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Hat Tip: The fabulous Murad

The army provides a priceless service

General Sir Richard Dannatt said something very interesting in his understandable call for more pay for his men:

Servicemen go on operations knowing they are putting their lives on the line. It is very hard to put a price on that.

Quite right. In fact, it is impossible to do so.

However, it is also unnecessary. You cannot determine pay by assessing the moral worth of the activity undertaken. How much money would it take to persuade you to run into a burning building to rescue a stranger. A million pounds? Nothing? Who knows.

Pay is set by the price required to call forth and retain a supply of labour of the right quality.

Ensuring our armed forces are equipped well in order to keep them safe is a moral obligation. Ensuring that their medical provision, family care and welfare facilities are satisfactory is a moral obligation. Pay is a hard headed economic decision.

Sir Richard is correct to press for better pay for his men. What sort of leader would he be if he didn't? But he ought only to be succesful if he can show that he needs greater pay for recruitment purposes.

The arguments he has used so far are more moving than convincing.

The behavioural economics of Max Mosley

Is Max Mosley's behaviour simply a private act that has no place in a newspaper? Is it reasonable that he should be held to account for his sexual kinks?

Matthew Syed, in an excellent piece for today's Times, thinks his act was private and that nobody would look good if their sexual fantasies were printed in the paper.

I can't agree with him.

Let me use a slightly odd parallel taken from a new book on behavioural economics - Predictably Irrational by MIT's Professor Dan Ariely. Thanksgiving dinner at your mother-in-law's place.

Ariely tells the tale of the perfect dinner, just right, delicious, sociable. And then, just as it finishes, you get out your wallet and offer your wife's mum $300. Tell you what Mom, let's make it $400.

You've crossed the line. Delivered a mortal insult. We draw quite a thick line between social interactions and market ones.

Ariely uses another example. A study conducted in an Israeli nursery decided to punish parents for collecting their children late. They would be fined £10. But once the fine was introduced, guess what happened to lateness? It went up. Once the social obligation (turn up on time) had been replaced by a market transaction (Late? That will be £10 please) attitudes changed.

What Max Mosley did when he decided to pay prostitutes to engage in sado-masochistic games is to take a social transaction and make it a market transaction. This changed its nature and the attitude he can expect others to take to it.

The fact that this was a market transaction means, among other things, that he cannot expect it to be treated as a normal private social act.

Matthew argues that he didn't mean anyone to take offence because he meant his behaviour to remain private. But if you are paying five people to join you in an activity it has already ceased to be completely private.

All you need to know about the Budget

-- Anatole Kaletsky in The Times: Fingers crossed, Alistair Darling

-- Ambrose Evans-Pritchard in The Telegraph: US mortgage implosion set to blow Darling's Budget to pieces

-- Martin Wolf in The Financial Times: The debutant banks on a brighter fiscal future

-- The Times: Budget Calculator

-- Philip Stephens in The Financial Times: Video: In the hands of the credit markets

-- International Herald Tribune: Greens slam Darling Budget

-- The Economist: Try, try, trying again to solve the credit crunch

-- Jeremy Lovell in Reuters: Budget dismissed as a pale shade of green

Are you feeling the pinch?

Recession rumours are everywhere right now. But are they giving you sleepless nights?

Let us know whether you're counting the pennies or still hitting the shops in this new Times Online survey.

John Hicks...Trail Mix

This has been driving us all crazy here at Comment Central Command HQ.

It started when we were trying to find a rhyme for Stiglitz. (As in the Nobel Prize winner). We just were, ok.

Anyway, we eventually, triumphantly, came up with that quintessential English snack "Twiglets".

Then we began to look out for words that had no rhyme at all. We came up with orange, purple, chocolate, luggage, anxious and plinth.

Can you help?

Can you find any other Nobel prize winners who rhyme with a tasty snack?

Or maybe we are beyond help.

(Please note that while Wolfgang Ketterle, winner of the 2001 Nobel Physics Prize has a surname that sounds like a bag of crisps, he doesn't count because it is not a rhyme)

UPDATE: Marie Curie...Prawn Puri

A Nobel approach to globalisation

In the Times this weekend, Joseph Stiglitz and Linda Bilmes calculated the cost of the Iraq war. Quite a task. But still not enough to keep the Nobel Prize winner busy.

In this Fora video, Stiglitz discusses some of his other challenges, including his latest book on globalisation and new concept - the Economics of Information.

If you can't see this video, please click here

Where are all the Wiis?

So why aren't there enough Nintendo's Wii consoles in the shops this Christmas?:

Nintendo will miss out on an estimated $1.3 billion (£639 million) in sales this Christmas by failing to meet soaring global demand for its Wii video games console.

James Lin, an analyst at MDB Capital, which monitors retail activity, said Nintendo could sell twice the 1.8 million Wii consoles that it is manufacturing each month.

Nintendo says its because of a lack of components, meanwhile all sorts of rumours circulate that a warehouse full of consoles exists. The conspiracy theorists believe the company is stoking up interest in the product by making it appear truly scarce.

And, while I doubt the warehouse rumour, I don't doubt that the company chose to err on the cautious side when deciding on production, calculating that scarcity would help them.

I should think that far from losing millions, the shortage will gain them millions in the long run. Scarcity is a powerful social influencer.

In his book Influence, Robert Cialdini gives another reason why manufacturers allow their products to be scarce at Christmas - the principle of commitment.

Parents promise their children a Wii console for Christmas. When they can't deliver in time, they choose other Nintendo products - games, mobile consoles and so on. Then later they come back and buy the console anyway. Why? Because they promised.

Consistency with commitments is an important principle, never abandoned lightly.

The shortage of Wii consoles may be an accident. But it's a pretty convenient one.

Is inflation really the issue when it comes to police pay?

I need someone who did better in their university economics than I did to explain Gordon Brown's response on police pay to me.

He defends the decision not to backdate the pay settlement on the grounds that to do so would be inflationary. Mmm.

The deal isn't big enough to cause inflation by forcing the Government to borrow. So he can only mean that a large amount being paid to police would encourage other large pay increases.

Fair enough. Except that the headline amount, the permanent part of the increase, is the one that will drive other wage claims and any increases based on comparability. If inflation was the issue it would have been better, surely, to have offered a smaller headline figure and then backdated it.

So it seems more likely that public spending is the reason for the decision.

Or maybe I am missing something. Anybody?

The father of freakonomics honoured

Harper Lee's To Kill a Mockingbird was the first novel that I ever read twice. So I was delighted to hear that she had been awarded the Presidential Medal of Freedom.

Over on the Freakonomics blog though they are more excited by the news that Gary Becker is also to be a recipient.

Not surprisingly, since he is basically the father of freakonomics. This entry in the Concise Encyclopedia of Economics tells you more about him.

How to cut a pie, Nobel style

With all the fuss about Al Gore and the Nobel Peace Prize, you may have missed the Nobel Prize for Economics.

Never fear, Comment Central is here.

The winners were Leonid Hurwicz, Eric Maskin, and Roger Myerson. And the work for which they are being recognised is known as Mechanism Design.

Here's a simple explanation from Reason online:

Two children are squabbling over how to divide a pie. We need a method to divide the pie fairly. Parents will already know one answer—one child cuts and the second child chooses. The second child will choose the larger half which gives the first child the incentive to cut as evenly as possible. The first-cut, second-choose solution is a simple example of an incentive-compatible mechanism. Leonid Hurwicz, Eric Maskin, and Roger Myerson received the Nobel prize in economics for their study of incentive-compatible mechanisms or, more informally, "mechanism design."

Marginal Revolution contains biographies and background information on the three laureates (here, here and here) and provides a case study.

Tories and the debate Labour wants to have

Tim Montgomerie is worried that the Tories intend to match Labour's spending plans over the period of the comprehensive spending review. And he is certainly right to raise the issue, given the new debate now taking place on the size of the state and taxes.

But I think it's worth going through the argument carefully.

First, the position on matching the CSR was taken for this spending period. Now that the election has been delayed, and may not take place until 2010, only part of the settlement will cover an incoming Tory government. The next election will almost certainly be fought on different figures.

Second, the political argument for matching their spending commitments is the one I made in an earlier Times and referred to yesterday - anchoring. The debate starts with Labour figures and the Tory figures are then seen as risky. In power the dynamic is reversed. Alastair Darling surrendered some of this advantage over inheritance tax. But Conservatives should be very cautious over just how much the situation has changed.

Third, accepting that anchoring exists does not mean failing to make the argument for lower taxes, and it does not mean failing to reduce taxes in power. The whole point is that the last two Tory campaigns engaged in the argument on tax and spend and lost. The approach of setting out randomly selected cuts in spending (or slowdowns in certain areas) didn't succeed. The next campaign needs to be different. The inheritance tax shows that shifting from unpopular to more popular taxes can succeed spectacularly where the old approach failed.

Fourth, the old approach of announcing a lower spending settlement was not just bad politics, it was bad policy, too. Tories do not, out of office, really know where to make precise savings and reform so the areas selected were sometimes eccentric and the amounts claimed questionable. The timescale was also questionable. An incoming Conservative Government might take at least a year to save money, and two or three years to achieve significant change. It is silly to get into a political tangle about Labour's CSR when that isn't even going to be the figure a Tory government would be changing.

Finally, there is a critical difference between the smaller state and lower taxes. Some moves to a smaller state - educational choice - will, certainly in the short to medium term, cost money even if they reduce spending in the long term. The whole freedom and small government agenda should not be boiled down to a debate on reductions in spending during the period of a single Labour spending round.

Are there still Conservatives who don't realise that this is the debate Gordon Brown is dying to have?

Tories and the Turning Point

Anatole Kaletsky has written an important column this morning which you shouldn't miss. His final paragraph sums up his argument neatly:

The upshot is that the burden of proof in British politics is shifting. That taxes and public spending must rise for ever can no longer be taken for granted. Political parties who want lower tax – and by implication smaller government – no longer seem out of tune with the times. And this ideological shift means the beginning of the end for Labour government.

I think he is right.

Meanwhile over on his blog Nick Robinson suggests that:

This is curiously a moment of maximum danger for Tory modernisers

And I think he is right too.

The inheritance tax cut promise is given almost all the credit for the shift in Tory fortunes.  There is a danger that Conservatives could jump to the wrong conclusions and think that this proves the call for "red meat" announcements on tax was right all along. That's why I think Nick is correct.

In fact the story of the Tory revival is more complicated.

First, the polls do not prove that inheritance tax was the only reason for the shift. The shift started happening before the Cameron speech but inheritance tax was only one of the things going on. The display of unity, the quality of the speeches and Cameron's television performances were all, I would argue, important parts of the boost. The Tory Party looked electable, or at least a great deal more electable. Inheritance tax played a big role, but not alone.

Second, the balanced tax message of George Osborne is what made the inheritance tax message work. He announced that he wants a low tax economy but netted off the inheritance tax against another kind of tax, not, as in previous elections, a notional spending cut. This made it far more credible and seen as a coup. The Treasury attempt to undermine it, failed. The modernisers have learned the lesson of previous failed attempts to win on tax.

Third, inheritance tax was very well chosen. People see it as a charge rather than a routine tax and they object to the double taxation. The normal problem with tax promises is that people don't believe them, they think the tax cuts will be cancelled out by a matching tax increase. Cutting inheritance tax is different. They think the specific tax is unfair and so they are willing to see another tax go up to pay for it. Especially if the other tax doesn't fall on them!

So it would be wrong to abandon the modernising approach to policy because of the success over inheritance tax.

However.

Anatole Kaletsky's critical point is that the debate has now changed. Alistair Darling has made a terrible error.

As I explained in an earlier Times column, the advantage the Government has on tax and spend is anchoring. Pundits start with their figures and view Tory figures as the change. Not any more. Darling has surrendered a very large part of their anchoring advantage. This will make advancing a tax cutting agenda much easier.

Spot the lollipop...

For those watching the Budget right now, here's a useful Coffee House post detailing what we should expect from Alistair Darling.

Check out Times Online live commentary for more analysis.

Alice Fishburn

Forget about the figures

The thoughts of Evan Davis on the pre-Budget report, are, as always worth reading. But I was particularly taken with this:

In January 2005, the Institute for Fiscal Studies (the most respected independent analysts of the public finances) published projections showing that unless the government changed policy by raising taxes or cutting spending, it would be borrowing £10bn this year (on the Golden Rule measure).

Two months later, Gordon Brown published projections showing a surplus of £4bn for this year. In other words, there was a £14bn pound gap between the chancellor and the IFS.

Since those projections were made in 2005 there have been four budgets or pre-budgets, which have between them announced tax rises raising £4bn this year.

So, if we do end up borrowing £5bn this year, the IFS will be seen to have been almost bang on back in 2005, while the Chancellor was overly-optimistic by about £13bn.

Why was I taken with it? Because it is an excellent illustration of how bogus the whole "sums don't add up" campaign nonsense is.

Even if the Chancellor and not the Tories was correct, the gap between the revenue from a non-Doms charge and the inheritance tax would be in the region of £2bn.

Yesterday the Prime Minister argued repeatedly that this sort of change would leave the economy "in disarray".

From Evan's analysis one can see that adjustments being made without much fuss to the Government's estimates are more than six times larger than the so-called gap in the Tory figures.

The issue is not who is right and who is wrong in the battle over the figures. I don't suppose we'll ever really be sure.

The issue is whether it matters.

Having fun with finance

There aren't many people who can write about sub-prime mortgages and make you laugh.

Step forward Michael Lewis.

Game for a Laffer

One of my prized pieces of political memorabilia is a cocktail napkin, a signed cocktail napkin.

Ten years ago I met Art Laffer at a lecture, picked up a napkin and got him to draw a Laffer curve on it. Sorry, I couldn't resist.

It is well known that the famous curve was not a piece of empirical research, but was drawn on a napkin in a Chicago restaurant. It was intended to demonstrate that if tax rates were 100 per cent, revenue would be zero and if tax rates were zero revenue would be zero.

So, argued Laffer, at some point increasing taxes stops increasing revenue and starts reducing it.

So far, so good. But fewer people know the name of the man for whom Laffer drew the curve.

This is the answer.

Now in an article for the New Republic and a book, Jonathan Chait argues that Laffer and his mates have conquered Washington with a crackpot idea.

Megan McArdle argues convincingly that this is nonsense. But she then goes on to make an important argument for Tories, David Davis and my friend Tim Montgomerie over on Conservativehome among them, to understand.

The supply side idea that tax cuts increase tax revenue is incredible, says McArdle.

That doesn't mean that tax cuts don't boost growth. There is good reason to believe that they would. Some of a tax cut pays for itself. But a Conservative government could not remotely assume that it would be costless.

A protest at Heathrow worth having

How the hell do they get away with it?

I took the day off yesterday to pick up some relatives from Heathrow. The flight was supposed to come in 10am. It eventually landed at 7pm. And because of some hassle with the baggage, we only left the damn place at 10.30. A hellish experience for all involved.

Nothing new though, right? Most of us have gone through this. But in any other service industry, if you treat your customers this shoddily, you'd soon be out of business. And the question that came to mind was: how do the airlines get away with it?

Well James Surowiecki, author of The Wisdom of Crowds, used his column in The New Yorker this week to answer the question:

The airlines’ explanation for the sheer misery of flying is that the important problems—bad weather and an antiquated air-traffic-control system, resulting in overcrowded runways—are out of their hands. But those unavoidable difficulties have been exacerbated by the airlines’ strategic choices, most notably their decision to cut the number of workers they employ and the number of big planes they fly...

Oddly, none of this [the constant delays and bad service] seems to have hurt the airlines — more people than ever are flying, and ticket prices remain relatively stable. In part, this is because, for many trips, there’s no meaningful alternative to flying, which limits the power that fliers have as customers. They can make certain choices — they consistently go for the cheapest flights, making it hard for an airline to raise prices — but anyone who vows never to fly with a particular airline again will likely have an equally bad experience on a rival carrier soon afterward. Like consumers of regional utilities or like drivers who tolerate bad traffic day after day, fliers have accommodated themselves to misery. It’s little wonder, then, that the air-travel market rarely punishes an individual airline for failing to get people to their destination on time: consumers assume, with good reason, that the options are interchangeably awful.

Shocking. Anyone want to start a protest at Heathrow with me?

Murad Ahmed

You're in the public sector now

Digby Jones, interviewed yesterday by MPs gave us this gem:

How I voted in all my elections since I was 18 years old is actually a matter for me and no one else but I think all of you here would be absolutely surprised how I voted.

But I would suggest that remains what I always thought was democracy in this country, which is secret.

What a preposterous answer. Of course, formally he can keep his vote private. He can also keep his views on industry quiet. No one is forcing him to be a public figure. To use the secrecy of the ballot as an argument for keeping private the political views of ministers is absurd.

How to respond to mistakes

The sensationally good Evan Davis has a post considering what he calls:

The Bank's Worst Decision

He advances a number of lessons that should be learned after the Bank of England made a mistaken decision to cut interest rates in August 2005. Click here to see what they are.

As usual Evan argues well. But very unusually in our long friendship, I don't agree with him.

I think that learning lessons from a single mistake is a very bad idea indeed. If the Bank made repeated errors, then lessons can be learned and changes made to reduce their average propensity to make mistakes.

But if you attempt to adjust procedure in response to one mistake you may increase the total number of mistakes. It could be, for instance, that the decision by the bank was correct and the outcome, due to randomness, a poor one.

Your taxless year

Huzzah, it's Tax Freedom Day, a time to celebrate by buying yourself a £10,000 handbag or some other wasteful frivolity. The Adam Smith Institute has calculated that June 1 is the moment you stop earning money for the Government and start earning dosh for yourself. Isn't it odd though that Tax Freedom Day in 1963 was April 24. There was me thinking that Britain is richer and has learnt to love the free market.

Robbie Millen

Demonising the rich won't help the poor

Got £10,000 burning a whole in your pocket? Well Harriet Harman, speaking on last night’s Newsnight debate on the Labour deputy leadership, has some spending tips for you.

We are not just worried about where the bottom is in terms of poverty. We are worried about the gap with rich and poor. You can’t have proper equality of opportunity with a huge gap between rich and poor. Do we want to be a divided society where some people struggle and others spend £10,000 on a handbag?

Now I have to profess to being something of a soft-left, surrender-monkey, bleeding-heart, namby-pamby liberal – but even I think this kind of rhetoric against the rich is ridiculous.

Can we have a look in your wardrobe, Harriet? Maybe you could have spent a bit less on that nice ministerial suit? Do you really need that many pairs of shoes? While we’re at it, maybe we should trawl through the spending of poor people too? You know, you could have got two tops from Primark for the cost of that nice one you got at M&S, don’t you? Oh, I forgot, it’s not OK to tell poor people how they spend their cash. But we can get all moral about the wasteful rich.

Really now, so what if someone spends £10,000 on a handbag? Whatever you tax people there will always be people that can afford to spend £10,000 on a handbag. Suggesting that rich people, heaven forbid, actually spending their money is wrong is pathetic.

There are political and economic arguments either way on whether we should raise (or indeed lower) the top rate of income tax – fine. Last night, Jon Cruddas was honest about it.

At some stage, we’re going to have to square up to whether we have enough finance to carry on this progress over the next ten years, and at some stage we’re going to have to get back to whether all people should make a valuable contribution based on their ability to contribute.

He admitted that the “David Beckham’s of this world” would have to pay more for increased spending. It’s redistributive politics. His leftist credentials are there for all to see. But unlike Harman he didn’t resort to the politics of envy.

The Institute of Fiscal Studies says that the 22 per cent of the revenue raised by income tax comes from the wealthiest one per cent of taxpayers. When the super-rich are already contributing such a high proportion to the public purse compared to the rest of us, it’s distateful to tell them how terrible they are for spending so much, especially when you’re essentially asking the rich to give up more of their earnings. It’s like taking their money with one hand, and slapping them in the face with the other.

Harriet Harman, an alumna of St Paul's Girls School, should know better than play to the crowd. Maybe it's because the polls show she’s well behind Benn, Johnson and Cruddas who for various reasons (the Benn name, an ex-trade unionist and a bona-fide Left-winger) have a lock on Left-leaning grass-roots of the Labour party.

As Tim Hames wrote, anybody but Harriet, please.

Murad Ahmed

Sarkozy's economic thinking is decades old

Nicolas Sarkozy is supposed to be the Thatcher figure who will drag France out of the economic doldrums. Then what is this comment about? Taking to an English journalist, he said:

You, the English, I love England a lot, you are world champions! As soon as your growth falls, what do you do? Gordon Brown, the Chancellor, and the Governor of the Bank of England meet and decide to lower rates, to lower the pound

What? It’s ten years since Gordon Brown gave the Bank of England independence to set interest rates. Sarkozy has been the Finance Minister of France since then. Not impressive.

More gaffes like that and his lead in the opinion polls might just shrink. Although, if the French really cared about economic competence they probably won’t be voting for Ségolène. So much for choice.

Murad Ahmed

Money is good for you

Does capitalism make us virtuous? Chris Dillow in a thoughtful post says "yes", as long as it is allied with a struggle against hierarchy which brings out our worst traits. Dillow fans - and this includes Comment Central - will be pleased to know he has just had a book published on new Labour and the folly of managerialism.

Robbie Millen

How to understand Brown's pension tax change. Now, stick with this people

If you want to be able to understand Gordon Brown's pension tax change, I have a blog post that is just the ticket.

Evanomics, the blog of BBC Economics Editor Evan Davis provides a superb (and mercifully concise) explanation. He describes the shift from a classical corporation tax towards an imputation system and back again in a way that you can actually follow.

And in the process he concurs with my view (always a sound thing to do, I feel) that the real "crime" the Chancellor committed was to fail to spell out the possible downsides of his reform. Davis argues that if he had done, Brown would have encouraged people to top up their pensions. 

Not half bad? No, just bad

I've been told off by Matthew Hancock, George Osborne's Chief of Staff. He responds to my earlier post as follows:

The 2p "coup" was NOT "economically not half bad". It was economically bad.

- Increased complexity, not reduced, due to increased reliance on tax credits (not to mention the increased complexity for small businesses).

- Worsened work incentives, by increasing the withdrawal rate of tax credits, removing the 10p marginal rate for those earning between £5225 and £7185. They are mostly part-time earners so have a high impact from marginal tax rates.

- Raised the tax take from the poor, and lowered it on the rich, increasing the regressive nature of the tax system that already charges the highest proportion of income from the lowest quintile.

Please don't concede the economics of what was a politically motivated budget - this was poor politics and poor policy.

The Top 3 political mistakes of Gordon Brown's budget

The first take on the budget was this - forget the economics, the politics was brilliant. Wasn't the 2p coup brilliant! Did you see the look on David Cameron’s face?

My take now? Economically not half bad, politically cretinous.

Here are 3 reasons why:

1. The 2p "coup" error: This was a reforming budget, albeit that two of the best reforming bits involved reversing his own policies - he abolished his own gimmicky 10p starting rate and put spending back on a sustainable path. Presented as such it might have impressed. But Brown was seduced by the political theatre of separating his 2p announcement from the reforms that paid for it and pulling it out of the hat at the last minute.

He got a big cheer on the day, but only by giving the impression that this was a tax-cutting budget, which a few minutes thought would reveal that it wasn't. By the time the Treasury team began to sell the budget as a revenue-neutral reforming budget, this line seemed like a guilty admission.

2. The Message Mistake: Gordon Brown wants to be seen as upright, substantial, rigorous and honest, a contrast to Cameron's spin. The public do not believe politicians and are, rightly, suspicious of Budget announcements.

So what do you do? You present your Budget with painful honesty, showing clearly where the money comes from and where it goes to. Under no circumstances do you leave yourself open to the charge of secretive stealthiness. But Brown seemed more interested in achieving "Gord Bless Him" headlines than in winning political support. This is a political error made by people who mistake Westminster opinion for everyone else's.

3. The Trapping Tories fallacy: The Brown team is obsessed with putting the Tories in a difficult position. On the night of the Budget, the Chancellor rang round senior journalists in an attempt to convince them that having put spending on a new path and reformed tax as he had, he had neutralised Cameron.

This wrapped together two errors. The first is that he is wasting his time trying to define or trap the Conservatives. What he says or does to the Tories has a limited impact on them. He should concentrate on his own image. The second error is that he is fighting the old Tories when things have moved on.

George Osborne and David Cameron have noted that they have lost the old tax and spend argument in three elections. The new Budget allows them simply to match Brown taking a losing issue for them out of the game.

Gordon Brown thinks he is a political genius. When he sat down the first inclination of many was to concur with this judgment. Sad really.

The 10p starting rate fiasco

In 1999 Gordon Brown introduced the 10p starting tax rate. I was working for William Hague that year, helped him prepare his Budget reply and kept the notes he used in the Commons as a memento.

On top of his prepared remarks he scribbled "but abolished 20p rate". And he began his reply by pointing this out.

In the press coverage the next day, my colleague Peter Riddell duly noted this. Most other coverage missed it out.

"Everyone's a Winner" said the Sun on March 10 1999, lauding Brown new starting rate. The Chancellor "took The Sun's advice" the paper trumpeted. The new rate "was just like our Everyone's A Winner Game, in which all our 10 million readers are guaranteed a prize".

"Three Cheers for Gordon", "Thank Gord" and "Brilliant but devious" were among the headlines garnered by the 10p rate.

And now? He's abolished it. You'd think there be some words of criticism. Some acceptance that the idea of the 10p tax rate was a silly gimmick to start off with, as his critics (like the IFS) argued at the time.

But no. Abolishing is described as a tax cut (which it isn't), just as introducing it was described as a tax cut (which it wasn't).

Ridiculous. 

David Cameron's budget announcement

David Cameron's Budget reply contained an interesting political point. The Tory leadership has obviously decided how to deal with the spending settlement - embrace it.

Cameron derided Brown as having come round to the idea of sharing the proceeds of growth. This was framed as a taunt, and made rather a good joke. It was, in fact, the announcement of a profoundly important political decision.

In the last two elections the central feature of the Tory manifesto was a spending path lower than Labour's. Cameron has now signalled as clearly as possible that this will not figure in the next election.

Instead the Tories will treat the new Brown figures as Tory figures, offer to match them and then make lower taxes a medium term aspiration.

Brown penalises the vulnerable

Gordon Brown has just told the House of Commons that a married person's tax allowance would "penalise widows".

His reasoning? Presumably that anyone who does not receive a tax cut is being penalised.

A moment later he talked of cutting VAT on home rebuilding for some old people thus penalising the homeless, young gay couples, old people not interested in refurbishment, people who do DIY and those using builders who don't charge VAT. Outrageous.

Exciting Budget coverage. No, really!

Today, as part of our Budget coverage Comment Central working with Populus, the pollsters for The Times, will be hosting an exclusive online poll - The Message Meter.

You will be able to take part in the poll later when we post it here after the Budget debate, but click here for an explanation of how it will work, and here for an example of the Message Meter in action for David Cameron's conference speech last year.

In the meantime, you really should have a read of Hugo Rifkind's Low Budget blog (available for one day only) and be eyes down and ready for Brown's Buzzword Bingo!

The scourge of private equity

Labour politicians are in a tizz about all those nasty private-equity capitalists making too much dosh acting like hard-faced, erm, capitalists. Anatole Kaletsky this morning explained how excessive regulation helps to explain the rise of private equity. And Wat Tyler explains why those Labour politicians who are complaining that private equity firms aren't paying enough tax should blame Gordon Brown. It's as if Labour has never learnt about the laws of unintended consequences.

Robbie Millen

Affluenza: the criticism stands...

Oliver James has replied to my criticism of his (I am sorry to say terrible) new book Affluenza with the following point:

Daniel Finkelstein from the Times and Tim Worstall state that there is no connection between national inequality and mental illness, contrary to my evidence. But my claims concern this relationship in developed nations. Obviously if, as they do, you add in developing nations such as Nigeria, it is a different matter - my arguments regarding affluenza apply to developed nations.

On top of that, wilfully or because they have not read the book closely enough, they misrepresent my argument as being based on inequality. Rather, my point is that selfish capitalism (of which inequality is a consequence) is what is doing our heads in.

Well, wilfully or because he has not read my article closely enough, Dr James misrepresents my argument.

I did not state that there was no connection between national inequality and mental illness. Instead, I argued that Dr James had not demonstrated that national inequality caused mental illness. This is, as I pointed out, an entirely different thing.

Dr James now says that it is selfish capitalism that is the real issue and that I misrepresent him as making an argument based on inequality.

Funny that.

In his introductory chapter he describes the relationship between mental illness and inequality as being one of the two "fundamental facts about Selfish Capitalism and emotional distress" that the book reveals. He says that "since Selfish Capitalism is the main cause of inequality in developed nations, this strongly suggests that Selfish Capitalism is not a good way to run things".  (Just for completeness, the other fundamental fact is that emotional distress is higher in English speaking nations than in Western Europe)

His assertion of a causal link between inequality and mental illness is absolutely central to his book and he does not demonstrate it to be true.

Inflation figures - who cares?

How interested should we be in the latest inflation figure?

Not very. Or at least, only a little bit. And that's the view of the BBC's economics editor, the very excellent Evan Davis.

It's my view too.

Evan's concern is that monthly figures receive too much attention. He notes that the blip in inflation last month has now gone away. There was a reason to cover the rise last month - it was a good moment to alert people to a long-term story about inflationary pressures - but the figures themselves often create more waves than they merit.

Exactly the same thing happens with opinion polls. Political analysts spend ages advancing reasons for what are really meaningless random fluctuations.

Nassim Nichloas Taleb makes this general point cogently in his book Fooled by Randomness. Much of what we regard as significant news, statisticians regard as simply noise.

Affluenza: Do free markets and liberty create more mental illness?

In this morning's Times, Tim Worstall takes issue with Oliver James's new book Affluenza. If you want to read James himself - he set out his main point in a short Guardian article yesterday, justifying the link he makes between mental illness and capitalism (although annoyingly calling the former affluenza and the latter Blatcherism).

The money quote from James is this:

Follow the logic? Selfish capitalism infects populations with affluenza; it fosters mental illness; English-speaking nations are more selfish capitalist - ergo, more prone to illness.

Earlier in the piece, he appears to be suggesting that the privatisation of public utilities causes mental illness. I am not a professional psychologist but I must say I find this, ahem, a surprising assertion.

I am ready to believe, however, that economic and political freedom is associated with a greater number of incidents of medical illness.

Can I recommend Tim Lott's fabulous book The Scent of Dried Roses? A moving and funny account of the author's own experiences with mental health problems, the book also provides a convincing account of the cause of nervous breakdowns.

Lott suggests that we tell each other stories about who we are and have trouble coping when reality makes those stories impossible to maintain. This is why bankruptcy, divorce and other traumatic incidents can lead to suicidal breakdown.

If this theory is correct it might explain the Danish experience, which James makes a good deal of. The BMJ article I linked to the other day (here) contained a different explanation to James's (he asserts that their happiness is a function of their welfare state). The doctors suggested that the Danes had low expectations and were constantly surprised when they were exceeded. In other words, the story they tell themselves about who they are was rarely challenged by bad news.

Yet if Lott's idea is right then there are likely to be more breakdowns in fluid, dynamic free societies. Greed and money aren't really the point - more the difficulty of maintaining your identity in a rapidly changing environment. And Lott subscribes to this view himself. It's a constant theme of his writing.   

James, I think, expects us simply to accept that we should move towards a form of social organisation that reduces mental illness. But if such illness is a regrettable by-product of freedom then things aren't nearly as simple as he suggests.

Altogether, given that he is qualified, respected and widely quoted, I thought his Guardian contribution unbelievably superficial.

How the inflation letter was avoided

So the Bank of England will not have to write the Chancellor a letter about inflation for the moment. Political embarassment avoided.

But this isn't the whole story.

The BBC has an explanatory note on its website about the measurement of inflation. It includes this:

Until 2003, the government targeted a rate of inflation known as RPIX - which, unlike the RPI measure [the retail price index, their old basic measure of inflation], excludes mortgage interest payments.

However, in his pre-Budget speech in December 2003, Chancellor Gordon Brown said the inflation target would be switched to the CPI measure [consumer price index] with immediate effect.

On his website Sunday Times economics editor David Smith explains why this matters:

If the inflation target hadn't been changed, a letter would have had to be written. RPIX inflation (retail prices excluding mortgage interest payments) rose to 3.8%, from 3.4%. A rate of 3.6% would have been enough to trigger a letter.

In other words, if the Government had stuck to its old measure (RPI) and its old target (based on RPI but excluding mortgages) this month's figures would have been higher, high enough to have broken through the barrier requiring a letter of explanation.

Want to know what that would have been like? Listen here.

The giants of economics

That excellent blogger Tim Worstall links to this terrific picture and caption.

The Economics of Abundance

Chris Anderson's book The Long Tail has received a great deal of attention - and I think it deserves it.

The best publicised of his conclusions is that the internet is making it possible for the long tail of niche products to find markets, and that there may be as many sales in such specialised products as in the big hits.

I am not sure, however, that this is the most important point in his book.

It is the cheap production and storage of products that is really going to change the world and it is this subject to which Anderson turns in a new presentation entitled the Economics of Abundance. This is best viewed along with this description of its contents.

I think that the Economics of Abundance will fundamentally change politics as well as the entertainment business. Think why the modern political party was created, and why it replaced the chaos of 19th century political groupings. It was a response to scarcity. The expense of producing political propaganda and the difficulty of distributing it by winning space in a small number of media outlets, meant that parties had to be tight, uniform, well disciplined bodies.

But now such tightness will become less necessary and less easy to maintain. The Economics of Abundance suggests to companies they should "try everything" to see if it works. I think political movements will start doing the same.

A new era of much more decentralised, disorganised, experimental politics is just starting.