Credit where credit's due to George

Poor Mr. Osborne has come in for a hammering on these pages recently, so it's only fair I give him credit when he does something right. The end of national pay bargaining is long overdue. It's insanity that the wages of equally skilled nurses in Surrey and Cornwall are the same, despite the huge difference in their living costs. The effect is that the good nurses go to Cornwall where they can afford to live reasonably well in the villages around Truro, and the less able ones who can't compete for jobs in Cornwall have to suck it up in Surrey and live in dingy rented accommodation around Croydon. So if you get sick, make sure you do it in Truro.

On a practical note, of course, the current Cornwall nurses' pay isn't going to be slashed, so the levelling out is going to take a while; effective pay freezes for the areas with lower living costs, as the expensive areas rise roughly with inflation modulo supply and demand.

I realise this won't be popular with the unions, since it also makes it far more difficult to establish the conditions for a 'yes' vote on a national strike, and local strikes have far less impact. To quote Dr. Evil, "boo frickety hoo".

If you're not reading jgc then you're missing out

If you're at all interested in the join between software and hardware then you should be following John Graham-Cumming's blog for a procession of tasty electronic, software and crypto treats. Stick him on your bookmarks list, go on; I'll wait for you. If you liked Joel Spolsky when he was still blogging regularly, you'll particularly appreciate jgc - not least because, unlike Spolsky, you don't feel a periodic urge to slap him silly. But I digress.

Striking a particular chord today he dissected an Ludditism from John Humphreys who proposed that a computer user need not appreciate how a computer worked under the hood any more than a car driver need appreciate how a car worked. Read the whole thing, but I particularly liked the following paragraph:

If you teach someone to operate a word processor (as is done in the UK's stupid ICT classes) you are not teaching them to use a computer at all. You are teaching them to use a word processor. It's a bit like teaching them to use a typewriter only this one's a bit more sophisticated. In fact, there's be far more outrage if the UK's current ICT classes were called what they actually are: secretarial skills (that's not to demean secretaries as I went to learn how to be a secretary so that I'd be able to touch type).

Discussing the UK's ICT curriculum is one of the easiest ways to make me start to foam at the mouth. jgc skewers it with this pithy characterisation.

It's just possible that Humphreys was making a sophisticated point about the incuriosity of the average driver. Given his resumé, however I suspect that would be over-charitable.

If it doesn't work, do more of it!

Looks like the mortgage subsidy plan was just a warm-up for our boy George Osborne. He now proposes to sink a good few £bn into underwriting bank loans to small and medium businesses. What could possibly go wrong?

Why does this look to me like a "heads I win, tails you lose" plan for the banks? They can up the risk they are willing to take on, safe in the knowledge that the Government will backstop their losses. So businesses that should not have got a loan will now benefit from one, proceed to pour money via direct and indirect means into the pockets of the less scrupulous, then fold. If this scheme is to be at all successful, it must end up putting Government money into the pockets of a business that would not have received a bank loan - the Government is relying on the bank to pick its winners.

I await Tuesday's Autumn Statement for the details, but I can't see this going well.

Uncomplicated feelings about mortgage subsidies

I doff my cap to Quantitative Politics who ably skewers the demented Government plans to subsidise the risk of first-time buyers' mortgages. Let's remember that the UK housing market is in the doldrums because of a) potential buyers facing an income squeeze from the current depression, b) limited supply of capital for mortgages, ensuring the available capital is concentrated in low-risk LTV ratio mortgages, c) house prices being sticky-downwards such that vendors are very reluctant to lower their prices and d) ultra-low interest rates ensuring that house vendors aren't pressed to sell with any urgency, while at the same time savers' deposits accumulate interest at a miserable rate.

What is the Government analysis of the situation? Given that first time buyers are risky loans, let's remove that risk from the banks by subsidising it with taxpayer money.

Pardon my language, but what the hell? Have the Government not heard of the notion that what you subsidise increases? If the Government wants to un-stick the housing market (and it's by no means obvious that it should even get involved) it could reduce transaction costs by slashing stamp duty, or maybe fire Mervyn "inflation will come down soon, honest" King and tell the MPC committee to stick to its 2% inflation mandate, or else.

QP puts their finger on what is probably behind this all:

So all in all a thorough package to boost the finances of existing homeowners. And we all know who are the biggest homeowners, currently holding the most property title deeds, the banks of course!

Bailing out the mortgage-holding banks in some way or another might even be defensible. But I wish, I really wish that the Government would have the stones to do it explicitly rather than hiding behind a smokescreen of concern for the welfare of first time buyers.

The Guardian article has the usual clamour of rent seeking:

Marc Vlessing, co-founder of Pocket, one of London's affordable homes agencies, said: "This helping hand for mortgage deposits is not a panacea, but will be welcomed by frustrated first-time buyers as well as those of us concerned about the destabilising prospect of an entire generation locked out of home ownership."

If you want affordable houses, speed up the streamlining of the planning process you silly arse. Tell the NIMBYs to sod off and build a lot more houses.

Complicated feelings about pension tax breaks

The Telegraph is heavily hinting that Osborne will be axing higher-rate relief on pensions in his Autumn Statement. Leaving aside the observation that it's pretty frickin' late in autumn, indeed one might almost term it a Winter Statement if not for the associated negative press, what does this mean?

As a private sector higher rate taxpayer myself (boo hiss, oppressor of the poor etc.) I certainly appreciated the existing tax break: £1000 of gross income, with an employer-matched-up-to-5% deal, taxed at 40%, means I spend £600 of net income -- let's ignore the 1% employee NI for simplicity and the marginal effect on my employer of employer NI -- to achieve £2000 in my pension. This will be subject to tax when I finally take it, after a 25% tax-free lump sum, but at current annuity rates I'd be lucky to see a few hundred £/year in current money in my pension from this. Still, assuming retirement at 66 as the standard and if I plan to live past 80, that's not a bad deal.

If George gives me only 22% tax relief, I'm spending £780 (30% more) to achieve the same effect. That's less attractive. The killer issue is the return I expect from my pension investments and the price of annuities. If low interest rates are going to persist for the next 30-odd years (and, let's face it, they might) then my expected payoff will be lower anyway.

Suppose I say that my pension payments aren't worth the candle, and I'd rather spend now. Then George gets £400 of that £1000 in tax right now, and I get £600 in disposable income. That stimulates the economy and boosts tax receipts right now, at the expense of my pension's value at retirement. And since I'm a higher rate taxpayer, George can calculate that he won't have to cover any of my pension shortfall -- oh, wait, it's in 30 years, so who cares?

From where I'm sitting, this is a total no-brainer for the Government - money now, popularity now, and diffused downside in decades' time. After all, who cares if people don't have adequate personal pensions? Perhaps they can tax anyone on a public sector pension at 50% for any income over the median pension....

I can't blame George, a politician, for creating a politician's solution; to misquote the repulsive Freddie Lee Cobb from A Time To Kill:

You can't blame a politician for being a politician, no more than you can blame a dog for being a dog

but it behooves the rest of us to contemplate the effect on society in twenty to thirty years from reducing individuals' personal savings towards their retirement. It's not going to be pretty.

And I bet he loved puppies too

The world's cuddliest ex-dentist, Ayman Al-Zawahiri has been giving a eulogy for Osama bin Laden:

"People don't know that this man was tender, gentle, kind, with refined feelings, even when life was hard," Zawahiri says in the video, dressed in a white robe and turban and sitting in front of a green curtain.

We could also add "open minded" to that list of virtues, at least as of May 2nd.

Gene Simmons, we salute you

Rock god Gene Simmons isn't impressed with a lot of folks in the debt crisis but unlike practically everyone else opining in public, he doesn't give a free pass to the victims:

It's so simple. If you spend more than you tax, you're out of business. MPs don't know what they're talking about.

And we created this miserable economic state. It's like fat people who think it's the bakery's fault they got fat.

No, you kept going in there and you kept eating cake. It's not the bakery's responsibility to tell you to slow down.

He's writing in the Sun, of all places. I can't imagine any article better suited to make Polly Toynbee spontaneously combust. Do go and read the whole thing (it's the Sun, it's not like there's a lot of text) especially his closing argument.

Ben Bernanke and the bong

John Hempton at Bronte Capital reckons that Ben Bernanke needs a Hawaiian shirt and marijuana pipe. I'm not entirely convinced, but he makes a compelling case. If the USA wants to stick the Chinese with at least some of their financial losses in the next 5-10 years, he contends that you need to make the American people believe that Bernanke can't be trusted with their money, and they should spend it now before inflation renders it value-less.

Personally, I'd get Bernanke elected to the Senate, maybe in a Louisiana or Illinois seat. That should do the trick.

Dear Sophie Lee...

Damn you, Google, for making me bawl my eyes out.

Giving a whole new meaning to 'pouring money down the drain'

Jefferson Country, AL votes for bankruptcy after going $4.2bn in the hole, including $3.1bn for a new sewer system.

Everyone wants to know - how do you spend $3bn on a sewer system? Anyone? Bueller?

Expect some searching questions (and court actions) directed at JP Morgan's Muni department in the near future... Also expect some searching questions to be asked about who is exposed to muni default. Don't forget that state employees' pensions are paid out of county operating funds, not from purchased annuities - there's no magic protected pot of money. When the county runs out of money, its pensioners get to stand in line for the remnants.