Deficit spending

Deficit-Funded Growth

Regarding the importance of deficit-funded growth, John Lanchester (London Review of Books, 8^th Sept 2011) finds that electors in developed Western democracies, and the majority of their politicians, fail to grasp the important point that national finances differ from domestic finances. "The problem is" (he writes) "in large part to do with the application of an incorrect metaphor, the easy-to-understand idea that a household has to live within its income. But Governments are not households, and the idea of cutting your way to prosperity cannot be read across from an individual's finances to those of the state. It is a manifest fact that these policies, and the refusal to embrace stimulus spending, are causing economic slowdowns all over the world...."

He is right that we, the public, cannot easily shake off the simple notion that deepening government debt seems a desperate way to reduce government debt. And the majority of conservative politicians seem to think likewise (e.g. Matthew Hancock MP in his blog: http://conservativehome.blogs.com/platform/2011/02/matthew-hancock-mp-we-can-ensure-growth-whilst-making-cuts-to-reduce-the-deficit.html)

We can agree (of course) that governments are not households; but what are the differences that makes the metaphor invalid? Neither a household nor a government can "cut its way to prosperity", they can only cut their way to balancing income and expenditure. One crucial difference is the effect of "the multiplier". A household can live very well on 90% of its previous expenditure. Lower household spending will tend to lower consumer prices and the 10% cut in spending will have a less-than-10% effect on standard of living. With governments it is different. A large fraction of government spending goes on wages, and therefore straight into the pockets of domestic consumers, and from there (by the multiplier effect) into the pockets of domestic and foreign producers. An ill-considered cut in government spending will cut demand out of the economy; business will languish; by this multiplier effect, a 1%  cut may take 2% out of gross domestic production, and therefore 2% out of tax revenues. The deficit is not decreased; it is increased! Cuts in public spending should be made very carefully. Perhaps benefits could be cut without fiscal loss, if that forced recipients to work; though not without hardship. Or NHS spending on medicines, but not on salaries. 'Surgical' cuts!

 

Another crucial difference is that governments can, at the stroke of a pen, increase their income — by raising tax revenue. But again they should be cautious; money taken out of the pockets of the average household will lower demand and thus (by the multiplier) lower GDP and the global tax take. However, I cannot see that taxing financial transactions would do any harm; they are entirely valueless to the real economy. Nor taxing large incomes, for they are not spent anyway. Nor blocking tax loop-holes; Mitt Romney made a big contribution in Massachusetts by closing tax loopholes to businesses. And above all, large accumulations of wealth should be taxed, by death duties or inheritance taxes.

 

Table 1 — Interest rates paid on sovereign debt by different countries in recent years.
	2000	2005	2010
Greece	7%	4.5%	6%
USA	3.5%	2.7%	3.0%
UK			2.7%
Japan	0.2%	0.1%	0.5%

 

In the short term, governments (like households) can borrow money to bridge the deficit.  When interest rates are low, as at present (See Table 1), there is little incentive to pay the borrowed money back. Japan has an enormous government debt, but a miniscule rate of interest (perhaps because the debt is held by Japanese citizens and businesses). Depending on the bond, or 'gilt', issued (5 year gilts, 10 year, etc.), the debt becomes due for repayment in a rolling manner, and is usually paid back by simply taking out another loan. But, what if interest rates are then higher? There is little to no chance of the British Government defaulting on its (our) debt. We never have in 250 years. For debts in Sterling we can always repay the debt by printing money. However, the consequent inflation would raise interest rates just as surely as a perceived risk of default. A government would be mad to borrow simply to sustain its deficit (its hypertrophied civil service, National Health Service, or army). Except (you may ask) in the very short term? Yes (I would answer), even then.

 

John Lanchester talks sardonically of the "non-scenic route" to where we are going, meaning I suppose the one that involves a decade of tightened belts. But is there an alternative? Which is his "scenic route"? Surely he is not advocating increased borrowing in the hope of increasing GDP? In my analysis we have lived in a bubble of borrowed money for a decade and there is no way back to that level of prosperity. We never did have that level of GDP, for it was not wealth that we produced. To borrow more money now to "stimulate growth", is like a bankrupt borrowing money to bet on the horses; there is little chance that it will do anything other than increase the country's indebtedness.  To borrow money from the open market seems to be equivalent to stretching oneself over a barrel and inviting punishment.

 

Classic Keynsianism may now be out of date. The crucial question in regard to government borrowing is the question of where the money is coming from; who holds the debt. If it is internal, interest rates may be low; if it is external, interest rates will rise with inflation and the country is in hoc to the international money-markets. Talk of 'growing the economy' raises questions of where the increased GDP is going to come from. Are we going to under-cut the Chinese and make our own telephones? Real growth in a global sense can only come from an increase in efficiency. It is a slow process.

 

As far as I can see our only way to fiscal balance is a mixture of 'surgical' cuts and judicious realignment of government spending, together with carefully controlled increases in overall taxation (e.g. capital gains, death duties, and stock market and banking activities). To this might be added a tiny amount of focused devaluation ('quantitative easing)'?

The philosophical summing junction

We spent a happy hour or so, tossing around the question of who to save in the event of nuclear war; not that we anticipate needing a plan of action, but rather as a challenge to the concept that philosophy is a method of clarifying and solving problems. I attempted to draw the exchange to a close by suggesting that in our 60 minutes of vigorous thought and discussion we had produced between us an almost complete answer to the question of how to proceed. Someone else said he scored it "philosophy nil, chaos 100". Clearly I had failed to make my point. Here (below) I try again, giving myself a bit more space.

In the discipline of electronics and analogue computers there is a concept that goes by the name of 'the summing junction'. It functions (in my head) as follows: The junction has 2 inputs and one output, such that the output is the algebraic sum of the two inputs. If one input is at +5v (relative to the earth rail) and the other is at +2v then the output is at 7v. You get the idea? (If one was at +3v and the other at -4v the output would be at -1v.)

In my head it is a simple matter to conceive a summing junction that had 100 inputs and one output, but which worked in exactly the same way; or 1000 inputs. You might ask how a single output number like -1, or  +42, could be the answer to a question like "what should we do?". Agreed. But, if one of the inputs says 'go in this direction' and another says 'go in this other direction' then the summing junction tells us a direction in which to go. So, some of the inputs could be 'act selfishly', 'act altruistically', 'be pragmatic', 'be political', 'be Darwinian'.

It is easy to think of 2 vectors in a plane. If they were of equal magnitude, one pointing north and the other pointing east, the resultant would point northeast. It is easy to see that we can extend this to 3 dimensions; adding an equal vector vertically upwards would produce a resultant that pointed northeast but upwards at an angle of 45º (I think; well, that will do for now anyway.) Not so easy, but just about convincing, would be the contention that 100 different dimensions could be handled in the same way; there would be such a thing as their geometric or logical resultant. (Up or down in the 'moral' dimension, left or right in the 'political' dimension, soon/late, near/far, ordered/random, the prudent dimension, the possible, the Benthamite, the Nietzschean; whatever!)

We spent an hour tossing ideas into the ring. Some ideas led to the conclusion 'pick survivors at random', some said 'protect your family', etc, etc. It is hard to state the answer, but I submit that it is quite easy (now) to see that the answer is a complex function, indeed a type of sum, of the arguments (and emotions) advanced.

Though to state the answer is difficult, I suggest that there is available a complex and delicate piece of machinery that can function to some extent as the multi-dimensional, vectorial, summing junction just postulated; like a gold-leaf electroscope but more complicated and more sensitive. All that you require is a pair of ears connected up to a brain, and a tongue. Ideally, one would collect a bunch of these together in one place and let them interact for an hour or so, until the 'resultant' steadied. For delicate or 'high definition' work the tongues might need to be calibrated on white noise, in case they were not of equal loudness; so also the ears, and the brains! 

Greek Debt

As to Greek Debt, I think I have solved the problem. The Greek people clearly do not want to cut government spending, and I can understand their position. The Germans for their part do not want to continue much longer to pay the difference between Greek government spending and tax income; and I can understand that feeling also. Perhaps the Germans would be reconciled if they got some Greek real estate in exchange; perhaps an island or two each year depending on the size of the deficit. This could continue for  many years; indeed indefinitely, for, as Germany acquired more and more of the sovereignty the deficit would gradually become their problem, and not that of the Greeks. Neat dont you think?

 

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Yours sincerely,

L. Cawstein,

12 Longhirst, MORPETH

Diving-Bell Spider

Diving-bell spider (Argyroneta aquatica)

 

It was announced on the BBC news this evening (ref. 1) that the diving bell spider (Argyroneta aquatica) can stay a surprisingly long time underwater in its 'diving-bell' bubble of air. A 'dive' of 24hr was recently reported. It seems to me quite possible that a canny spider could survive indefinitely in a submerged bubble. A submerged bubble or indeed a rubber balloon filled with air and submerged in water contains (at equilibrium) the same concentration of oxygen as in the air above the water.

                        There are some facts about the solubility of oxygen in water that are slightly counter intuitive. We all know that we drown in water, and readily conclude that there is not enough oxygen in the water to sustain our aerobic metabolism without which we suffer acidosis, cramps, and death. That is true but only part of the problem; the weight and viscosity of the water make it impossible for us to take enough of the stuff into our lungs, and out again per minute to supply the oxygen we consume in a minute; we would need gills to achieve the through-put. But it is perfectly correct that the concentration of dissolved oxygen in water is enormously less than the concentration in air.

The molar concentration of O₂ in water at 20 ^o is close to 0.284 mmoles per litre (at STP; ref 2.) The concentration of oxygen in air is 21%, or 0.21 litres per litre of air. As the volume of one mole of an ideal gas at standard temperature and pressure is 22.4 litres, the molar concentration of pure O₂  gas is close to 1/22.4 moles per litre or 0.0446 M, so when diluted with dinitrogen to 21%, its concentration will be 9.37 mM; which is 33 time the concentration of O₂ in cold water. So an active fish has to 'breathe' a great deal more water than the amount of air we have to breathe to stay active. (There is much less dissolved oxygen in tepid water than in cold water, and even fish then have a hard time surviving.)

Now for the mysterious part. Notwithstanding its much lower concentration in water, the equilibrium 'activity' of dissolved oxygen is exactly the same in the two media. And if a bubble of gas is immersed in water (or if a rubber balloon is filled with air and submerged in water), the concentration of oxygen in the trapped gas (at equilibrium) will be exactly the same as in the air above the water. What might prove difficult for a submerged spider will be the diffusion rate of oxygen through the water, and into the bubble (or balloon). The bigger the bubble, the better the rate, because there is more area for the oxygen to difuse across. Stirring the water of course would make a great difference, but is not relevant in stagnant water. On the other hand, illuminated green plants generate oxygen and may help the spider survive by raising the concentration above 0.284 mM. Anyway, a canny spider goes on adding to the size of its bubble until it is satisfied that it has the capacity it requires (ref. 3). Amazing!

(The inert gasses in the bubble will remain at the same concetration as in the air; there is nothing to disturbe the equilibrium discussed above; they will diffuse into and out of the water at the same rate whether that be to and fro the air above the water or to and fro the bubble.)

 

Clancy and Trigg

Willie Clancy and The Trigg Morris Side's Visit to Miltown Malbay, May 1972.

I told this story to my piping friend Jeff Byrne in the summer of 2006, and a version of it may have been published by him elsewhere. Indeed I have told the story many times, and doubtless have forgotten and distorted details. But Jeff's interest led me to check the memories of friends in Cornwall who were with me on the Irish trip of May 1972. This is a good time to fix these memories.

I was the first musician of the Trigg Morris Men, a revival side formed in 1971 in central Cornwall, dancing traditional Cotswold Morris. (Their web site ⁽¹⁾ gives more details about the side, and the Morris tradition generally). If Cotswold Morris seems slightly odd for Central Cornwall, it was certainly so in remote County Clare at that time in the early seventies.

As an enthusiastic young Morris Side we were eager to show off our own music; but we were enormously enthusiastic worshippers at the alter of all traditional music. Visualize seven Morris dancers, a Morris musician plus two wives and a girlfriend in a Ford Transit minibus, travelling by ferry from Swansea to Cork. We were directed by Danny Linnehan (an Irish lad at the Bodmin Folk Club) to go to his native Knocknagree in the heart of 'Sliabh Luachra' ⁽²⁾ as an excellent starting point for our pilgrimage in search of living traditional Irish music. Our 'Squire' at the time was Vic Legg (a fine traditional singer), and our 'Bagman' was Roger Hancock; both are still dancing with Trigg and have confirmed details of this trip. Vic recalls travelled up to County Clare from Knocknagree, crossing the Shannon by ferry to Kilrush, where we encountered the Horse Fair. ("Anything from a £50,000 race-horse to a £5 donkey" Vic remembers someone saying.) From there Vic recalls we made our way to “… Doolin where we met two of the three Russell brothers, Packie and Micko. (Gussie wasn't there.) Packie. played the concertina, and Micko. the whistle, or flute, or both. Sadly, none of them are alive today”. (Vic was deeply into the Irish traditional music scene, and knew where to go and who to meet.)

The encounter with Willie Clancy came the next day. I wrote some notes at the time which I transcribe verbatim for, though unpolished, they carry an immediacy. This was written on Wednesday the 31 May 1972 [with later ‘clarification’ in square brackets].

"Last night [Tuesday 30th May 1972] we hoped to join a ceilidh at Spanish Point, but found nothing happening at the Armada; nor at Quilty could we find anything. So we drove back into Miltown Malbay. We stopped on the way in and Vic [our 'squire'] asked some girls playing in the street if they could tell us the pub habituated by the great player of the Uilleann pipes -- Willie Clancy. They could not, but as we were by chance parked immediately outside his house they offered to call him out. Vic said "No, you cannot do that to a great man!"; then "--but, dammit, I would like to shake his hand." After 10 minutes Vic came out of the house and said that Willie Clancy would like to meet us all; so we [8 Morris men in full kit with bells and baldricks, plus 3 women] trooped into his small house. After we had chatted to his wife for a few minutes Willie came through; a tall, smiling, man with sandy hair, boyish face and a one-day beard. He wore carpenter's overalls complete with boxwood rule. We shook hands and engaged in conversation. Then he took up the long box containing his pipes, and said it was time for a glass of porter, and directed us [to go ahead of him up] to Lynch's Bar. Vic entered the dark bar and O'Fleary [can that be the right name?] came to greet him out of his kitchen beyond the bar, where he had been sitting by the stove. When we explained that Willie Clancy was coming round to play he took us all into his kitchen. [Willie and his wife arrived.] We bought a round of Guinness, chatted a while and Willie played a tune on a whistle. We went out onto the street and danced a few [Morris] dances, but it was very cold outside. So back into the kitchen. Some other friends of Willie's were gathering. A fellow (could it be Martin Talty?) produced a dark wooden flute with an ivory mouthpiece and practically no keys; and Willie and he played. Very, very, fine music. One could go on listening all night. But we got to singing songs and with our lasses we danced a Dorset four-hand reel across the kitchen. And Willie danced a solo jig, and Willie's foil -- old "Farmer" -- was persuaded to tell us a story. "At half past midnight, O'Fleary, who had been flitting about noiselessly smiling all evening, let us out one by one into the street from the dark bar. A very fine evening.”

Vic, Roger, and I have all added further recollections, albeit recalled some 34 years after the event. Vic remembers that, when the minibus stopped beside them in Miltown Malbay, the two girls were playing a game with two balls bouncing against the house wall. They might still remember the occasion, as the Morris men were in full costume (for the anticipated ceilidh); and the occasion was only months before Willie Clancy’s untimely death. Roger recollects that the man referred to as “Farmer” was named Michael, and that Willie jokingly called him his ‘manager’. Old “Farmer” preceded his story by protesting that these English youngsters wouldn’t understand him. I found it hard going but I think I got the gist; one of those stories where you wake and find it was all a dream. I thought the landlord had seemed reluctant to open up the pub until told what had prompted us to knock him up, whereupon he sprang to. We soon had quite a throng in the back kitchen, though the pub had appeared shut for the evening. I concluded that someone had spread the word that Willie Clancy was going to play, which someone told me was a rare event by then. It seemed that the enthusiasm of our visiting Morris Side had proved sufficient to stimulate Willie into playing. Vic visualizes Lynch’s bar as having two counters to walk between; on one side a bar, and on the other groceries. He also recalls that upon entering the empty bar off the dark street it was lit by a single light, which was a brand new electric sign on the Guinness pump, connected to the ceiling rose by a long piece of flex. Roger recollects that, as the Trigg Men drove through Miltown Malbay the next day, they saw Willie Clancy and his wife in a throng of others dressed for church, (or possibly a funeral).

This story is but a small thing in terms of all that is recorded elsewhere of Willie Clancy’s life and music; one evening of music and dancing in the last nine months of his life. However, it is an unforgettably vivid memory for most of us who were there, and testifies to how Willie Clancy was appreciated, both locally and internationally.

(1) www.triggmorris.freeserve.co.uk

(2) http://en.wikipedia.org/wiki/Sliabh_Luachra

Injunctions and contempt

Dear Sir,

As far as I am concerned Radio 4 PM programme has committed contempt of court. A 'maverick' MP disclosed the name of a footballer in the house of commons, but that is a priviledged arena; there can be no gagging of parliament. However, to report that outside parliament is contempt.

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Yours sincerely,
L. Cawstein,
12 Longhirst, MORPETH

False pleas should carry a penalty

Dear Sir,

Ken Clarke is getting into trouble for suggesting lighter sentences for an early "Guilty" plea. However, it seems to me a good idea to take some note of the plea. So what about doubling the sentence for a Mendacious "Innocent" Plea. Or a subsequent charge of "Perjury and Wasting Court Time"?
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Yours sincerely,
L. Cawstein,
12 Longhirst, MORPETH