Cuts...feels like we're on the brink

The budget has made me wonder if the Tories really understand the economy. Or, for that matter whether anyone (especially me) does.
There is no doubt that, ideologically, it's easier for them to cut Government and public sector spending. So when George Osborne says he had no choice he's just plain wrong.
There are always choices about what to cut expenditure and where to increase income. An increase in the top rate of tax and even another tax band would have been seen as fair and would have affected fewer people. By definition, the people paying such tax are fewer in number than those below the threshold.
So, the only conclusion you can draw is that it wasn't 'politically desirable'.
The other mistake is to believe that cuts in public expenditure are somehoe free. There will be job losses and an increase in unemployment. There will be an increase in benefit claims. Do these figures stack up?
And if unemployment ends up costing more than the preceding savings - how would this Chancellor balance the books? More cuts?

Incidentally, am I the only one who thinks Osbourne looks like he should be a pantomime dame? When he speaks he also reminded me of someone else and I couldn't quite think who...
I think it may be Piers Fletcher-Dervish, the hapless Tory MP sidekick of Rik Mayall's Alan B'stard.  Time for Marks and Gran to return?

What the heck happened? And the test of real 'interests'.

Actually I'm not going to go on about the result, though it's certainly a shock and 'oh' kind of turn up for the books.
But I have to say, the really annoying thiing is the (so called) markets' reaction.
I'd venture to say that whatever the results, markets would have been slightly down. Not because there was any news to react to but because the big speculators had already taken positions that it was in their interests for the markets to decline.
It's notable that someone's "fat fingers" also wiped billions off stock for a few minutes (making one speculator a cool £350,000 in a matter of seconds) before the correction was made.
It also annoys me that 'business leaders' continually say a) "What business needs is stability" to which they now add b)"and a clear way out of this financial black hole". See RBS example.
Well...
a) They had that for a number of years with TB and GB - I didn't see them dancing for joy then or rushing to defend Labour now
b) They continually ask for the Government to show the way out of the debt crisis, but don't offer any help - and in fact squeal when it's said they may have to accept keeping less profit.
We now see clearly how in thrall we are to banks, bond and gilt traders and business interests. It's the problem of the commons writ large - private profit and public loss.
I'm now going off to sob quietly.

Put a few things in perspective

Thought I should just post this and see what happens. Probably none of it surprising, but at this time of year, when we've bee settling marks for students term papers and exams the bit about jobs that don't yet exist makes you think about the skills they're acquiring.
I'm so glad I didn't do a vocational degree!

Plagging for beginners

Admire my parking skills, originally uploaded by Bashed.

I've been thinking (don't groan like that please).

The banking crisis - the general downturn of everything as a result - is quite a complex demonstration of Garrett Hardin's 'Tragedy of the Commons' and his observation of the number of times organisations and people are selfish - despite the negative consequences even to themselves.

I thought the photo was quite a nice illustration of behaviour that clearly seemed perfectly logical to the driver, but at some cost to others.

In many areas of life, people engage in behaviour which has short term personal benefits, but causes other people to suffer. But Hardin's insight was with regard to unregulated commons (or common goods) which are a limited resource to which many have access.

This issue is that there can be a considerable incentive to exploit the resource to the detriment of all other users and that, ultimately, to one's own. This is a kind of prisoner's dilemma in which two prisoners will be set free if both keep quiet. However each can incriminate the other and the first one to do so increases his/her chances of release. The result is that both are likely to co-operate with the authorities.

In the commons problem Hardin had it that cattle herders using a common would tend to over-graze the land. They tended to 'commonize the costs' and 'privatize the profits' and some have argued that is exactly what has happened in the financial services industry.

Incidentally I first came across Hardin many years ago writing something for my Masters about altruistic behaviour which I was hoping would turn into a doctoral thesis. I was inspired by the retelling of this, with some elaboration, in a fascinating book called 'The Origins of Virtue' written by a guy called Matt Ridley. It's a very well-written book and I'd recommend it.

I also found a reference to PLAG - protagonist loss/antagonist gain - behaviour. The fact is that many people do act altruistically. It's possible to reduce this down to some kind of selfish exchange behaviour ("well, they get a kick out of giving to charity" or the 'feel good' reward); a utilitarian argument, but I think this over-simplifies behaviour.

At the time I was thinking about all this I established that there were enough examples of people exhibiting 'PLAG' behaviour to demand an explanation that wasn't just about selfish exchange and then I found Bourdieu...but that's another story.

Back to the financial crisis. It's fairly clear that institutions were acting as if the market could go on climbing and they could continue to profit from this without considering the 'resource' that was being exploited. This 'common' resource could be said to be the real economy or maybe it's just people (as workers and consumers) but, in any case, there was and is a limit to how far you can repackage and re-sell debt.

Even as the mortgage market collapsed like a souffle, banks continued to commonize costs - in fact the world's governments seemed conditioned to accept this - after all they are there to step in and protect the little people...aren't they? So houses and life and medical insurance are propped up by giving money to the banks.

Well, I've said before that I struggle with some economics, but surely the more efficient route would be to give the support direct to the consumer so they could spend or save (in a bank) as they needed. Writing off a lot of debt would help.

Instead governments, working within a broken banking system, are enabling a few to continue to 'privatise profits'.

Matt Ridley...mmmm...feeling you've heard that name before? Possibly.

Until October 2007 he was Chairman of Northern Rock.

He doesn't mention that on his CV.

[Having written this check out George Monbiot putting the boot in far more effectively than I]

You'd never know I studied economics once

Wall_Street crisis, originally uploaded by semarlfb.

Let’s imagine there’s a world with 1 million people (easy numbers for my poor maths).

Each person has £1000 in savings and is paid £100 per annum to work for one of 100 companies. (You could make it more realistic, but the maths, the maths!)

Ten of those companies are banks.

So…

Each company employs 10,000 people (including the bosses) and pays out £1m in wages. So has to make at least £1m a year to keep going.

It makes things that the 1 million people buy…with their £1000 savings and/or their £100 wages.

Ten companies look after all this money. £1000m in savings and £1m in current (checking) accounts. They have to take out of the system £1m to pay their staff, but of course each £100 goes into other companies – like supermarkets, car dealers etc and then ends up back in one of the ten banks.

I don’t speculate on the value of the companies – there is only so much money to go around so it’s irrelevant.

Some companies will be good at bringing in money and others will go short. The former will bank the money (or spend it) and it will still end up in a bank. Where the latter kind of company might ask to borrow it.

If they end up not being able to pay it back, they’ll go bust. But the money will still be in the system.

So, my question is this, how do they screw up?

Explanations for the hard of thinking, welcome. And feel free to elaborate on my model.