Research Economist at the Bank of England
Back in 2011, I wrote a post about Bitcoin.
In March 2013 I started employment at the Bank of England and this blog went into dormancy.
My view evolved somewhat since then. Interested readers might care to read two new articles in the Bank’s Quarterly Bulletin on digital currencies. I was a co-author on both of them.
That link also includes two videos (hosted on YouTube), one of which features my head talking awkwardly.
This is a fascinating time to be thinking about monetary policy…
Like everybody else, central banks can do two things: they can talk, or they can act.
Some people say that talk is cheap and, in any event, discretion implies bias.
Other people point out that things like central bankers’ concern for their reputation mean that it’s perfectly possible to promise today to implement history-dependent policy tomorrow. Some cheeky people like to point out that this amounts to saying that, when in a slump, a central bank should “credibly commit to being irresponsible” in the future.
In fact, some people argue (pdf) that, in my words, “all monetary policy is, fundamentally, about expectations of the future.” But if that’s the case, why act at all? Why not just talk and stay away from being a distorting influence in the markets?
There are two reasons: First, since since talk is cheap, credibility requires that people know that you can and, if necessary, will act to back it up (talk softly and carry a big stick). Second, because if you can convince people with actions today, you don’t need to explicitly tell them what your policy rule will be tomorrow and central bankers love discretion because no rule can ever capture what to do in every situation and well, hey … a sense of mystery is sexy.
OMO stands for “Open Market Operation”. It’s how a central bank acts. Some scallywags like to say that when a central bank talks, it’s an “Open Mouth Operation.” Where it gets fun (i.e. complicated) is that often a central bank’s action can be just a statement if the stick they’re carrying to back it up is big enough.
In regular times, a typical central bank action will be to announce an interest rate and a narrow band on either side of it. In theory, it could be any interest rate at all, but in practice they choose the interest rate for overnight loans between banks. They then commit to accepting in or lending out infinite amounts of money if the interest rate leaves that narrow band. Infinity is a very big stick indeed, so people go along with them.
So what should a central bank do when overnight interest rates are at (or close to) zero and the central bank doesn’t want to take them lower, but more stimulus is needed?
Woodford-ites say that you’ve got to commit, baby. Drop down to one knee, look up into the economy’s eye and give the speech of your life. Tell ’em what you promise to do tomorrow. Tell ’em that you’ll never cheat. Pinky-swear it … and pray that they believe you.
Monetarists, on the other hand, cough politely and point out that the interest rate on overnight inter-bank loans is just a price and there are plenty of other prices out there. The choice of the overnight rate was an arbitrary one to start with, so arbitrarily pick another one!
Of course, the overnight rate wasn’t chosen arbitrarily. It was chosen because it’s the price that is the furthest away from the real economy and, generally speaking, central bankers hate the idea of being involved in the real economy almost as much as they love discretion. They watch it, of course. They’re obsessed by it. They’re guided by it and, by definition, they’re trying to influence it, but they don’t want to be directly involved. A cynic might say that they just don’t want to get their hands dirty, but a realist would point out that no matter the pain and joy involved in individual decisions in the economy, a cool head and an air of abstraction are needed for policy work and, in any event, a central banker is hardly an industrialist and is therefore entirely unqualified to make decisions at the coalface.
But as every single person knows, commitment is scary, even when you want it, so the whole monetarist thing is tempting. Quantitative Easing (QE) is a step along that monetarist approach, but the way it’s been done is different to the way that OMOs usually work. There has been no target price announced and while the quantities involved have been big (even huge), they have most definitely been finite. The result? Well, it’s impossible to really tell because we don’t know how bad things would have been without the QE. But it certainly doesn’t feel like a recovery.
Some transmission-mechanism plumbers think that the pipes are clogged (see also me).
Woodford-ites say that it’s because there’s no love, baby. Where’s the commitment?
Monetarists say that infinity is fundamentally different to just a really big number.
Market monetarists, on the other hand (yes, I’m sure you were wondering when I’d get to them), like to argue that the truth lies in between those last two. They say that it’s all about commitment (and without commitment it’s all worthless), but sometimes you need an infinitely big stick to convince people. They generally don’t get worked up about how close the central bank’s actions are to the real economy and they’re not particularly bothered with concrete steps.
So now we’ve got some really interesting stuff going on:
The Swiss National Bank (a year ago) announced a price and is continuing to deploy the power of infinity.
The European Central Bank has switched to infinity, but is not giving a price and is not giving any forward guidance.
The Federal Reserve has switched to infinity and is giving some forward guidance on their policy decision rule.
The Bank of England is trying to fix the plumbing.
It really is a fascinating time to be thinking about this stuff.
In case anybody was wondering, monetary policy definitely still has an effect at the zero lower bound. In the UK, the banks have unwittingly (and certainly unwillingly) been part of a demonstration of a so-called helicopter-drop of money. In a country of 60 million people, by mid 2008 there were over 20 million Payment Production Insurance (PPI) policies in effect and that number was growing fast. In early 2011, they were ruled to have been mis-sold (customers were deemed, in general, to have been pressured or deceived into buying insurance they didn’t need) and banks were ordered to offer compensation. Wikipedia has a summary here. From a pair of articles in the FT ([1], [2]):
[Article 1] About £4.8bn had already been paid out by the end of May – effectively acting as “helicopter money” dropped into the hands of those people who may be among the most likely to spend it.
[Article 2] The independent Office for Budget Responsibility, relying on estimates that PPI refunds would deliver £6bn over the year, revised up its estimate of the growth rate of real disposable household income by 0.5 percentage points in March from its November figure … the amounts set aside for PPI redress by the five biggest banks have now soared to almost £9bn.
[Article 2] The FSA said it does not know the average payout per claimant. But some of the “complaints management” companies, which have been making aggressive pitches to help consumers get their money back, say these average £2,000 to £3,000 per applicant.
[Article 1] “When I heard I was going to get over £2,000 in compensation I hired builders to fix a long-overdue problem with the eaves in my roof and put the rest of the money towards a holiday to Greece in September,” said Elaine Overten, a retired nurse from Derbyshire, who received compensation for PPI payments made on her NatWest mortgage over 10 years.
I just love the little (and not remotely subtle) hint from the FT that monetary stimulus would help Greece out of their hole.
Anyway, the point is simple. If you put money in people’s hands, especially if those people are “credit constrained,” they will spend it. That was the point of my “Monetary policy for 10 year olds” post a while ago. It remains the point today. It will always be the point.
The problem, of course, is that while PPI compensation payouts are acting as a positive stimulus, the corresponding hit to the banks will be causing them to hold back in their lending and so provide a negative stimulus at the same time. If I had to guess, I’d say that the net effect of PPI compensation is to provide a positive stimulus because of the broad distribution and, I assume, the fact that a large fraction of the recipients really are currently credit constrained.
Hi, George.
No doubt your political advisers have mentioned this to you by now, but just in case they haven’t, I thought I’d drop you a line. The UK press are a funny lot. They will insist on making hay out of the budget every year (and let’s be frank, you like the attention), but you can never really tell which bits they’re going to ignore and which bits they’re going to put in the spotlight. Take this hullabaloo over your decision to equalise the regular and old-age tax free allowances. The ‘granny tax‘ (nice work on getting the Telegraph to rail against a Conservative chancellor, by the way). There’s no way you could have seen it coming, right? Right?
Wrong.
Really, George, it is quite simple. Newspapers look for news. Given all the leaks that you and the Lib Dems fed the media over the last couple of weeks during your bargaining, this was the only morsel, juicy or otherwise, that was left. Here, I’ll spell it out for you:
This whole kerfuffle hits every button on the nose.
Apple just reported their profits for 2011Q4. It turns out that they made rather a lot of money. So much, in fact, that they blew past/crushed/smashed expectations as their profit more than doubled on the back of tremendous growth in sales of iPhones and iPads. [snark] I’ll bet nobody’s talking about Tim Cook being gay now. [/snark]
It’s an incredible result; stunning, really. I just wish it didn’t make me so depressed.
I salute the innovation and cheer on the profits. That is capitalism at its finest and we need more of it.
It’s that f***king mountain of cash (now up to $100 billion) that concerns me, because it’s symptomatic of what is holding America (and Britain) in the economic doldrums.
The return Apple will be getting on that cash will be miniscule, if it’s positive at all, and conceivably negative. Standing next to that, their return on assets excluding cash is phenomenal.
Why aren’t they doing something with the cash? Are they not able to expand profits still further by expanding quantities sold, even in new markets? Are there no new internal projects to fund? No competitors to buy out? Why not return it to shareholders via dividends or share buybacks?
Logically, a company holds cash for some combination of three reasons: (a) they use it to manage cash flow; (b) they can imagine buying an outside asset (a competitor or some other company that might complement them) in the near future and they want to be able to move quickly (and there’s no M&A deal that’s agreed upon faster than an all cash deal); or (c) they want to demonstrate a degree of security to offset any market perceived risk with their debt.
Apple long ago surpassed all of these benefits. The net marginal value of Apple holding an extra dollar of cash is negative because it returns nothing and incurs a lost opportunity cost. So why aren’t their shareholders screaming at them for wasting the opportunity?
The answer, so far as I can see, is because a significant majority of AAPL’s shareholders are idiots with a short-term focus. They have no goddamn clue where else the money should be and they’re just happy to see such a bright spot in their portfolio. Alternatively, maybe the shareholders aren’t complete idiots — Apple’s P/E ratio has been falling for a while now — but the fundamental point is that they have a mountain of cash that they’re not using.
In 2005 that wouldn’t have been as much of a problem because the shadow banking system was in full swing, doing the risk/liquidity/maturity transformation thing that the financial industry is meant to do and so getting that money out to the rest of the economy.[*] Now, the transformation channel is broken, or at least greatly impaired, and so nobody makes any use of Apple’s billions. They just sit there, useless as f***, while profitable SMEs can’t raise funds to expand and 15% of all Americans are on food stamps.
Don’t believe me? Here’s a graph from the Bank of England showing year-over-year changes in lending to small- and medium-sized enterprises in the UK. I can’t be bothered looking for the equivalent data for the USA, but you can rest assured it looks similar. The report it’s from can be found here (it was published only a few days ago). The Economist’s Free Exchange has some commentary on it here (summary: we’re still in trouble).
So what is happening to all that money? Well, Apple can’t exactly stick it in a bank account, so they repo it, which is a fancy way of saying that they lend it to a bank (or somebody else in the financial industry) and temporarily take some high quality asset like a US government bond to hold as collateral. They repo it because that’s all they can do now — there are no AAA-rated, actually safe, CDO tranches being created by the shadow banking system any more, they’re too big to make use the FDIC’s guarantee (that’s an excellent paper, btw … highly recommended) and so repo is all they have left.
But the financial industry is stuck in a disgusting mess like some kid’s hair with chewing gum rubbed through it. They’re all just as scared as the next guy (especially of the Euro problems) and so they’re parking it in their own accounts at the Fed and the BoE. As a result, “excess” reserves remain at astronomical levels and the real economy makes no use of Apple’s billions.
That’s a tragedy.
[*] Yes, the shadow banking industry screwed up. They got caught up in real estate fever and sent (relatively) too much money towards property and too little towards more sustainable investments. They structured things in too opaque a manner, failed to have public price discovery and operated under distorted incentives. But they operated. Otherwise useless cash was transformed into real investment and real jobs. Unless that comes back, America and the UK will stay in their slow, painful household deleveraging cycle for another frickin’ decade.
It’s cold in London in mid December. Today, as I ran in to university, it was 1 degree Celcius and there was a pretty lethal frost on the paths in the parks. As I was running in, I remembered that the central heating in my office would be turned off (it’s a weekend and LSE likes to save money where it can), so I pulled the run up short at the big Currys/Dixons/PC World/Phones4U shop near Warren Street Underground Station so I could buy a little electric heater. As it happens, I also wanted to get a USB-to-micro-USB cable for my phone and figured I could kill two birds with one stone.
Now, Curixorld4U (as I have affectionately decided to call them) bill themselves as something of an electrical superstore. Clearly they don’t mean of the American style Big Box variety, but still … they want you to think of them as a supermarket for electrical goods. It should be easy to find what I want, right? Wrong. Here’s what they had:
So I went over the road to Robert Dyas and bought a little electric heater for £12. They didn’t have the cable I wanted, but as I was walking down to LSE, I passed by the ULU and they were hosting a computer fair today. I popped in and got exactly the cable I wanted for £5.
Note to Curixorld4U: I understand that selling me the things I was looking for is a low margin business, but surely that’s better than no business at all? Besides … isn’t one of the benefits of convincing people that you’re a one-stop-shop that you can exploit their search costs to slap on a fierce mark-up? Have you even heard of price discrimination? It doesn’t work if you only offer one version of each thing, you know. Wouldn’t you have been better off stocking the cable I wanted for £10 and the heater I wanted for £20, perhaps in home-brand-style “charity” packaging to make them seem functional-but-unappealing? I still would have gasped a little at the prices, but I’m a lazy man. I would have paid.
The Economist’s Babbage (i.e. their Science and Technology section) has a great article on the possibility of electric cars being used as battery packs for the power grid at large. Here’s the idea:
At present, in order to meet sudden surges in demand, power companies have to bring additional generators online at a moment’s notice, a procedure that is both expensive and inefficient. If there were enough electric vehicles around, though, a fair number would be bound to be plugged in and recharging at any given time. Why not rig this idle fleet so that, when demand for electricity spikes, they stop drawing current from the grid and instead start pumping it back?
Apparently it’s all called vehicle-to-grid (V2G). That (wikipedia) link has some great extra detail over the Economist piece. If you want more again, here is the research site of the University of Delaware on it. If you want more again (again), I’ve included links to the UK study by Ricardo and National Grid referenced in the Economist piece below.
After reading about the idea of V2G, a friend of mine asked a perfectly sensible question:
If having batteries connected up to the grid is a good thing for coping with spikes in demand, then why wouldn’t the power companies have dedicated batteries installed for this purpose?
I presume that power companies don’t install massive battery packs to obviate demand spikes because the cost of doing so exceeds the cost they currently incur to deal with them: having X% of their gross capacity sitting idle for most of the time.
In particular, the energy density of batteries isn’t great, and batteries do have a fairly low limit on the number of charge-discharge cycles they can go through.
Interestingly, another part of the cost associated with battery packs will be in the form of risk and uncertainty [*], which are exemplified by precisely this idea. If a power company were to purchase and install massive battery packs at the site of the generator only to see a tipping-point-style adoption of electric vehicles that, when plugged in, serve as batteries for hire situated at the site of consumption (i.e. can offer up power without transmission loss), they would have to book a huge loss against the batteries they just installed.
Technological innovation and adoption is disruptive and frequently cumulative, meaning that any market power created by it is likely to be short-lived, which in turn creates a short-run focus for companies that work in that space. For an infrastructure supplier more used to thinking about projects in terms of decades, that creates a strong status quo bias: by not acting now, they retain the option to act tomorrow once the new technologies settle down.
Anyway, I’m a huge fan of this idea. For a start, I’ve long been a huge fan of massively distributed power generation. Every household having an ability to sell juice back to the grid is just one example of this, but I think it should be something we could aim to scale both up and down. Imagine a world where anything with a battery could be used to transport and sell power back to the grid. My pie-in-the-sky dream is that I could partially pay for a coffee at my local cafe by letting them use some of my mobile phone’s juice for 0.00001% of their power needs for the day.
More realistically, the other big benefit of this sort of thing is that because the grid becomes better able to cope with demand spikes without being supplied by the uber generators, the benefit to the power company of maintaining that surplus capacity starts to fall. As a result, the balance would swing further towards renewable energy being economically (and not just environmentally) appealing.
At a first guess, I suspect that this also means that it is against the interests of existing power station owners for this sort of thing to come about, which ends up as another argument in favour of making sure that power generators and power distributors are separate companies. The distributor has a strong economic incentive to have a mobile supply that, on average, moves to where the demand is located (or better yet, moves to where the demand is going to be); the monolithic generator does not.
Back in December 2007 (i.e. when the financial crisis had started but not reached it’s Oh-God-We’re-All-Going-To-Die phase), Doctors Willett Kempton and Nathaniel Pearre reckoned a V2G car could produce an income of $4,000 a year for the owner (including an annual fee paid to them by the grid, about which I am highly sceptical). The Economist quite rightly points out that V2G, like so many things in life, would experience decreasing marginal value, but apparently it wouldn’t fall so far as to make it meaningless:
Of course, as the supply of electric vehicles increases, the value of each to the power company will fall. But even when such vehicles are commonplace, V2G should still be worthwhile from the car-owner’s point of view, according to a study carried out in Britain by Ricardo, an engineering firm, and National Grid, an electricity distributor. The report suggests that owners of electric vehicles in Britain could count on it to be worth as much as £600 ($970) a year in 2020, when an electric fleet 2m strong could provide 6% of the country’s grid-balancing capacity.
If you’re interested in the study by Ricardo and National Grid, the press release is here. That page also has a link to the actual report, but they want you to give them personal information before you get it. Thankfully, the magic of Google allows me to offer up a direct link to a PDF of the report.
The ever-sensible Economist also raises the upfront cost of capital installation by the distributor as something to keep in mind:
There is, it must be admitted, the issue of the additional cost of the equipment to manage all this electrical too-ing and fro-ing, not least the installation of charging points that can support current flows in both directions. But if the decision to make such points bi-directional were made now, when little of the infrastructure needed to sustain a fleet of electric vehicles has yet been built, the additional cost would not be great.
I can’t remember a damn thing from the “Electrical Engineering” part of my undergraduate degree [**], but despite the report from National Grid, I’m fairly sure that there would still be significant technical challenges (by which I mean real engineering problems) to overcome before rolling out a power grid with multitudes of mobile micro-suppliers, not to mention the logistical difficulties of tying your house, your car and your mobile phone battery to the same account and keeping track of how much they each give or take from any location, anywhere.
If I were a government wanting to directly subsidise targeted research to combat climate change I’d be calling in the deans of Electrical Engineering departments and heads of power distribution companies for a coffee and a chat. I’d casually mention some numbers that would make make them salivate a little and then I’d talk about open access and the extent to which patents are ideal in stimulating innovation. [***]
[*] By which I mean known unknowns and unknown unknowns respectively.
[**] Heck, I can’t remember a damn thing from the “Electronic Engineering” or the “Computing Engineering” parts, either.
[***] But that’s a topic for another post.
The Economist’s blog, Democracy in America, has a post from a few days ago — “Tax Day”, for Americans, is the 15th of April — looking at Ayn Rand’s rather odd view of government. Ms. Rand, apparently, did not oppose the existence of a (limited) government spending public money, but did oppose the raising of that money through coercive taxation.
Here’s the almost-anonymous W.W., writing at The Economist:
This left her in the odd and almost certainly untenable position of advocating a minimal state financed voluntarily. In her essay “Government Financing in a Free Society“, Rand wrote:
“In a fully free society, taxation—or, to be exact, payment for governmental services—would be voluntary. Since the proper services of a government—the police, the armed forces, the law courts—are demonstrably needed by individual citizens and affect their interests directly, the citizens would (and should) be willing to pay for such services, as they pay for insurance.”
This is faintly ridiculous. From one side, the libertarian anarchist will agree that people are willing to pay for these services, but that a government monopoly in their provision will lead only to inefficiency and abuse. From the other side, the liberal statist will defend the government provision of the public goods Rand mentions, but will quite rightly argue that Rand seems not to grasp perhaps the main reason government coercion is needed, especially if one believes, as Rand does, that individuals ought to act in their rational self-interest.
The idea of private goods vs. public goods, I think, is something that Rand would have recognised, if not in the formally defined sense we use today, but I do not think that Rand really knew much about externalities and the ability of carefully-targeted government taxation to improve the allocative efficiency of otherwise free markets. I think it’s fair to say that she would probably have outright denied the possibility of anything like multiple equilibria and the subsequent possibility of poverty traps. Furthermore, while she clearly knew about and despised free riders (the moochers in “Atlas Shrugged“), the idea of their being a problem in her view of voluntarily-financed government apparently never occurred to her.
However, this does give me an excuse to plump for two small ideas of mine:
First, I consider the charitable (i.e. not-for-profit) sector as falling under the same umbrella as the government when I consider how the economy of a country is conceptually divided. In their expenditure of money, they are essentially the same: the provision of “public good” services to the country at large, typically under a rubric of helping the most disadvantaged people in society. It is largely only in they way they raise revenue that they differ. Rand would simply have preferred that a (far, far) greater fraction of public services be provided through charities. I suspect, to a fair degree, that the Big Society [official site] push by the Tories in the UK is about a shift in this direction and that, as a corollary, that Mr. Cameron would agree with my characterisation.
Philanthropy UK gives the following figures for the size of the charitable sectors in the UK, USA, Germany and The Netherlands in 2006:
| Country | Giving (£bn) | GDP (£bn) | Giving/GDP |
| UK | 14.9 | 1230 | 1.1% |
| USA | 145.0 | 6500 | 2.2% |
| Germany | 11.3 | 1533 | 0.7% |
| The Netherlands | 2.9 | 340 | 0.9% |
Source: CAF Charity Trends, Giving USA, Then & Spengler (2005 data), Geven in Nederland (2005 data)
Combining this with the total tax revenue as a share of GDP for that same year (2006), we get:
| Country | Tax Revenue/GDP | Giving/GDP | Total/GDP |
| UK | 36.5% | 1.1% | 37.6% |
| USA | 29.9% | 2.2% | 31.1% |
| Germany | 35.4% | 0.7% | 36.1% |
| The Netherlands | 39.4% | 0.9% | 40.3% |
Source: OECD for the tax data, Philanthropy UK for the giving data
Which achieves nothing other than to go some small way towards showing that there’s not quite as much variation in “public” spending across countries as we might think. I’d be interested to see a breakdown of what services are offered by charities across countries (and what share of expenditure they represent).
Second, I occasionally toy with the idea of people being able to allocate some (not all!) of their tax to specific government spending areas. Think of it being an optional extra page of questions on your tax return. Sure, money being the fungible thing that it is, the government would be able to shift the remaining funds around and keep spending in the proportions that they wanted to, but it would introduce a great deal more democratic transparency into the process. I wonder what Ms. Rand (or other modern day libertarians) would make of the idea …
Anyway … let me finish by quoting Will Wilkinson again, in his quoting of Lincoln:
As Abraham Lincoln said so well,
“The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves—in their separate, and individual capacities.”
Citizens reasonably resent a government that milks them to feed programmes that fail Lincoln’s test. The inevitable problem in a democracy is that we disagree about which programmes those are. Some economists are fond of saying that “economics is not a morality play”, but like it or not, our attitudes toward taxation are inevitably laden with moral assumptions. It doesn’t help to ignore or casually dismiss them. It seems to me the quality and utility of our public discourse might improve were we to do a better job of making these assumptions explicit.
That last point — of making the moral assumptions of fiscal proposals explicit — would be great, but it is probably (and sadly) a pipe dream.
[Updated to include labour cost inflation too]
Here are the stories at the FT, the WSJ, the Economist (in their blogs) and for a won’t-somebody-think-of-the-children perspective, the Guardian [1].
There are plenty of arguments against the increase. You could argue that there’s a sizeable output gap, so any inflation now is unlikely to be persistent. You could argue that core inflation is low and that it’s only the headline rate that’s high. You could argue that with the periphery countries facing fiscal crises, they need desperately to grow in order to avoid a default or, worse, a breakup of the Euro area. You could argue that a period of above-average inflation in Europe’s core economies and below-average inflation in the periphery would allow the latter to (slowly) achieve what a currency devaluation would normally do: make them more competitive, attract business and allow them to grow in the long run (above and beyond the short-run stimulus of low interest rates).
On that last point, though, it’s worth looking at the data. It’s a great idea, in principle, but unfortunately and despite all the austerity packages, the data show exactly the opposite picture at present. Here’s the current year-over-year inflation rate broken down by country, from Eurostat (HICP and Labour Costs):
| Economy | HICP | Labour Cost Index |
| Euro area as a whole | 2.4% | 2.0% |
| Germany | 2.2% | 0.1% |
| France | 1.8% | 1.5% |
| Greece | 4.2% | 11.7% |
| Ireland | 0.9% | n/a |
| Portugal | 3.5% | 1.0% |
| Spain | 3.4% | 4.1% |
For some reason Ireland doesn’t seem to be included in the Labour Cost data. Look at Greece and Spain. They’re getting more expensive to do business in relative to Germany and France. Portugal is in the right area, but with Germany’s growth rate in Labour Costs so low, they’re still coming out worse. The same story is painted in consumer inflation. It looks like Ireland is doing what it needs to, but Greece, Portugal and Spain are all getting even less competitive.
Here’s my theory: The ECB hates the fact that they’re temporarily funding these governments, but can’t avoid that fact. Furthermore, they reckon that Greece, Ireland and Portugal are eventually going to restructure their debt. Given that they cannot shove the temporary funding off onto some other European institution, the ECB either doesn’t care whether it’s in 2013 or today (they’ve already got the emergency liquidity out there and it can just stay there until the mess is cleaned up) or quietly wants them to do it now and get it over with. Either way, the ECB is going to conduct policy conditional on the assumption that it’s as good as done.
[1] Just kidding, Guardian readers. You know I love you. Mind you, the writing in that article could have been better — it says that inflation has gone above the ECB’s target of 2% and never mentions what it actually is, but later mentions the current British inflation rate (4.4%) without explaining that it is for Britain and not the Euro area.
I just got this email from the careers service here at LSE (emphasis mine):
A Conservative MP is looking for support in his role on the Public Accounts Select Committee.
The position is paid £7.85 p/h and will be for approx 15 hours per week.
The successful candidate must have excellent financial understanding in order to examine and analyse accounts.
The candidate should be inquisitive and have an interest in challenging public accounts.
The candidate should also be able to draft their findings into concise briefings and press releases.
To apply please send your CV and covering letter (1 page max) to XXXX by email XXXX@lse.ac.uk ASAP
£7.85 per hour? Are they kidding? They’re sending this to every economics Ph.D. candidate at the London School of Economics? What the f*** are they thinking? (the first person to say “non-monetary incentives” gets a clip ’round the ear)
Update 23 September 2010: Professor Frank Cowell, over on facebook, points us towards:
Gneezy, U. and Rustichini, A. (2000) “Pay Enough or Don’t Pay at All“, Quarterly Journal of Economics, 115, pp. 791-810.
Here’s the abstract:
Economists usually assume that monetary incentives improve performance, and psychologists claim that the opposite may happen. We present and discuss a set of experiments designed to test these contrasting claims. We found that the effect of monetary compensation on performance was not monotonic. In the treatments in which money was offered, a larger amount yielded a higher performance. However, offering money did not always produce an improvement: subjects who were offered monetary incentives performed more poorly than those who were offered no compensation. Several possible interpretations of the results are discussed.