Thursday, 10 June 2021

Should we expect (or fear) inflation?

 Should we expect (or fear) inflation?

(Open letter to Simon Wren-Lewis)


Dear Simon,

     I like reading , and struggling to understand, your blog posts. But there are two points in your latest post [1] that I would like to query.

Q1. You write: “ All the evidence, direct or indirect, points to the story about fairly anchored long term inflation expectations due to inflation targets and independent central banks being correct.”

 Does this mean: ‘ All the evidence points to the story being correct, that fairly (firmly? appropriately?) anchored long term inflation expectations due to inflation targets and independent central banks.......‘ ?  In which case it seems to me that the sentence in incomplete.

Q2. You find ‘bizarre in the extreme’ any fear about inflation when short-term interest rates approach zero (I do not like the vagueness and jargon of ‘lower bound’):“In that context, and when short term interest rates are at their lower bound, it seems bizarre in the extreme to start worrying about inflation expectations becoming unhinged. “

So your sentence becomes: 

‘When independent central banks control inflation by manipulating interest rates, and when short term interest rates are close to zero, it seems bizarre in the extreme to start worrying about inflation expectations becoming unhinged.‘

     I suppose many people in the UK are not confident that they fully understood inflation as it occurred in the seventies and eighties, when a strongly unionised labour market, forced a wage spiral and induced an expectation of an ever increasing rate of inflation. They fear the apparent loss of control. 

     UK house-price inflation is currently running at 10% p.a. That does not seem to be in accord with the explicit policy of either government, or bank. It suggests that neither agent has a complete grip on the situation (nor even understands fully what it is that the do not grip; supply of land? population? expectations?)

      In the last 12 months the US$ has slumped 10.87% against the Euro, 13.41% against the GB pound, and 16.7% against the Mexican peso. May that be the result of their use of helicopter-money in response to COVID?  That is steep, though I grant that there is no sign that it is “unhinged”. I suppose that expectations, at this stage, are that the dollar will claw its way back up, and that there will be considerable willingness on the part of workers to restrain wages. But we shall see.

      I have been trying (for my own benefit) to tease apart the linked and overlapping concepts of (a) true growth, (b) inflation,  and (c) interest rates [2]. I have some way to go for a solid understanding, and these are topics that call for numerical treatment. It will be noticed that I have not regarded over-night interest rates as a cause of inflation. Such interest rates may operate to manipulate expectations, by indicating (or sometimes mis-indicating) the intentions of the financial authorities.  But it is expectations that seem crucial to understanding inflation, and they elude mathematical treatment; they may not even be rational.

Yours sincerely, Ian West.

(Comments are welcome, direct to cawstein@gmail.com)

References

[1]  https://mainlymacro.blogspot.com/2021/06/how-should-we-think-about-talk-of.html 

[2]  http://occidentis.blogspot.com/2021/04/growth-inflation-and-interest.html

Friday, 4 June 2021

Another Scottish Referendum?

 Another Scottish Referendum?

     I suppose we have to have another Scottish Referendum. The SNP seem to have won the confidence of the Scottish people. And it seems inherent in the political system we have evolved that the First Minister can bring matters to the Scottish Parliament. They will have to judge the benefits and costs, but if that democratic body votes for a referendum, how can it be denied?

     However, I hope we all agree that the disastrous mistakes of the Brexit referendum must first be noted and then avoided. Namely: 

  1. There should be complete clarity as to the implications of each conceivable result, as to whether the government is compelled or merely advised by the result.
  2. There must be a  very significant majority, perhaps 2/3, perhaps 3/5,  before any suggestion of significant constitutional change be made. 

     It is widely thought that our sovereign parliament should not be bound by a referendum. But it has become clear that parliament is not sovereign, because it is not proportional; it sways madly from side to side due to the crazy voting system. One proof of this assertion is that a referendum was called for in the first place.

     It is also becoming clear that a question of great magnitude should not rest on a slender 52:48 majority. Such an insignificant majority has split the country so nearly into equal halves that it can be plausibly argued that we have got the wrong result. Proof of this is the desperate refusal of the brexiteers to allow a second Brexit referendum. What if 1% of voters changed their minds? What if, in 2 or 5 years’ time, the removal of older voters and the introduction of younger voters changed the result from “out” to “in”. Would we then reverse the enormous task of reordering the constitution, the government, the law, and the economy and accept that we had frittered away a decade for nothing?

     Let us hope that this is so obvious to everyone that it need not be said. For it has not been said yet. 



Tuesday, 27 April 2021

'Best for Britain'


'Best for Britain'

Naomi Smith

Best for Britain relaunched itself on Monday 26th April 2021 as a permanent, pro-active, voice advocating an internationalist stance in support of Britain’s best interests. Internationalist patriotism seeks to promote Britain's position in trade, research, openness, democracy, and justice. Britain should aim to be world leading, rather than world beating. By asking the right questions, the new 'Best for Britain' survey makes clear that British people inherently favour inter-national co-operation on issues like climate, science, poverty, communications and trade. 

    Naomi Smith welcomed the following distinguished speakers.

 

Emily Thornberry

We must recognise 3 truths. [1] We are moving on from Brexit and the question of the Customs Union and Single Market; [2] we must now clarify our own priorities, and establish our own standards, and must not lower those; [3] we must seek to facilitate our trade with Europe, for Europe remains our nearest and most important trading partner.


Sir Peter Westmacott

Four points. [1] One lesson to learn from the parallel between the USA and the UK in the last 4 years of Trump/Brexit is that there is work to do on the “home front”; work on stagnant salaries, anger and alienation. [2] We must not overlook, relinquish or jeopardise our existing global status. [3] We must keep working with allies and potential allies on climate, cybercrime, and issues such as China, G7 and COP26. [4] We must not overlook the international importance of the Good Friday Agreement, and peace in Northern Ireland.


Sir David Lidington

Britain’s best interests in this Post-USA era all point to an international stance. This clearly applies to COVID, climate-change, and crime; but also in regard to incorporating Asian countries into the G7 (making perhaps a D10), and helping Africa. It was a wake-up call to learn how dependent we had become on Chinese technologies; we must collaborate better with our European allies.  

  

Caroline Lucas

Global co-operation matters, and this must be stated, for it cannot be assumed. We should ask ourselves the question: How do we want Britain to be viewed by others? Not only in terms of aircraft-carriers, surely!  Under the heading of the Climate and Nature Emergency, what about three tests of true leadership:

[1] Justice, (facing up to our historic role and responsibilities).

[2] Coherence of policy, so not cutting aid while posturing on carbon emissions. 

[3] Climate realism; are we moving fast enough; target not 2050 but 2030?

Similarly with regard to trade, should we not hope to be good citizens, and aim for respect in our pursuit of justice and ethical standards? We should uphold existing obligations, but also recognise new obligations, and define new crimes such as Ecocide

Ian West  (27th April 2021)


(Please feel free to comment directly to me at  cawstein@gmail.com)


Sunday, 18 April 2021

COVID, Clots and Platelets

COVID, Clots and Platelets

The very rare occurrence of death due to "blood clots following vaccination by AstraZenica's anti SARS-CoV-2 vaccine” (hereafter BCfAZV) is rightly causing concern. It is quite hard to get these rare events into perspective. Not from want of information; the authorities are being exemplary in the amount and clarity of the information they publish. No; it is more the amount of information, its complexity, and the repetitive nature of media coverage laced with strange medical terms that wears you down. And the very “rarity” of rare events is hard to grasp.


Platelets

We are told that these vaccine-induced clots are of a rare type — showing low or very low platelet count. Platelets (also called ’thrombocytes’) are blood cells charged with the job of clotting, and blocking the leakage of blood from blood vessels [1]. Too few platelets (a condition called thrombocytopenia) might indicate potential failure to clot; as when taking too much Warfarin. But in the thrombocytopenia following viral infection it seems that ‘something’ has triggered platelet-activation; the platelets cluster, stick, and die. Clusters of dead/dying platelets can break free and flow in the blood till they reach a narrowing, and block the flow. That is the danger. The remaining blood is depleted of thrombocytes/platelets.


Virus-induced Thrombocytopenia 

A somewhat lowered platelet count (< 100 × 10^6/mL blood) has been observed following a number of viral infections, including hepatitis B (and C) viruses, cytomegalovirus, Varicella zoster virus, HIV, and the arboviruses zika and dengue. In this latest COVID-19 pandemic it is found in up to one-third of COVID  patients, so we can add wild-type SARS-CoV-2 to that list of viruses that induce thrombocytopenia. 

One suggested explanation of the vary rare occurrence of BCfAZV is that after vaccination one or two patients go on to contract COVID, though (to date 2021-04-17) the diagnostic viral RNA has not been detected by PCR [2 (page 37)].

Abnormal clotting can be a factor in the pathology of pandemic and seasonal ‘flu (due to influenza A(H1N1) and other viruses)[3]. In these cases the mechanism may be different, may involve proteases, and pre-disposing genetic polymorphisms in complement proteins. But I flag it because there are a few cases, for that virus disease also, where it seems that it was vaccination that triggered the activation of the platelets.


Rare Events

An early response to the suggestion that the AstraZeneca COVID-19 vaccine causes blood clots was to point out that clots do occur at a similar frequency without vaccination [4,Thromboembolism and the Oxford–AstraZeneca COVID-19 vaccine: side-effect or coincidence?]. The annual incidence of cerebral venous sinus thrombosis is said to be between 2 and 5 per million people [5]. Recent data (as of 4th April 2021) from the 34 million people who have just received the AstraZeneca COVID-19 vaccine are: 169 cases of thrombus in the cerebral venous sinus, and 53 with thrombi in the splanchnic vein. If we restrict ourselves to the cerebral venous sinus, that is 4.97 per million. An observed/expected ratio of 4.97/ 5 is obviously not significant; until you realise that these blood clots occurred within 7 - 30 days of vaccination. So the observed rate could be 12 - 40 times the expected rate.

          Some commentators have tried to picture the “5-in-a-million” risk by talking of the risk of a fatal traffic accident on our roads, though that is yet another complicated question. In 2019 there were 1752 fatalities in the UK (population=67 million), which corresponds to 26.5 deaths per million citizens per year [11]; though road-death risk is clearly lower for some and therefore higher for others. 

To what new antigens are vaccinees exposed?

The RNA vaccines expose the recipient to the expressed SARS-CoV-2 spike protein and to phospholipid; that is to say, they are rather “pure”.

The AstraZenica vaccine carries DNA for the viral spike protein, together with coding for a 36 aa portion of tissue plasminogen activator leader sequence, plus DNA for all the components of the Chimpanzee Adenovirus vehicle (ChAdOx-1), plus the Adenovirus proteins themselves. (The choice of a replication-incapable Chimpanzee virus instead of a human strain as the vehicle was presumably so that it would be very unlikely that the recipient would already have circulating antibodies against the inoculum.) 

The Johnson & Johnson (= Janssen) vaccine uses human Adenovirus HAdV-D26 as vehicle. (There are over 80 different strains of human Adenovirus known, grouped into species (A, B, C, D, etc.)) Fewer doses of this Janssen vaccine than of the AstraZenica one have been administered to date, but a case of abnormal clotting following injection has now been reported [6].  

Human Adenovirus vehicles have been used since 2000 in exploratory experiments on gene therapy, and quite a lot of the resulting interactions between virus and host are well known. Thus, it is known that Adenovirus injected into a blood vessel rapidly binds to platelets [7], and coagulation factors in the blood [8][9]. 


Why, then, is fatal clotting so rare?

If Adenovirus vehicles normally interact with platelets and coagulation factors, why is the problem of thrombocytopenia and clots-in-veins so rare? One possibility is that there may be a rare genetic polymorphism in the human population that predisposes carriers of that rare genotype to full-blown platelet activation, and clots [10]. A second suggestion is that, when a nurse is giving 300 intramuscular injections in a morning, an occasional needle might pierce a blood vessel, and administer an intravenous injection by mistake [10].  

        The AstraZenica vaccination is still safer than road travel.


References

[1] https://www.verywellhealth.com/thrombocyte-what-is-a-thrombocyte-797228

[2] https://www.ema.europa.eu/en/documents/prac-recommendation/signal-assessment-report-embolic-thrombotic-events-smq-covid-19-vaccine-chadox1-s-recombinant-covid_en.pdf

[3] Pediatr Nephrol. 2018; 33(11): 2009–2025.

[4] The Lancet, Vol. 397, Issue 10283, pp.1441-1443, April 17, 2021.

[5]  https://www.ema.europa.eu/en/documents/prac-recommendation/signal-assessment-report-embolic-thrombotic-events-smq-covid-19-vaccine-chadox1-s-recombinant-covid_en.pdf  

[6] DOI: 10.1056/NEJMc2105869

[7] https://jvi.asm.org/content/81/9/4866

[8] https://febs.onlinelibrary.wiley.com/doi/10.1002/1873-3468.13649

[9] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4009923/

[10] https://www.ema.europa.eu/en/documents/prac-recommendation/signal-assessment-report-embolic-thrombotic-events-smq-covid-19-vaccine-chadox1-s-recombinant-covid_en.pdf 

[11] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/922717/reported-road-casualties-annual-report-2019.pdf


(Please comment directly to cawstein@gmail.com) 

Saturday, 10 April 2021

Growth, Inflation and Interest

Growth, Inflation and Interest

       The terms Growth, Inflation and Interest are familiar enough from the news media, but this surface familiarity hides complexities. Without being synonyms, they overlap, have elements in common, mingle and contaminate each other. In this piece I share my struggles to understand.

Interest

       Though usury was banned by the church for many centuries, yet the practice of paying interest on borrowed money has become accepted in the West, and for centuries we have understood that money lent will yield an increase. However, today the yield is very small.

       We understand the principles of compound interest, and with it that of logarithmic growth. Suppose £100 were deposited at 4% p.a. compounded annually. At the end of the first year we would have £104.00. But at the end of the second year the account balance, though enlarged by the same factor (f=1.04), would have enlarged by a bigger amount than in the first year, and become £108.16. That is to say, our deposit grows exponentially; the increment each year is bigger, because the balance is bigger, but the factor (f ) stays constant.

We can see that the formula is:

                      Final deposit = initial deposit x  fn

 (where n=number of years, and fn means f raised to the power n

So:                         £108.16 = £100.000 x (1.04)2

In 18 years we would have £202.58, and we would have more than doubled our money [1]. 

       Of course, there are many different interest rates, depending on whether you are lending or borrowing, big or small, safe or risky. 

       One interest rate that is of special significance in the UK is the so-called Base Rate of the Bank of England (BoE); i.e. the rate the BoE charges when it lends for short periods to commercial banks.[2]   On 19th March 2020  Base Rate was lowered to 0.1% APR where it has since remained. Its record high point was 17.00% for the period 15th Nov 1979 – 3rd July 1980.

Inflation 

       Inflation can be thought of as the cost of a basket of purchases constructed to represent the average purchases of a household, relative to the cost of the same basket in an index (or base) year. The basket may change from year to year, as mobile phones come into fashion and horses go out. From 1750 till 1934 the value of the British pound remained rather constant overall, with periods of inflation balanced by periods of deflation. Britain finally abandoned the gold standard in 1931. From 1934 inflation has always been positive (save for 1 year during the 2009 banking crisis), but inflation has not been constant; in 1975 the annualised rate of inflation was running at 24%, but in 2020 at only 0.8%. Inflation operates as a tax on the hoarders of money.

       Just as there are many different interest rates, so there are many different inflation rates, depending what you put in the basket [3,5]. Current European practice is to use the Consumer Price Index (CPI) which ignores housing costs. Until April 2011 Britain used the Retail Price Index (RPI) which included housing costs, and tends to rise a little faster then the CPI.  

       Figure 1 shows data points for each quarter year from 2000 to 2020, plotting Log(base 10) for both 'CPI' and 'RPI' against year, and fitting 'least squares' trendlines. Both sets of data swerve off the trendline at times, but it is possible to determine a convincing average annual Inflation factor (f) for each (See Fig.1 legend). Over the last 20 years RPI has averaged a growth of 2.92%, while CPI has averaged 2.26%. The cost of housing clearly grows faster than most other things in the two baskets. 

 













Fig. 1 Plot showing Log10 CPI and RPI (UK). 

Standardised to 100 for 2015, for each quarter year from 2000 to 2020. The pink squares show RPI; the blue lozenges show CPI. The slopes are obtained by least squares. In such plots, slope = Log10 f;  so f = antilog (slope).  Log RPI grew at an average (over that period) of 0.0125 per annum, corresponding to a factor (f) of 1.0292 p.a. or 2.92%, while Log CPI grew at an average of 0.0097  p.a.. corresponding to a factor of 1.022586 (2.25%). (The intercept values can be ignored in the present context; they point to values for the year 0 A.D..)

       Gold is still a popular measure of value, and there seems to be a notion in some quarters that its value is constant, as the world supply will remain fixed (apart from the slow process of mining). But monetary policy and fashion cause arbitrary fluctuations.  The real rental value of agricultural land fluctuates even more [4], buffeted by politics, and the rising population.

       We probably use CPI because it is the simplestbest, agreed, means available for correcting the steady devaluation of the currency that is inflation. But it is important to keep an eye on special cases such as house and land prices. (Gold, bit-coin and the Stock-Markets are surely the concerns only of gamblers.)


'Causes' of Inflation

       It seems that, in the present atmosphere of pandemic emergency, the central banks can give large quantities of  'money' to government where it is handed out to needy people at a rate not seen since WWII; and still the inflation rate is near zero.  People wonder why there is no inflation.

        The Austrian monetarist school believes that inflation is inevitable if the Quantity of Circulating Money (QCM) relative to the Quantity of Purchased Goods and Services (QPGS) is raised. But it is too simplistic to look only at the quantity of money in either the narrow (M0,M1) or the wide sense (M2,M3,M4), for it has to circulate, through purchases. 

        Causes of inflation include:-

·      External price rises, e.g. oil prices. 
·      Insufficient production to meet demand. 
·      Full employment and shortages of skilled labour. 
·      Expectation that prices will rise. 
·      Expectations  from 'Index-linked' wages, or pensions.

Growth 

            Growth of the economy is usually measured in terms of Gross Domestic Product (GDP) measured in a standard way, e.g. by totalling all the income (or all the spending) in the country, quarter by quarter (more or less in line with international practice; e.g. the European System of Accounts 2010, [6]).  Clearly the total actual incomes are not computed; surely estimates are made of how many dentists, how many cleaners; and of the average dentist's salary, etc. Otherwise, what an immense task!  To make these data useful they have to be corrected for the size of the population, and the current value of the £ Sterling. Thus, from Nominal GDP, we get GDP per head, and Real GDP . The latter correction is complicated [7,8], and I deal with it in the next section on Overlaps.

 

Overlaps:  Growth and Inflation

            Growth of the economy indicates a general increase of wealth (and is presumed to be 'good'); inflation on the other hand indicates erosion of value. It is essential to strip the inflation out of the Nominal growth figures. This could be done using the somewhat flawed CPI data, but is not. The CPI 'basket' of goods is seen as artificial. The GDP data purport to be the whole data set of which the CPI is a sample. 

            The Office of National Statistics (ONS) publish several tables of historic GDP data stretching back to 1955. One table is titled "GDP at market prices: Current Prices: Seasonally adjusted £m". A second table is titled "GDP: chained volume measures: Seasonally adjusted £m". The former (Current Prices) is clearly Nominal GDP; the second (Chained Volumes) is more obscure, but is in effect Real GDP, corrected for inflation [8], and I think that could be mentioned on the page. 

            Taking data points for each quarter year from 2016 to 2019 and plotting Log(base 10) GDP against date for both 'Current' and 'Chained', it is possible to determine an average annual Growth factor (f) for each. (See Fig. 2) It is obvious that the GDP growth rate using Current Prices (f=1.0361) grows at a faster rate than the Chained Volume data (f=1.0146). 

 

Fig. 2 Semi- Log10 plot of UK GDP growth, 2016 to 2020. 

The pink squares show data using Current Prices (so Nominal GDP); the blue lozenges show Chained Volumes data (so Real GDP). The slopes are obtained by least squares. In such plots, slope = Log10 f;  so f = antilog (slope). Current data grew at an average (over that period) of 3.61% per annum, while the Chained data grew at an average of 1.46% p.a.. The latter data is clearly corrected for inflation, which will be given by the ratio of the two slopes ( fnominal = f realx finflation). So we see that inflation was running at an annualised rate of  2.117% over that period. (compare CPI and RPI  in Fig. 1 above) . (The intercept values can be ignored in the present context; they refer to the extrapolated value of £GB in the year 0 A.D.)

             In the Chained Volumes method of adjusting for inflation [8], there is no 'base' year. First the cost of the GDP basket for a given year is calculated as a product of price and quantity for each item. (These products are called volumes but the units are £GB as the quantities are dimensionless numbers.) The volumes are aggregated over the entire productive economy producing Aggregate at Current Year's Prices (ACYP). Then the exercise is repeated using the same year's quantities but the previous year's prices, producing APYP. Dividing ACYP by APYP produces a quotient (Q(n), where n is the given year) which is the factor by which all prices increased over the previous twelve months, weighted according to their importance in the economy.  By chaining successive quotients (Q(n) x Q(n+1) x Q(n+2) etc.,) one can determine the course of inflation over a period of years and also determine the real Growth Rate of the economy. 

Overlaps:  Interest Rate and Inflation

            Over the centuries the UK Treasury has sold undated bonds to raise money to pay for e.g. The South Sea Bubble, and various wars, offering interests rates of up to 4%. Various debts of this sort were consolidated in 1927 as undated 4% consols, but were retired or bought back by the government in 2015. Of course, the sums involved have shrunk in importance due to inflation; £100 in 1927 would have had the purchasing power of £6,323.57. in today's money (as inflation has averaged 4.56% per year in the intervening period). The owner of such a consol thought he was gaining at 4% p.a., but was in fact losing at 0.56%.

            Inflation seems not to arise from the rapid and arbitrary extension of credit to the Government for the paying of bills (often seen as the "printing paper money"). That has been done on a massive scale since the banking crisis of 2008, and currently during the COVID pandemic. Yet interest rates and inflation are both extremely low. 

            But inflation did occur in 1975 under the influence of (a) OPEC oil price rises, (b) leap frogging wage claims by undisciplined trade unions, and (c) the expectation of rising prices. 

            With inflation at 24% APR, it seems reasonable to charge roughly the same in interest, otherwise the lender eventually pays back only a fraction of what he borrowed.  Tough luck if you took out a loan at 5%, then found the rate rise to 15%. Similarly, inflation peaked in 1990 at 9.46%, with Bank of England base rate peaking a few months earlier in October 1989 at 14.88%, while 5, 15, and 25 yr Gilts all peaked in April 1990 [9] 

Overlaps:  Interest Rate and Growth

            For centuries the central bankers have manipulated the Base Interest Rate in an attempt to control Inflation and Growth. When they want the business cycle to slow down they raised base-rate in the expectation (largely realised) that all other rates would go up, and borrowers and buyers would hesitate. It was similarly believed that that "lowering of interest rates would encourage growth of GDP"

            Lee and Werner (2018) [10] challenged that theory – that lowering "interest rates" encourages growth of GDP.  For 4 major economies (Japan, USA, UK, and Germany), they plotted the fluctuations of Nominal GDP on top of the fluctuating interest rate of contemporary government bonds. They concluded that interest rates follow GDP growth (rather than precede) and are positively correlated with growth (rather than negatively correlated).  Well yes! Is that not the same thing? If a rise in GDP is routinely followed by a fall? What is clear is that the BoE raised base rate before the peak of inflation, and bond rates rose soon after base rate. But I do not think the utility of central bank operation can be tested in that way; it is very difficult to strip inflation out of GDP data –– and Lee and Werner did not even try to do so.  

Conclusions

            My conclusions, from this discussion, can be summarised:

(1)  Inflation is subject to external influences, such as oil prices, which the BoE cannot influence.

(2)  The financial world is largely composed of greedy gamblers who hope to make their money from the rising and falling of stock prices where the smart can take money off the less smart.

(3)  In large part the business cycle is driven by expectation. Announcing a forecast can be as effective as raising or lowering base rate. Your decision to build a factor is based, not on today's interest rates and markets, but on those you expect in 2 - 5 years time. 

(4)  The absurd inflation rates of 1979 and 1989 suggest mis-management of the economy.

(5)  Close attention will be required to control credit, when money begins to circulate again. 

 (Please comment directly to cawstein@gmail.com )

References

[1] The doubling time (nd) is a useful alternative measure of the interest rate factor,  (i.e. f); and each can be calculated from the other. If nd is the doubling time in years.

                                                2 = f nd ; f= nd√2

[2] https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

[3]  See my previous post on "CONSUMER versus RETAIL PRICE INDICES"   

[4]  Lloyd, T. (1992) "Present value models of agricultural land prices in England and Wales". PhD thesis, University of Nottingham.

[5]  Shaun Richards quoted Andrew Sentance (24th March 2021

[6]https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/nationalaccounts.

[7]https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/chainlinkingmethodsusedwithintheuknationalaccounts

[8] https://www.oecd-ilibrary.org/docserver/9789264027657-2-en.pdf?expires=1617443621&id=id&accname=guest&checksum=5F6F66D21A4173A9AB86F5D591A569FC

[9]https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/1991/the-gilt-edged-market-developments-in-1990.pdf?la=en&hash=8A97A143E4A2ECCE8353116627AF1A4103EF4488

[10] https://www.sciencedirect.com/science/article/pii/S0921800916307510#bb0020

(Please comment directly to cawstein@gmail.com )

Thursday, 25 March 2021

Vaccines, Lock-downs and Passports

 Vaccines, Lock-downs and Passports

Effect of Vaccines

     Our colleagues on the continent seem to be looking to the vaccines as a way of curbing a rampant spread of the virus. It might be worth pointing out that in Great Britain there was no discernible beneficial effect of the vaccination programme on daily new cases; only on daily deaths, which they have enormously reduced. What is needed is strict lock-down.

     From 5th Jan 2021 till 28th Feb the semi-log plot of Log10 (daily cases) shows a monotonic decline with a halving time of 17 days. Since 1st March there seems to be a new slower rate of decline -- t(0.5) = 125 days. The epidemiological R number must be getting very close to 1.0. Perhaps this is the result of a return of children to schools,  or perhaps a general relaxation of vigilance; an unexpected negative effect of vaccination. (See my previous posts to understand these calculation.)

Fig. 1 Plot of Log (base 10) of daily case vs Days in 2021.

    I was hoping to see a slowing effect on transmission towards the end of January as the numbers of people vaccinated reached 9 million, but perhaps that was naive. The over-75-year-olds were always taking pretty good care of themselves; so the vaccinated people never were the 'spreaders'. They were, however, contributing to the hospitalisations and deaths. 

     Fig. 2 shows a semi-log plot of the logged death data averaged over the preceding 7 days, in order to smooth out the enormous dependence of number on day-of-the-week. There was a lag during January, while the lethal effects of December and Christmas took their toll. But from the beginning of February there has been an accelerating fall in daily mortality. The March data (pink squares) show a halving time of 11.2 days. And the decline is still quickening.  

Fig. 2. Smoothed plot of Log (base 10) of Daily Cases vs Days in 2021

Lock-downs

     Transmission can be controlled quite effectively in the absence of vaccine, but it takes discipline. If everyone took the precautions that the vulnerable and careful people have been taking for the last 12 months, the daily number of new cases should drop suddenly to zero in the space of 5 - 7 days. Britain has never got anywhere near that degree of discipline. 

Vaccine-passports and Lock-down

     There has been some talk of letting people into pubs if they show a card that confirms that they have been vaccinated. Many seem to favour the idea; many are opposed.

     Once everybody in the country has been offered a vaccination, it does not seem necessary to request a passport. Those who wish to remain un-vaccinate will be taking a risk. But that is up to them. They should pose little threat to others who are vaccinated. 

(See also: Variants of Concern
Covid Epidemiology part 5
Pandemic and new variants
SARS-CoV2 Continued
COVID-19 Epidemiology part 2)

Sunday, 7 March 2021

Fractional Reserve Banking and Asymmetric Risk

Have banks sufficiently reformed? 

    I see one issue to be 'fractional reserve banking', and a second to be 'asymmetric risk'. (This essay is a re-posting from March 2012)

    The pressure on bankers to over-lend is what brought about the recent sub-prime mortgage debacle. So we must reduce the temptation to make risky loans. And increase the penalties for bad loans. There seems to me to be no reason why banks should keep the interest when they lend money they do not own. So my first simple suggestion is that the tax rate on profits from lending should be related to the capitalisation of the bank. When a bank lends 10 times its capital, 90% of the interest it receives should be taxed away, leaving it only 10%. If it lends twice its capital, it retains half the profit. Simple!

    It may be objected that when a bank lends out money, albeit money that it does not own, it runs the risk of not getting it back, and the interest is the compensation for that risk. That argument fails if the banks are bailed out by the state.

    Banks operate to match loans to clients. If a loan defaults, the bank must certainly loose its share of the loan (10% or 50% in the above examples), but maybe should bear a stiffer penalty. The 19th century mechanism was to let the over-extended banks fail, and then to lock up the board of directors for debt, or fraud. That worked well enough to inculcate 4 generations of prudent banking and 130 years without a serious bank run; but the hardship to hundreds of thousands of innocent depositors is now regarded as intolerable, and governments tend (it seems) to step in to supply the missing money. 

    Fine, but I see no reason why the insolvent/imprudent bankers should escape, as they seem to be doing. Have any gone to prison? Has anyone drawn up a list of directors who would now be bankrupt were it not for the state's intervention? Or a balance sheet of the money that must be repaid to the public by the banking sector, bank by bank? This failure is not only unjust, the risk-asymmetry is very dangerous. Gambling for the bank is (currently) a case of "heads I win, tails you lose". An idiotic situation. The money must be recovered, however long that takes.

    So my second simple suggestion is like the first: "tax or fine the banks".

 (See also: Higher tax bands
Estate and Wealth tax
Government Spending 2
Deficit Spending 1
Deficit Spending 2
Budget 2012
Positive Money
Positive Money 2
The Money Masters and Positive Money
Monetarism 1
Why tax? Why not just print money
Bank capitalization)