am referring to when I claim that Osborne paused austerity in 2013 is the pause in the slashing back of government spending. Simp...

I wasn't going to do another chart-based post for a while. But I couldn't resist this one: (h/t Steve Keen) We hear a great deal about American public debt. And yes, it is a lot - it is now over 100% of GDP (this chart stops at 2011). And as numerous people have pointed out, it doesn't include future unfunded liabilities. The administration is under pressure to cut deficit spending, balance the budget and stop the debt growing - or even, ideally, start reducing it by running budget surpluses. The last President to do this was Clinton - you can see the effect of the "Clinton surpluses" on this chart in the latter half of the 1990s. Is this the right course of action now? Well, from what this chart is saying, absolutely not. It would be completely counterproductive and might even plunge the US into a 1930s-style depression. To explain why I think for the US to attempt to balance its budget is madness at the moment, it's necessary to analyse this char...