Remembrancing the national debt

My husband teased me for saying The National Debt: A Short History by Martin Slater was a rattling good read, but it is. Published in late May, it puts the ‘austerity’ debate in illuminating context.

This is the UK’s national debt we’re talking about, and the book starts in the Middle Ages and ends at the financial crisis. For government debt is about high politics, from the needs of feudal monarchs to fund armies increasingly consisting of mercenaries to the long battles – in the Civil War, literal battles – over the respective powers of monarch and Parliament, to the effective private sector default in 2008 that led to banks being bailed out with the government borrowing to purchase bank equity of uncertain future value.

The history is delivered with a light touch and nice anecdotes. For instance, income tax was so hated than both times it was scrapped after its early, temporary introduction – all the records were destroyed, by immersion in water in 1802 and by burning in 1815. It turned out, however, that there was an official called the Remembrancer whose job was to keep a copy of all government financial records. This post was so obscure, that nobody had noticed and the copies were found many years later. (Created in 1154, the post still exists. What a great job title.)

There are boxes on famous economists’ views of the National Debt – including Karl Marx, who like all the others frowned on public indebtedness. He noted that most institutions in Britain were ‘Royal’ but the debt was ‘National’: another way working people had to support, through taxes to pay the interest, the rentier classes.

I learned that the founding President of the Royal Economic Society (no, not ‘National’) was an economist I’ve never heard of: George, Viscount Goschen, whom Slater describes as “perhaps one of the most economically literate Chancellors of the Exchequer to hold office before the late 20th century.” He wrote text books, encouraged the expansion of the universities, and was also President of the Royal Statistical Society.

The book ends with a (painlessly) theoretical section setting out a very clear explanation of debt sustainability. It does involve two equations, but even the most algebra-averse reader will be able to cope. The history behind the upward-ratchet of the net debt to GDP ratio makes it all too apparent that usually governments treat their purchases of assets (such as bridges or nationalised corporations) as capital expenditure but their sales of assets as current revenue, available to be spent on political priorities. For sustainablility, the government’s primary surplus of tax revenue less current spending, relative to the size of the economy, needs to be at least as big as the debt to GDP ratio, multiplied by the gap between the interest rate and growth rate (remember Piketty‘s famous r>g inequality). A higher growth rate is always the deus ex machina hoped for by governments struggling with high debt and interest payments. Currently, the UK’s national debt would start to decline (relative to GDP) with a modest 0.9% of GDP primary surplus, but that is quite a turnaround from the present deficit.

As Slater says, however, it is not straightforward to decide what the optimal level of the debt ratio would be; there is probably no better option than waiting for growth to do the job. The book concludes with a plea for a more comprehensive accounting for the government’s finances; the experimental whole of government accounts go a long way toward including other obligations that will fall on future taxpayers. Even these do not include non-legally binding future payments – such as state pensions or the NHS – while future PFI obligations are included as notes but are not in the figures. The politics of national debt are not going to get any easier.

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More must-reads

I’m excited by the appearance of David Edgerton’s The Rise and Fall of the British Nation: A Twentieth Century History at Enlightenment Towers. The Shock of the Old and Warfare State are both thought-provoking, rather brilliant, contrarian histories seen through the lens of technology. I hadn’t registered that he had a new book out, so am delighted. Love the cover, too. It’s a big book – will take me some time to report back.

Meanwhile, the Princeton University Press catalogue for Fall 2018 has just arrived too and there are so many fantastic-looking new books coming out that it’s hard to contain my excitement.

 

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Cyborgery

With two Eurostar trips in one day on Monday ( to take part in the AFSE Conference in Paris) I raced through Mark O’Connell’s To Be A Machine. It’s an account of the Silicon Valley-centric transhumanist movement – Ray Kurzweil’s Singularity, Peter Thiel and Google funding research into immortality, uploading brains out of the feeble human body to alternative ‘substrates’, and so on. It’s a superbly-written book, respectful of its subjects while clearly disagreeing wholly with them – and successfully making the case that this is a religious rather than a scientific movement. The book manages to be both full of insight and very funny. I was aware of this movement – thanks to my ISC colleague Richard Jones’s book ‘Against Transhumanism’ (the clue is in the title) – but had no real idea of its reach among brilliant and influential people one would have never have imagined to be so – well, bonkers is the only word that comes to mind. Bonkers and yet in some cases powerful and very much worth taking seriously for the questions their belief-set raises.

Well worth a read.

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Private and public value

Mariana Mazzucato’s The Value of Everything: Making and Taking in the Global Economy was my Bank Holiday weekend reading. I’m entirely sympathetic to her underlying argument that a well-functioning and growing economy requires both state and market institutions to be effective; and that the opposition between the meddling state and the ‘free’ market is a bogus dichotomy. While some on the political right still see state and market as inevitably in opposition, the tide of opinion has surely decisively turned against this high-1980s trope? After all, in the UK the Conservatives too see the need for an industrial strategy, with a clear role for the government in investing and co-ordinating.

The book has four stages. The first is a summary of the history of economic thought concerning the creation of value in the economy, from mercantilism through the physiocrats to the classical economists (Smith and Marx) and then the marginalist revolution and neoclassical economics. The importance of the final step, Robbins and positivism, gets a mention but is underplayed perhaps. This section sets the scene for arguing that there is nothing inevitable about our current framing of what creates economic value.

The second stage is a summary of the history of the development of GDP as the measure of economic progress, including the treatment of finance in the national accounts. This is all well-known to me for obvious reasons, but I think also to others, given there have been a dozen or so books about economic measurement/GDP in the past few years (including mine, and most recently David Pilling with The Growth Delusion (2018)). Mazzucato makes great play of the way the definition of the financial sector has become ever more expansive to make finance look increasingly important to the economy; the authoritative work on this, including the now-notorious ‘FISIM’ definition, is Banking Across Boundaries (2013) by Brett Christophers. Mazzucato then segues into a section on the financialisation of the economy, including the pernicious effects of the ‘shareholder value’ doctrine and stock option schemes for executives.

Finally, she reprises her arguments in The Entrepreneurial State about the role of the state in innovation, the need for taxpayers to get a bigger share in the returns, and a wider riff about the growth of monopoly rents due to excessive intellectual property protection (Exhibit A is the pharmaceutical industry) and market power (the digital giants). In these contexts, she argues, more state intervention would make markets work better. In an echo of the wider debate about economic institutions, she argues that the Anglo-Saxon structures have become extractive or exploitative, rather than value-creating. I was briefly excited by her use of the term ‘public value’, with the BBC as an example; but she does not reference the political science literature on public value or that the BBC actually implemented formal public value processes. The book instead links the term to Elinor Ostrom’s work on collective decisions (wonderful as it is).

I have a few quibbles. For example, Mazzucato several times refers to GDP as a measure of legal marketed activities; the formal definition now includes illegal marketed activities. It would have reinforced her argument had she pointed out the absurdity of GDP including prostitution while excluding childcare in the home. I found aspects of her description of the production boundary confusing (and it features prominently through the book as an expository device), no doubt because my mind is shaped by the current formal definition in the SNA. This is GDP-nerd territory.

Overall, The Value of Everything is a powerful contribution to the public debate about the kind of economy and society we want. The argument that the political/financial system has become exploitative  will strike a chord with many readers. Mazzucato does not give practical policy advice here. But I’m sure this book by such an influential economist will have a big impact in contributing to the shaping of a different, and more productive, climate of opinion about government and markets.

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AIs, humans and chess

Garry Kasparov’s Deep Thinking is a compelling read. Timed for the 20th anniversary (last year) of his famous defeat by the chess computer Deep Blue, it’s a combination of the tale of his engagements with computers through the course of his chess career (including his view about IBM’s bad behaviour in the famous contest) with reflections on computers and human intelligence. Chess is of course a great lens for these reflections, being in many ways emblematic of intellectual skills.

Kasparov convincingly portrays himself as an optimist about technology, including AI. He sees it as an other tool used by humans, albeit one we haven’t yet figured out to use. He points out also that when some application becomes very familiar, we stop calling it AI and start calling it, oh, Siri. After all, we don’t call our fancy new washing machine a robot, but it is. Anyway, although not a chess afficionado, I enjoyed reading the book and agree with its call for some deep thinking about how to use these amazing, human-invented, new technologies.

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