The Bottom Line

Apologies to the few of you who actually read my blog. I’ve been rather ignoring it lately. Anyway, I came across a youtube video recently that I thought I would post here. I initially saw it here. It might have a bit more hyperbole than I would normally use myself, but I thought it quite compelling.

One of the reasons I found it interesting is that I was recently at a meeting where I met and spoke with another physicist who was working (in academia) as a financial modeller. It was an interesting conversation, but what struck me was that they appeared to think only in terms of the stability of the market. The idea being – I think – is that if the market is stable and optimal, then that is best for the economy. The issue that I could see is that there was no obvious link between the market and the real economy on which it was based. Or rather, there seemed to be nothing in the modelling that essentially said, this market is associated with an economy that ideally should be providing employment, products and services for a particular country. Maybe I’m wrong about this and maybe there are good reason why they do model the markets in this way. It does seem as though, typically, we do ignore many important things when deciding on the value of our markets, which is essentially the case being made in the video below.

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REF, QR funding and the science budget

I guess we should all be reasonably pleased that the science budget has remained ring-fenced. The reality, of course, is that this just means that it is ring-fenced in a flat-cash sense, not in an inflation adjusted sense. As scientists, maybe we should make sure they define the term more specifically in future. It does appear that the current definition would allow the government to claim that something has been ring-fenced, despite the spending power tending to zero. Logically, you mighty expect it to be defined in terms of spending power rather than pounds, but that would require deciding between RPI and CPI, and that is clearly for too difficult.

Anyway, enough cynicism. In truth, we should probably be grateful that the outcome hasn’t been worse. It certainly has been for some and I do feel that the current government has got its basic economic policies completely wrong. It seems like it’s time that someone explained to George Osborne that it’s not necessarily the size of the debt and deficit that matters. What matters is their size relative to the size of our economy. The way its going now it seems like he’s getting it wrong on both counts.

What is maybe more concerning, from a science funding perspective, is the possibility that the government may choose to axe the QR funding. This is the funding stream that comes from the Higher Education Funding Councils and how it is distributed is determined via the outcome of the Research Excellence Framework (REF) exercise. Now, it may well be part of the ring fence and it may well be safe, but I wouldn’t know whether to laugh or cry if it were cut. If you’ve read some of my earlier posts, you’ll know that I’ve been very critical of REF. This is both due to the manner in which it is implemented and due to the shenanigans taking place at UK universities; the potentially risking hiring, the morally/legally questionable redundancies, and the time and effort spent preparing for what is – in my opinion – a completely flawed exercise.

So, if it were to be cut, part of me would feel like saying “serves us right for taking something so silly so seriously, and for playing the kind of games that have not and will not benefit our fundamental role as teachers and researchers”. On the other hand, it is a lot of money (£1.5 billion I believe) and I certainly have no desire to see this money leave the Higher Education sector. As far as I can tell, some may struggle to survive as they are, even if there are no cuts to the QR funding. Well, I certainly hope that it isn’t cut but I also hope that in future, universities will find the backbone to tell the government that playing these kind of games is silly and that they should find a simpler and more effective mechanism for distributing this money (although I don’t think it should simply be given to the research councils, but that might be a topic for another post).

Mark Steel at the People’s Assembly

There is a new “organisation” called the People’s Assembly which is, essentially, a movement against austerity. I’ve been rather lax in my reading (at least semi-political reading) and blogging recently and so don’t really know much about it. I do, however, think that austerity has been a disaster, both socially and economically, and so – if I understand the motivation behind this movement correctly – I agree with it wholeheartedly.

What I thought I would do is include, below, the speech given by Mark Steel at the People’s Assembly meeting yesterday. It’s both quite amusing and quite fiery. Something that I won’t expand on much here (but is something I may try and write about at a later stage) is why it appears that the most effective rhetoric for those on the left appears to come from comedians, while the most effective rhetoric on the right appears to come from what, I’ll politely call, firebrands. I’m don’t really understand why there is such a difference in style between the right and the left, but it is something I find of great interest. Anyway, enjoy the video.

Wage stagnation and the financial crisis

There was a very interesting and well-written article that I read a little while ago about wage stagnation, rising profits and the financial crisis. I can’t seem to find it again, so if any else knows the one, maybe they could point it out to me. It was about the US, rather than the UK. The basic narrative was that the increasing influence of neo-liberalism and the reduction in union power (and collective bargaining) meant that corporations were (from the 1980s onwards) keeping more of their profits than they had in the past. So, basically profits were increasing as a fraction of GDP while wages were dropping as a fraction of GDP.

So business owners, shareholders and investors now have more capital than they’ve had in the past. Of course they want to do something with this capital which, presumably, they will invest in the financial sector. Their consumers (who are also their employees), however, have less disposable income than they’ve had in the past. So what happens? Well, the financial industry sees all these people who could use more credit and who might like to buy houses. Sub-prime mortgages come into existence and credit becomes easier. People buy their houses and spend their credit on the very products made by the companies who’s profits are rising as a fraction of GDP. These people are, however, also the employees of these companies and their wages are dropping as a fraction of GDP.

So, at this stage corporations are winning on multiple levels. They’re keeping more of their profits than they have in the past (by not increasing wages at the same rate). They’re continuing to sell their products because of the easy credit that this extra capital allows, so they’re able to maintain their revenue streams and continue to extract their profits. Since this credit is essentially their money in the first place, they’re also earning interest on the money being lent to their own employees.

However, there’s a fundamental problem. If people’s wages aren’t rising while their debts are, there’s every likelihood that many won’t be able to repay their debts. Hence the credit crunch arrives when this starts to happen and the financial sector finally realises that the risk associated with the sub-prime mortgages and easy credit is much greater than they had initially realised.

Now, I appreciate that this applies to the US, but I recently saw an article on the Liberal Conspiracy website about wages and profits in the UK. It discusses essentially the same trend, which is illustrated in the figure below which I’ve taken from the article on their site. It’s certainly my view that we should be aiming to reverse this trend if we want to reduce the problems we currently have in our economy and possibly also in our society.

Graph showing the variation in wages and profits (net and gross) since 1960.

Graph showing the variation in wages and profits (net and gross) since 1960 (credit : Duncan Weldon, Liberal Conspiracy).

The intelligent management of the public finances

This is a topic that I have very interesting. It did seem obvious that trying to simply slash public spending may end up being counterproductive. This post seems to confirm that general view, but I’ll need to read it a bit more carefully to make sure I understand what it is saying and to get a sense of where the number are coming from.

The Uxbridge Graduate

Background

Much discussion has surrounded the contention that high public debt levels are associated with low / no economic growth. Specifically,well-publicised research has suggested that if the public debt to GDP ratio exceeds 90% then economic growth will slow down markedly and perhaps come to a standstill. The British government  has eagerly accepted this finding and has used it to justify its debt reduction strategy, which is that cuts to public spending are necessary if the economy is to return to growth. The government has hence proceeded to cut public spending on the promise that the cuts will reduce borrowing and thereby generate economic growth. However, instead of economic growth, the government’s cuts to public spending have coincided with stagnation and recession.  I suspect this is because the spending reductions have been indiscriminate.

The following sets out my view on why indiscriminate cuts to public spending will often increase the…

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The elephant in the room with Lewandowsky

I haven’t been posting much lately as I’ve been busy with other things. I have, however, recently come across this article about the work of Stephan Lewandowsky. He is a cognitive scientist in the School of Experimental Psychology at the University of Bristol. He has published a couple of papers about why some people seem to reject (deny?) many of the findings of climate science. The post that I’m reblogging is reporting on a couple of his papers and suggesting that there is a link between having a libertarian (free-market) ideology and rejecting climate science. If you’ve read any of my other posts, you’ll know I have real issues with the basic tenets of free-market thinking and with those who reject climate science, so this post certainly gels with my thinking and it is interesting that it is based on published work in cognitive science. Doesn’t make it right, I guess, but I would recommend giving it a read.

Niall Ferguson and John Maynard Keynes

Niall Ferguson has been heavily, and quite rightly, criticised for suggesting that John Maynard Keynes’s economic ideas were influenced by his homosexuality and by his lack of children. The idea was that by not having children he was less concerned about the long-term impact of his economic ideas. Niall Ferguson’s claim is, in my opinion, highly offensive and entirely baseless. Niall Ferguson has now, however, produced an unqualified apology. As far as apologies go, this is pretty textbook. No excuses, no attempts to suggest that we needed to understand the context, simply an unreserved apology and an acknowledgement that he was wrong.

Okay, but this doesn’t erase what he has said and even if one can accept the apology, I don’t see how one cannot still conclude that, ultimately, Niall Ferguson is homophobic and that one should be careful about how seriously to take any future comments that he makes.

This reminded me, for some reason, of something I heard on the radio yesterday. The comment on the radio was that the Tory party would have to convince voters that they weren’t privileged and that they weren’t out-pf-touch with regards the realities of life in the UK. The first thing I thought when I heard this was that surely the only way they could do this was by lying. It’s fairly clear that a majority of leading Tories are extremely privileged and have lifestyles very different to the lifestyles lead by most in the UK.

The Tories could try to convince voters that despite this they can still govern in a way that would be acceptable to most and that their policies will be aimed at making the country better for all, rather than simply for those who are privilege like themselves. This is very different to convincing voters that they aren’t privilege and out-of-touch, but at least it would seem to be honest.

I guess, what struck me was that we now live in a world where people feel that they have to say what they think others want to hear. In a sense, I would rather that people were more honest. That’s not to say that I want to have high-profile people who are homophobic or government leaders who are openly dismissive of people who are not as privileged as they are. What I would like is to know what people really believe so that we can make informed decisions about who should be “allowed” to have a high-profile role in society. The media can choose not to give a platform to those who are openly homophobic (for example) and we can choose not to elect those who, deep down, don’t really wish to run the country in a manner that would be optimal for the majority. I know this is naive and simplistic, but I guess – to be honest – that’s probably what I am.