Daniel Hannan on the selfishness of running a deficit and post-truth realities

In the latest Ici Londres production Dan Hannan looks at the morality of deficits.

Daniel Hannan starts by quoting Matthew 7:9-10

If the son shall ask bread of any of you that is a father, will you give him a stone? Or if he asks for a fish will you give him a serpent?

The passage goes onto to say the if you are evil, understand how to give good gifts to your children. By implication, to act for good, we must also understand how to act for the good, not just have the moral injunction.

Hannan goes onto say we do not run up large debts to bequeath to our children. Yet many impose a very different standard as voters, convincing themselves that they are being unselfish. By asking for more money from the State, whether to pay for care in old age or for a pay rise in the public sector, or remission of tuition fees, it might be a very good claim, but it is not an intrinsically unselfish claim, as they are asking for everybody else to chip in and pay for their cause. Conversely those who try to impose some fiscal discipline are deemed selfish. They are standing up for future generations. Austerity is not a random preference but a simple reality.

This is all pretty obvious stuff to anyone who understands basic morality and the slightest notion of finance. It is certainly within the understanding of anybody who has been brought up in a traditional British public school education. But I would suggest it is totally alien to the vast majority of the British public. This reason is described by a new word that entered the Oxford English Dictionary last month.

post-truth

Relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief.

The General Election campaign is a clear illustration of the domination of post-truthers in public life. There is no understanding of public finances, just mass beliefs that are not based on any moral tradition. The spread of the beliefs is on social media, driven by those who most forcefully and repeatedly express their ideas. People are wrong because they disagree with the mass beliefs and shouted down (or trolled in the electronic version) because of it.

In a post last month – General Election 2017 is a victory for the Alpha Trolls over Serving One’s Country – I concluded

It is on the issue of policy to combat climate change that there is greatest cross-party consensus, and the greatest concentration of alpha trolls. It is also where there is the clearest illustration of policy that is objectively useless and harmful to the people of this country.

Like with public finances, climate change is an where post-truthers dominate. Two examples to illustrate.

Consensus messaging

There is no clear evidence of an emerging large human-caused problem with climate and there is no prospect of action to reduce greenhouse has emissions to near zero. Instead we have a dodgy survey that claimed 97% of academic papers on an internet search matching the topics ‘global climate change’ or ‘global warming’ expressed support (belief / assumptions) in the broadest, most banal, form of the global warming hypothesis. This was converted by Senator Bernie Sanders, in questioning Scott Pruitt, into the following:-

As you may know, some 97% of scientists who have written articles for peer-reviewed journals have concluded that climate change is real, it is caused by human activity, and it is already causing devastating problems in the US and around the world.

And

While you are not certain, the vast majority of scientists are telling us that if we do not get our act together and transform out energy system away from fossil fuel there is a real question as to the quality of the planet that we are going to be leaving our children and our grandchildren. 

The conversion from banal belief to these sweeping statements is not the fault of the Senator, though he (or his speech-writers) should have checked. Rather it is of lead author John Cook and his then PhD supervisor Cognitive Psychology Professor Stephan Lewandowsky. Post-truthers will not recognize the glaring difference between the dodgy survey and the Senator’s statements, as it is appeals to emotion and belief that are primary in evaluating political realities.

Mitigating Climate Change

Dangerous climate change is allegedly caused by human greenhouse emissions. The proposed solution is to reduce those emissions (mostly CO2 emissions from the burning of fossil fuels) to near zero. The key for policy is that emissions are global, yet most countries, covering over 80% of the global population have no primary obligation under the 1992 Rio Declaration to reduce their emissions. These developing “non-Annex” countries have accounted for all the in emissions since 1990, as shown in this graph.

The problem can be expressed in my First Law of Climate Mitigation

To reduce global greenhouse gas emissions, the aggregate reduction in countries that reduce their emissions must be greater than aggregate increase in emissions in all other countries.

All the ranting about supporting the Paris Agreement ignores this truism. As a result, countries like the UK who pursue climate mitigation will increase their energy costs and make life harder for the people, whilst not achieving the policy aims. It is the poorest in those policy countries who will bear the biggest burden and create comparative disadvantages compared to the non-policy countries. For the developing countries (shown in purple in the graph) to reduce their emissions would destroy their economic growth, thus preventing the slow climb out of extreme poverty still endured by the majority of people on this planet. In so doing we ignore the moral tradition from our Christian heritage that the primary moral concern of public policy should be the help the poor, the disadvantaged and the marginalized. Ignoring the truism and pursuing bequeaths a worse future for our children and our grandchildren. This is the same for climate change as for public finances. But in both cases it is the post-truth “reality” that prevent this recognition of basic logic and wider morality.

Kevin Marshall

 

Inflation – How NOT to eradicate the deficit.

Nobel Laureate Paul Krugman makes a sensible comparison of the debt crisis in Britain with Greece in the New York Times.

His major error to say that an advantage for Britain of retaining its own currency is in possessing the ability to reduce its real debt levels through inflation. However, to do so could be quite dangerous for the economic health of Britain for two reasons linked to a simple fact. Nominal interest rates tend to follow inflation so real interest rates tend not to be negative for long.

1. Borrowing for house purchase tends to be on variable interest mortgages. Fix rate mortgages are uncommon. Assume inflation rose to 10% (halving the real value of debt every 7 years). People would, in the short-term see monthly repayments more than double. My own monthly repayment mortgage (lower than average) would go up from 20% of income to 50%. The impact would cause house prices to fall again and consumer spending to plummet. So far the UK has avoided the house price crash of the 1990 to 1992, when tens of thousands of homes were repossessed. Mortgage debt is relatively higher now than then.

2. If inflation took off before the deficit was much reduced, the average rate of interest on the national debt would increase rapidly. This could mean in the short term the real cost of interest payments could increase, increasing the primary surplus. Further, the experience in Britain both in the late 1980s and mid 1990s is that after inflation, real interest rates remain high for a long period.

Possessing a constraint is a positive advantage of the euro. However it is only feasible if member nations had stuck to the original rule of maintaining the government deficit to less than 3% of GDP. However, it did not work without an additional rule – to keep the budget in a small surplus when the economy was at, or above, the long-term growth rate of the economy – the project was bound to fail in a deep recession.

Hopi Sen is aggrieved, with a slight justification, that Paul Krugman makes similar points to his post of a day before.