Playing catch up on contracting

OutsourcingThe Public Accounts Committee report on government contracting, published earlier this week, secured substantial press coverage. The focus was on the report’s finding that G4S and Serco continued to be awarded additional work from government while they were under investigation for overcharging. And this fact rather contradicts previous assurances given by the Government.

How these two miscreants were handled in the period during which their behaviour was being investigated is without doubt an important question. But it is only one issue that the PAC addresses in the report, and it probably isn’t the most important one.

The report is relatively brief. It builds on a couple of previous reports the Committee has produced in recent months, as well as a report produced in the summer by the Committee on Standards in Public Life. It repays close attention. [Read more…]

Economics in the bubble

414585868_2c8513d269_nMy plan was to write something following up last week’s Autumn Statement. But what with having to do other things – work and that – I’ve not had the chance.

In the interim there has been bucketloads of analysis. So I’m not sure there is more to say on the substance. All right thinking people are agreed that George Osborne, along with frontline politicians in the other parties, is suffering from what Gavin Kelly has christened a “candour deficit”. No one is being honest with the electorate over the scale of the cuts being planned. And, equally importantly, no politician is being honest about what cuts on that scale imply for unprotected services. Rick illustrates the point beautifully drawing on data from the OBR, the IFS and elsewhere (here and here).

Even Fraser Nelson is calling Osborne out for the sleight of hand he used to claim that the Government had cut the deficit in half. Fraser Nelson. Crikey! [Read more…]

Fiscal foolishness

Budget Cuts sign with clouds and sky backgroundI’ve had an unusual and vaguely discomfiting experience. I found myself largely in agreement with a leader in the Economist. I may need a lie down.

I can console myself with the thought that what the Economist is saying – that the Conservatives’ fiscal plans for the next Parliament are damaging nonsense – would seem to be pretty much the majority, if not the consensus, view. Seeking to legislate to remove the deficit through slashing spending while at the same time delivering a tax cut is not the most impressively coherent agenda ever advanced. It will undermine public sector functions that are vital to the overall success of the economy. And it will almost certainly slam the brakes on the economy at the same time as inflicting further pain on some of the poorest in society.

The main difference of opinion seems to be around Osborne’s intentions. Are his proposals serious? In which case, he’s a bit of an idiot. Or do they signal an implicit acceptance that the Conservatives are not going to win next May? Osborne is simply trying to stake out a position he will never have to implement but which will provide a platform from which to mount an attack on the incoming government’s actions when they are, inevitably, less fiscally stringent. In which case, he’s a bit of an idiot.

Most commentators might think Osborne is talking rot, and that, at the very least, Labour’s proposal to exempt infrastructure spending from the self-imposed fiscal straightjacket is a step towards a more plausible policy. But fewer have offered alternative approaches towards bridging the gap in the public finances.

Here the Economist comes off the fence and sets out a distinctive proposal. [Read more…]

Policy unpacked #7 – What will make the housing market work?

Policy Unpacked 5Yesterday I took part in a panel discussion on the housing market as part of the Festival of Economics 2014. The panel was chaired by Julia Unwin of JRF; it comprised Kate Barker, Michael Ball, Diane Coyle and me.

It was an enjoyable event, with plenty of questions and comments from an informed and concerned audience.

I had arrived with rather more to say than could sensibly fit into my allotted time. So I ended up speaking rather fast, as a number of audience members pointed out to me after the session. I’m usually not too bad at timing these sorts of things, but clearly I was all over the place yesterday. [Read more…]

Speaking money

HowtospeakmoneyYesterday evening the Festival of Economics 2014 kicked off with the author John Lanchester in conversation with Izabella Kaminska of the FT. Lanchester, who is promoting his book How to speak money, had some very interesting and important things to say about the language of finance.

His key point was that the fact most people don’t understand or engage with the language and practices of finance has consequences. It means that bankers and economists are able to get away with obfuscation and mystification in order to hide their own ignorance or render opaque activities of very questionable social value. Because most people don’t really understand what is going on in finance they do not appreciate the risks that are being run or the ethics of some dubious practices. This lack of knowledge reduces public demands for greater regulation of the financial system, to the great benefit of the financiers.

But it is not simply the bankers and the public who are in the dark. Lanchester noted that last month the US bond market witnessed a seven sigma event – in terms of the volatility of short term interest rate movements. This is something which, if the models commonly used to analyze financial markets are right, is near impossible. The most obvious conclusion to draw, therefore, is that the models are wrong. So the analysts are in the dark as well. [Read more…]

Nudge and the state

Nutrition LabelsLast week I took part in an enjoyable discussion on nudge policy as part of Thinking Futures, the annual festival of social sciences. Through a slightly mysterious process I ended up speaking in favour of nudge-type policies, while Fiona Spotswood from UWE made the case against relying on behaviour change initiatives. Fiona made a robust case. I have to say mine was a little less than compelling, in part because in reality I have quite a lot of sympathy with the critics. I find debating from a position you don’t entirely agree with more successful on some days and some topics than on others. This was not one of the better days.

Nonetheless, I find the topic of nudge, and behaviour change policy more broadly, fascinating because it raises so many issues. [Read more…]

Defining the challenge of UK housing policy

immobilier parisienYesterday I was back up in that London to attend an event exploring UK housing policy. Many, of not most, of the luminaries of UK housing research made the same journey. The event covered quite a lot of ground, but at the same time the agenda was relatively narrow – focusing as it did on the macro, credit, housing supply, planning nexus. The discussion left me with plenty to think about and there is no way that it could be meaningfully summarised in a blog post. So here are a few quick reflections – not all of which flow from what was actually discussed on the day.

Three of the biggest challenges we currently face in housing are not technical policy challenges. They are perspective, purpose, and politics. [Read more…]

The Mansion Tax as a symptom

Ed Miliband’s speech to the Labour Party conference earlier this week proposed an increase in spending on the NHS to be funded in part by a Mansion Tax.  This has sparked the debate about the whys and wherefores of property taxes back into life. Taxing property a topic guaranteed to send the commentariat into a frenzy. It is a topic I’ve touched on before. Property taxes can be seen as a potential solution to a range of different problems, while others seem to see them as the start of a slippery slope to the demise of capitalism.

I sent a letter on the topic to the Evening Standard yesterday. This is what I wrote: [Read more…]

Not us, guv

Academic economists are smart people. In my experience, a few are rather too self-consciously smart. And one or two adopt the characteristic economist persona – perpetual patronisation of, and impatience with, those unfortunate souls working in the lesser social sciences – without obviously having the track record to justify the hauteur. If, that is, it can ever be justified.*

The unwary might be forgiven for thinking that the Global Financial Crisis of 2007-2008, which it is generally agreed most macroeconomists did not anticipate, would take the wind out of economists’ sails somewhat. Some might argue that a degree more modesty about the discipline’s achievements would be appropriate in future.

And there was undoubtedly a period of reflection and self-criticism around 2008-2009. Senior economists were willing to speculate publicly on where it all went wrong. It’s an issue I’ve blogged about on previous occasions.

However, it wasn’t long before some of that smartness had been put to work articulating a range of reasons why the GFC should not be seen as a failure of economics as a body of knowledge, and nor should economists be seen as in any way culpable for the economic havoc that followed the implosion of the financial system in 2008.

Business as usual was returning. The familiar swagger was back. [Read more…]

Shredded, the RBS saga and banking reform

shreddedI’ve just finishing reading Ian Fraser’s Shredded. I started it when I was up in Edinburgh last month, appropriately enough. But other things intervened and it was only over the bank holiday weekend that I got the time to sit down and read the second half.

The book tells the fascinating story of the growth and subsequent implosion of the Royal Bank of Scotland. Fraser has produced a genuine page turner from material that is, on the face of it, pretty dry.

Quite a few elements of the story are now reasonably familiar – particularly relating to the Fred Goodwin era. I have to admit that I am only an intermittent watcher of what’s going on in the world of banking and finance, so it was good to have the developments laid out systematically and largely chronologically. It was particular interesting to learn what has been happening in more recent years, after the bank found itself pretty much nationalised. Like anyone who pays attention to the news I am aware of the massive fines regularly being handed to the bank for past crimes and regulatory infringements, but I wasn’t entirely up to speed with what was happening in terms of its restructuring or the way in which it has interacted with government.

The story of the rapid growth of RBS after 2000 is pretty hair-raising. But I found the story of what happened after 2008 under Stephen Hester, with the aim of bringing the bank back to profitability, no less alarming, in the sense that behaviour did not change dramatically as a result of lessons learnt the hard way. Indeed, there is the suggestion – although disputed by the bank – that aspects of its behaviour deteriorated after 2008 as it attempted to improve its own financial position at its customers’ expense. Entirely coincidentally, but almost as if to underline the point, RBS finds itself in the news again this week accused of selling mortgages without doing the necessary affordability checks, long after it was supposed to be cleaning up its act. [Read more…]