With apologies to William Mcgonagall

Profuse apologies to the world's best worst poet.

Twas in the year of 2008 in the month of September

Which the bankers of the world will long remember

For they did not act, as one would to a brother

In refusing to extend credit, one to another

For fail it did, the Bradford and Bingley

And we began to fear the banks would not go singlely

And collapse like a great house of cards

Or shatter like a mirror into millions of shards

Citigroup bought out the failing Wachovia

But that was not the last emergency takeover

The Halifax Bank of Scotland it had to be rescued

And the passage of the bailout plan by the US congress badly miscued

The Germans paid 35 billion Euros to Hypos Real Estate

And Glitnir was nationalised by the Icelandic State

Fortis of Benelux met, partially, with the same fate

All with little time for debate

This should never have happened according to some

Taxpayers will be paying for years to come

We must better regulate the banks, if only we are able

And next time we must listen to Vince Cable

Conservatives U turn on decentralisation

The Tories are calling for a centrally-imposed freeze in council tax, as part of their commitment to localism.

I thought I might refer to their previous announcement on the subject of localism, and found that the page had been removed.

Luckily google cache comes to the rescue

All fine-sounding stuff of the type tories say when they are behind in the polls. 

And google gives us the date:

It is a snapshot of the page as it appeared on 21 Sep 2008 05:51:27 GMT.

That's 8 days ago. This page seems to have been "lost" suspiciously close to the date of the announcement of this new policy.

The old Dave said:

So I hope that in 2008 the Liberal Democrats and the Green Party will join us in putting pressure on the Government to decentralise power, and that together we can create a new progressive alliance to decentralise British politics.

And the Conservatives, Dave, don't forget the Conservatives.

Hat tip: Quaequam blog!

Moral hazard in banking

Banking as we know it is an industry largely made possible by regulation and deposit protection. There are unregulated savings schemes around, like FairPak, and unregulated borrowing, like from loan sharks. But with or without such protection, there is always a danger in having somebody else look after your money. Bankers and bank shareholders can profit from risk taking, but their losses are limited to their own stakes in the bank. This is moral hazard. The hazard is minimized if shareholders are left with nothing after a bailout, as they should be, but it is still there.

So the regulatory framework we have would seem to reflect the view that the sort of banking industry we have is worth having, that confidence in banks is worth protecting, and that depositors should be largely protected from the bad luck of a bank failure.

Clearly not everybody agrees. Some view banking as parasitical on the real economy, that without debt and credit we would all be better off. Banking, in this view should be essentially nationalised, so that the profits from credit creation goes to the public purse and so that investment favours public goods.

Others argue that the problem here is that the banking system is effectively already too much like a nationalised industry, with private banks merely agents of a state-controlled currency. Thus lighter regulation, private currencies, and banks being allowed to fail, are the answers. If depositors had more cause to care about the soundness of their banks, they would seek out and reward truly sound banks.

Both these camps are cheering the present crisis and pointing out how this proves that they were right all along. And in some small ways they are right.

Banking is parasitical in the sense that it does need to be bailed out from time to time. In the long run, it is therefore a subsidised industry, and seen in this light, public anger at overpaid failing bankers is entirely justified. Insisting that none of the bailout money goes on dividends or bonuses rather misses the point - the bailout money is socialising the loss. The profits mostly occur in another part of the cycle. I would favour an insurance pool paid into by the banks to fund the next bailout whenever that might occur. It would be in the banks interest that this fund is not called upon, and this might hopefully encourage them to engage constructively with regulators to help minimise systemic risks.

The other camp is right that interdependence of the banks and the central banks does give the system the characteristic of a monolithic monpolistic bank to which there is no alternative. Some risks are pooled rather than avoided, so instead of frequent bank failures hurting only a few, we have rare systemic threats that affect us all. But I, for one, would have even less confidence in an unregulated bank or a private currency, and I suspect only the real enthusiasts for those things would disagree. The moral hazard, of being able to profit from risks taken with the money of others, is just as great, or greater, in an unregulated bank as in a regulated one.

It may be dull, and we have overdone it lately, but credit is important. It makes all sorts of choices possible, and only some of them are unwise. And the banking system does a decent job of offering credit, better, certainly, than many state banks around the world have done - they tend to end up bullied by politicians into propping up failing state industries, and failing themselves. Better certainly than loan sharks, who we would be more beholden to if legal credit was greatly restricted. Better than LETS schemes, which are generally failures for reasons too many to go into here. The best alternative is perhaps the Building Society, and yet when many of them converted into banks, it hardly made much difference to their customers, except that they could suddenly get current accounts.

So it is important to maintain a banking system not unlike the one we have. The challenge is to do that while minimising moral hazard and the risks of failure, bailouts, and what amounts in the long run to a public subsidy to overpaid failures. Less regulation won't do this. More regulation won't necessarily do it either, and can increase risks. We need smarter regulation. Perhaps we need to revisit the reserve requirements abolished by Thatcher. But the details of this smarter regulation are beyond my competence. 

I have one last possibly unworkable suggestion: that bank bonuses and dividends in future should be staged over, say, 10 years, the balance being held in a fund. If a bank fails, then it has a fund of effectively 5 years worth of bonuses and dividends which can be used to meet its obligations, those responsible for that failure paying a greater price than they would otherwise do. But banks could still pay as much as they like for success. Ideally banks would do this voluntarily, to show that they have the right incentives in place to be more reponsible with other people's money.

The moral difference between liberals, conservatives, socialists, etc.

There's a good talk by Jonathan Haidt examining the differences in moral thinking between liberals and conservatives. This is American usage of course, but particularly focussing on social rather than economic issues, so it is not too inaccurate.

Haidt identifies what he calls the 5 foundations of morality by which he means 5 traits in evolutionary psychology (touched on here), connected with questions of moral behaviour. These are:

1. Harm/Care. We are disposed to bond with others and care for them, and have strong feelings about those who cause harm.

2. Fairness/reciprocity. This is associated with the golden rule ("Do unto others as you would be done by.") Also, I dare say, there is a fairness/reciprocity basis to both support for a social safety net, and for free trade. Both are reciprocal, but are often associated with opposing ideologies.

3. Ingroup/loyalty. We have a powerful instinct for forming tribes, mostly to oppose other tribes. More on this shortly.

4. Authority/respect. The anarchists' lament. Stop taking orders, they might say. Just listen to me and stop taking orders!

5. Purity/sanctity. Not just sex, but also attitudes to food for example.

So while we have the brain wiring to be guided by all of these consideration, there are differences of opinion as to which are moral. According to the video, conservatives tend to recognise all 5 as moral, and liberals just the first 2. In contrast to ingroup/loyalty we celebrate diversity; in contrast to deference to authority, we question it; in contrast to purity, we celebrate the freedom to be impure. 

Haidt makes some sweet bipartisan point about the conservatives having a point, using all the tools in the toolbox to maintain order (yuk! stability, perhaps, please?) and that libs and cons therefore exist in some wonderful symbiotic dynamic harmony like yin and yang. But I will move swiftly on from there by looking more closely at the 5 foundations and British politics.

Harm/Care

Disagreements here a generally over what constitutes harm, and the extent of our duty to care for our neighbour. Mill, in On Liberty, argues, for example, that there are duties of care - to throw a line to somebody drowning for example. I see little disagreement on this except from libertarians. Am I right?

But while I disagree with libertarians who say that the state should not seek to do good, I agree that it should not try to (and can't) make us good. Socialists on the other hand don't seem to see a problem with that. (Do other liberals agree with me?) Conservatives can be found in both camps, I guess.

Greens generally apply harm/care thinking to the natural world, which, it can be argued, means a failure to apply it properly to human beings.

Fairness/reciprocity

Socialists believe that the poor deserve more, conservatives that the rich deserve more. Greens believe that everybody deserves less. I, frankly, don't know who deserves what, but I bet it isn't a function of class identity. Fairness in the sense of equal rights is still opposed by many Conservatives, but otherwise is largely agreed.

Both free trade/freedom of contract, and the social safety net and public services can be seen in terms of reciprocity. Socialists and greens are against half, and conservatives and libertarians against the other half; liberals support both halves.

Ingroup/loyalty

I agree that liberals are not greatly moved by this (except obviously as political partisans, like everybody else). Socialists and conservatives represent ingroups based on social class.

Socialists have struggled politically from the numerical decline of the unionised working class. Labour, therefore has had to expand its ingroup suffering much pain in the process. 

This has left the working class feeling justifiably aggrieved that nobody represents them, creating opportunities for the BNP. The BNP being of course the epitome of the evil of ingroup/outgroup thinking.

Having your ingroup taken away, or being betrayed by it, can be an utterly crushing experience. Politics would perhaps be much healthier if there were an old-fashioned working-class socialist party. As long as it never won any power. We may have the best policies for millions of poor people, but we don't represent their interests against those of the middle classes.

Authority/respect

Clearly this issue separates liberals and libertarians from conservatives and fascists. Socialists appear in both camps and in the middle ground. 

I think Greens have a complex relationship with this one. I know many would post them firmly in the authoritarian camp, but they also have a strong anarchist influence. In any case this is not so much about whether strong authority is necessary, or even helpful, in saving the planet - a question we will all have to face; but whether an attitude of deference to authority is a good thing, on which point I think they are largely with liberals.

Purity/sanctity

This is not so clear as in the US with its big religious right, although the same trend is apparent.

However I think the biggest on purity/sanctity are the Greens. Organics, GM, alt meds, being close to nature. Support for such "natural" things, often out of proportion to the benefits (if any), seems to be a purity thing. 

In Haidt's surveys everybody recognised Harm/Care and Fairness/Reciprocity as moral instincts, but conservatives did tend to rate them lower than liberals. Understandable: these different factors must be weighed against each other. And yet libertarians also seek to diminish the scope of considerations of harm/care and fairness, reducing them to "no initiation of force" and free trade. I think this explains why they are seen as right wing, with some justice, even though they don't agree with conservatives on foundations 3 to 5.

So this just illustrates yet again the error of lumping any of these ideologies with any other. A five dimensional compass would not sort these babies out. It is no good lumping greens with fascists or communists, or lumping libertarians with conservatives, as if this could end the debate. Both must be opposed for what they actually say, unless, of course, on occasion, they are right.

Lynas and Lucas on nuclear power

Environmnental writer Mark Lynas and Green Party leader(!) Caroline Lucas debated nuclear power on the today programme this morning. It brought what I thought was the most astute question I've heard for a while on Today:

[Is there something] almost dogmatic in the theological sense about where the Green movement stands on this question, in that people are perhaps looking at the facts through lenses tinted by the historic opposition of the green movement to nuclear power?

Lucas didn't entirely disagree, but argued her point nonetheless in the usual way:

•  "Nuclear would lock us into a centralised energy system...." which is largely cod. They are all good ideas that come under the "decentralised energy" agenda, but the agenda itself is simply a way of packaging all carbon-saving technologies except for nuclear for the purposes of promoting them. By all means do that if you have already decided that nuclear would be a mistake, but it doesn't work as an argument against nuclear.
•  "Nuclear is not necessary..." - perhaps not. Arguably wind is not necessary either, or coal or gas or even energy efficiency. What is necessary is the generation of enough low-carbon energy, and we cannot afford to let dogma get in the way of this.
  
•  "Nuclear delivers too little too late." - that all depends on how much of it we build and how quickly. As Lynas pointed out, Germany built more coal fired power stations after the Greens had their nuclear plant shut down. That is an undeniable harm to the climate.

On their own these arguments might sway some but seen together they are horribly weak. We don't oppose wind farms because they deliver very little as a percentage of our total energy needs. We don't dismantle the interconnector to France's nuclear electric riches on the grounds that that is too "centralised", nor should we. We maintain spare generating capacity so that no single plant is "necessary". Lucas' objections are paper thin when stood against the need for large amounts of low-carbon energy.

Now maybe nuclear is just too expensive. Perhaps filling a percent of a percent or two of the Sahara with CSP, and linking to it with HVDC would be a better investment. But my guess is that we should do both - that we are a long way from being in a position to turn down feasible low-carbon energy sources. It is madness to frame the debate as nuclear v renewables and efficiency, when we are still building coal-fired plant.

And in any case the unknown factor in the cost of nuclear is the underwriting of the decommissioning cost, which is some time away. This would represent off-books liability that puts PFI to shame. No other low-carbon energy source can defer its costs like this. I don't think that our descendents whose climate will have been saved will mind that much the decommissioning cost. It is not as if they would be better off suffering climate change.

So with that in mind, it seems that nuclear capacity is almost certainly probably worth building, and probably probably worth building in sufficient quantity to replace all our coal-fired plant. (Gas, on the other hand, complements wind well.) I realise that my party, the Lib Dems, is opposed. I guess this is due to a desire to do the right thing for the environment, but with too much deference to the environmental movement. But environmentalists should heed Lynas:

We are no longer living in the 1970s. Today, the world is more threatened even than it was during the Cold War. Only this time nuclear power – instead of being part of the problem – can be part of the solution.

In defence of trickle-up economics

Today saw a great speech from Nick Clegg at the Lib Dem conference, arguing for tax cuts for low and middle income earners to help meet rising food and fuel costs. The left don't like this because it doesn't involve veneration of the state, and the right don't because they focus their occasional tax cutting efforts at the better off - which is not to suggest that they cut taxes overall in the long run.

The left shouldn't object of course, because they should recognise that fuel and particularly food are even more basic and important than public services like ID cards and wars. But now I want to address why the right shouldn't object either, because this policy will benefit the rich too in the long run.

According to trickle-up economics, what happens when the low and middle income earners have more money in their pockets is that they go out and buy more of the things they need, so that money eventually gets recycled into executive bonuses, dividends, and so forth. So tax cuts for the poor benefit us all in the long run.

Now it should be said that not everybody agrees with trickle-up theory. Some argue that it is just spin for the doctrine that what is good for the poor is good for the country, a doctrine that should be resisted because, er, they aren't poor, or something. 

But seriously, "supply siders" argue for cuts in taxation on profits to encourage investment. But as post-tax profits drive investment, these can also be boosted by boosting pre-tax profits, by leaving ordinary people with more in their pockets to spend. The difference is who gets the direct benefit and who merely gets trickled on, er, or trickled under.

The perils of genetics

Laurence Boyce at Lib Dem Voice offers us a good argument that genetics is not irrelevant to the way we turn out, but that this raises fears, particularly on the left.

So why all the discomfort? Pinker sets out four “fears” that might make us hesitate in the face of what the science is increasingly telling us. These are the fear of inequality, imperfectibility, determinism, and nihilism. I can’t possibly do justice to all of these – you’ll have to read the book – but the fear of inequality is probably the one which most offends left-wing sensibilities.

There is a great deal of heat over the suggestion that genetic differences between groups would justify discrimination on the basis of group membership. It is clear to me that political equality is a moral principle, not a consequence of us being "born equal" in any sense. Clearly we are not born equal - genetic variation within groups is not disputed. Don't base a good princple on a false premise unless you are trying to oppose it.

But it is vital, one opponent of discrimination would argue, that we oppose the idea that groups may differ genetically one from another, because this would justify prejudice.

So far, so wrong. It is frankly stupid to judge any individual based on group memberships (sex, race, class, shoe size, which group do you choose?) whether there are group differences or not, because all group differences are swamped by individual variation within groups.

However, beneath this, there is some substance in the warning. If there is a genetic difference on average between two groups, this may explain different outcomes on average. This explanation may even be - or seem - sufficient to account for the whole difference of outcome, suggesting that there is no discrimination at work.

So what theories of genetic difference between groups threaten is not the moral principle that people should be treated equitably and on their own merits; rather it is the evidence that disadvantaged groups are indeed discriminated against.

How do we respond to this? Well I would argue that this evidence was never terribly good in the first place. It doesn't, for instance, deal with the likelihood that people with different group identities may make different choices on average. Buddhists may choose to become monks with no possessions and this does not mean that the economic system discriminates against Buddhists.

Much better evidence comes from blind controlled trials; from differences in hiring and marking rates where the name and picture of the candidate are not available. Unfortunately this is not always possible. Still, it is not as if it is any secret. I have heard an employer admit that he won't hire women because they might get pregnant. Others have said that they won't hire disabled people because they might get sued for some technical breach of a complex accessibility law. Is there really such a lack of evidence for discrimination that we must die in a ditch over the weakest of it? No.

Inequality of outcomes between groups is a red flag, it warns us that discrimination is likely to be afoot. We should then find that discrimination and try to stop it. In every case it is a crime against some individual - and if we begin to see it more like this and less as a crime against some group identity, so much the better. Ultimately, groups identities are artificial, and group outcomes don't matter, so long as all individuals are respected and not discriminated against.