Tim Harford The Undercover Economist

Articles published in January, 2012

No growth, but the LSE is looking for it

‘Official data showed the UK economy contracted slightly in the last quarter of 2011’

– Financial Times, January 25

Is that a surprise?

Not particularly. The economy was expected to shrink and the provisional data show that it shrank a tiny bit more than expected.

Does that mean we are officially back in recession?

There is no official definition of a recession and, in any case, who cares? Whether the economy is shrinking slowly or growing slowly is neither here nor there – given that technology is developing and the British population is growing, “positive growth” is both an arbitrary hurdle and a low one.

So growth doesn’t matter?

Of course growth matters. Unemployment is at its highest level since the mid-1990s. Government debt is growing very fast. A nice surge in economic growth would go a long way towards solving the country’s problems right now. Apart from the direct reduction in human misery that more jobs would bring, growth would also reduce the deficit.

Any sign of that surge?

No. You can get a good sense of how serious the situation is by comparing today’s slump with the slumps of yesteryear – the National Institute of Economic and Social Research has a handy graph. Measured from the peak of gross domestic product, the recessions of the early 1990s and early 1970s reduced output by no more than 4 per cent and the economy recovered to the pre-crisis peak in about three years. Even the recession of the early 1980s troughed at 6 per cent below the peak, and output took four years to recover. The current recession troughed at 7 per cent and four years on, output is 4 per cent below the peak and going nowhere. Today’s crisis is arguably graver than the situation in the 1930s. Given another year of this kind of growth it will be inarguably worse.

So what is to be done?

Good question. The London School of Economics has just launched a “Growth Commission” to look into how to boost the economy. The first two guest speakers were academic economists with a heavyweight record in policymaking: Larry Summers, former US Treasury secretary, and Steve Nickell, a member of the UK’s Office for Budget Responsibility.

What did they say?

Mr Nickell pointed out that many such growth reports have been written in recent years and the commissioners might care to read them in the hope of picking up some useful ideas.



But is long-term growth relevant? In the long run we’ll all be dead.

Mr Summers argued that the longer and deeper the recession, the more damage will be done to long-term growth prospects. Workers will become disheartened and rusty, buildings and machines will fall into disrepair and, in general, opportunities to sow the seeds of future growth will be missed. He argued for measures to boost aggregate demand, which presumably means printing more money, lowering taxes, raising state spending, or perhaps all three. Mr Nickell did not comment, except to point out that this is ground well trodden elsewhere.

That’s true enough. So what about the long term – is it time to boost manufacturing?

High-tech manufacturing is fashionable, but it is unlikely to drive much economic growth because the sector is too small. Nor is it a source of jobs: as Mr Summers pointed out, even China seems to have been shedding manufacturing jobs over the last couple of decades. Perhaps the data deceive here, but the Chinese manufacturing boom seems to be more about increasing output per worker than employing more workers. If the Chinese can’t generate jobs through manufacturing I am not sure we should be expecting too much from that strategy.

Any good news to report?

I think so. Mr Nickell pointed out that the quality of UK management is demonstrably poor. David Brent is alive and well, and managing offices all over the country.

Why is that good news?

Because it is probably easier to fix than our Victorian infrastructure or the fact that half the workforce is under-skilled compared with our European neighbours. In any case, it feels reassuring to blame our troubles on bumbling bosses rather than on more intractable causes. It’s always satisfying to blame the management – and even more so when blame is justified.

Also published at ft.com.

The tricky business of measuring growth

Two experts offer a new approach to weighing economic strength, posing many good questions about the practice.

The barrier to change is not too little caring; it is too much complexity,” Bill Gates once opined, and he was right: many problems in development cannot be solved simply by wanting solutions badly enough. And yet when it comes to one of the key development outcomes, economic growth, the problem is not too much complexity, but not enough.

Complexity plays no obvious role in mainstream economics. Under the surface of traditional accounts of economic growth there is a rather crude model: economies are a bit like loaves of bread. They are made of two or three key ingredients, and bigger loaves simply have a bit more of everything.

Compare the economy of the UK with the economy of the Democratic Republic of Congo, a country with a similar population, and the textbook will say that the UK simply has more physical capital (factories, buildings, roads) and more human capital (education, training) and perhaps even better “institutions”. Of course, everyone knows that you cannot simply turn the DRC economy into the British economy by doubling the quantities of all the ingredients. The British economy is a different and more complex kind of thing altogether.

The economist Ricardo Hausmann and the network physicist César Hidalgo have been trying to measure this complexity, and I’ve written before about their work. They argue that economies are collections of “capabilities”, building blocks that can be put together like Lego to produce different products. A trustworthy post office is a building block; so is high-speed internet; so are functional bankruptcy courts; so is a literate workforce; so is a fast lane at customs for processing perishable foodstuffs. It’s not clear how one would go about measuring all of these capabilities. Instead, Hausmann and Hidalgo measure them indirectly, tracking the shadows that they cast upon a country’s trade statistics.

Their latest work, “The Atlas of Economic Complexity”, includes analysis not just of the general method, but of the “complexity statistics” of 128 countries. Hidalgo and Hausmann show that their generic ranking of economic complexity is much better correlated with gross domestic product than traditional indicators, such as governance or educational standards. The authors seem pleased with this, but it is depressing that they are tempted to engage in such statistical arm-wrestling. Their research is far more interesting than that.

If we can measure economic complexity and find it is highly correlated with economic productivity, then the question is: how can economies become more complex, acquiring new capabilities? A couple of points suggest themselves. Modern economies require complex rules: the English version of EU law contains more than 55 million words, equivalent to about 100,000 pages. Some of this is no doubt useless, but I wonder how much. To shape such rules sensibly is no easy task.

Think of a business that wants to export cut flowers. That requires appropriate phytosanitary regulations, that fast lane at customs, quick transport links between farm and airport, laws governing irrigation and much else. Getting governments to think about all this is a tall order – especially for a business that simply will not exist until the building blocks themselves do.

The second point is linked to the first: Hidalgo and Hausmann find it is easier to develop new capabilities that have something in common with those you already have.

And what of those countries whose existing capabilities offer no obvious avenues for development? The complexity approach asks some good questions, but answers must wait.

Also published at ft.com.

Are you saying John Lewis isn’t perfect?

I hear that Nick Clegg has called for a “John Lewis economy”. Who could be against a John Lewis economy?

Indeed! All right-thinking people love John Lewis. It all starts with your wedding list and the love affair just goes on and on. My daughter told me she wanted to be the little boy from the adverts who can’t wait to give his parents their Christmas gifts.

How did she see the advert? You don’t even have a television.

Her primary school showed it to her. That’s how blandly all-conquering John Lewis has become: their advertisements are used in school assemblies. And don’t get me started on Waitrose!

I know – I discovered that those nice Padrón peppers are also available from Ocado. Amazing!

It is. Nick Clegg is clearly on to a winning policy here.

Quite so. What is there to dislike about a vision of Britain that awoke from sweet dreams under crisp Egyptian cotton sheets to sweep aside Tesco, Ikea and Primark, replacing them with John Lewis and Waitrose?

Nothing. But I suspect that Mr Clegg is more taken by the idea of widespread profit-sharing and share ownership.

That makes sense. John Lewis is owned by a trust for the benefit of its employees, John Lewis is profitable and John Lewis shops sell nice things.

Yes, but what we have here is an “n of 1” problem: just because these things are true about John Lewis does not mean they always go hand in hand. ExxonMobil is profitable but it is not owned by an employee trust and it is not usually regarded as a purveyor of nice things.

But surely it’s a good thing for employees to own shares in the companies they work for.

You might want to ask the former staff of Lehman Brothers and Enron about that. I’m sure it’s great if you get in on the ground floor of Microsoft or Apple, but the logic of employee share ownership is not so clear. The more shares an employee owns in a company, the more risk she is exposed to: she already accepts the risk that in hard times the company may sack her, cancel her perks or cut her salary. On top of that she is supposed to pin the value of her savings to the company share price?

Yes, if it will motivate her to work hard for the company.

If it does it will not be because of any financial logic. If you were exposed to just 0.1 per cent of the risk and reward of a £1bn company, you’d be facing a £1m risk – a 10 per cent drop in the share price would hit you by £100,000. And yet you would still enjoy only 0.1 per cent of any gains you created for the company, which is surely not enough to discourage you from stealing paper clips. There is a trade-off between providing proper incentives and exposing workers to excessive risks. I don’t think shares or share options provide a happy medium between the two.

Are you saying that employee-owned companies perform poorly?

No, I’m not aware of any evidence for that. A study by Alec Bryson and Richard Freeman of the Centre for Economic Performance at the London School of Economics found that employee ownership was positively correlated with productivity; it was also positively correlated with other measures of performance-pay and worker autonomy. What exactly causes what is a nice question, but there’s certainly little evidence of harm. Mr Bryson and Mr Freeman also surveyed other studies and conclude that none found any negative impacts of employee share ownership and some found positive effects. In any case, the theoretical case for the popular alternative – companies with highly dispersed shareholders – is also rather troubling. Adam Smith predicted that “negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company”. None of these things works in theory; whether they work in practice is another question.

So what’s wrong with supporting employee share ownership?

Nothing. The government already does with various tax incentives, and more than 60 per cent of workers have access to share-ownership or other profit-sharing schemes. Mr Clegg might consider whether it could be easier to convert existing companies into employee-owned co-operatives, because the economy is unlikely to be damaged by greater diversity of organisational forms.

Sounds sensible but bland.

What do you expect from a man who has just invented a very British version of motherhood and apple pie?

Also published at ft.com.

Why have house prices stayed so high?

The reluctance for prices to slump may have as much to do with psychology as with conventional economics

My forecasting record on housing prices leaves something to be desired. It’s not that I missed the slump in prices: on the contrary, when making a series about economics for BBC 2 in early 2006, I tried and failed to persuade my producer and director that a house price crash was pretty much inevitable. (They disagreed and we tore up the script for that episode.)

The problem is rather that the boom was so extreme that I was sure the bust would come far sooner and be much deeper. One way to see this is to look at “real” house prices, adjusted for inflation by Nationwide. They peaked at £128,000 in 1989 (measured in today’s money); the following slump ended only six years later, after prices had fallen by almost 40 per cent. The more recent boom makes that one look puny: as early as 2002, real house prices had topped £150,000 in today’s money and I was anticipating the mother of all crashes in 2003. And 2004. And 2005, 2006 and 2007.

Real house prices are still only 20 per cent down from their peak in late 2007 despite a ridiculous boom and an economic shock almost impossible to imagine when I first started my Cassandra act.

Why have house prices stayed so stubbornly high? Partly this reflects a genuine lack of supply in a country whose dense centre of economic gravity is made yet denser by the planning restrictions of the green belt. But the reluctance to slump may have as much to do with psychology as with conventional economics.

One of the key ideas in behavioural economics is “prospect theory”. Prospect theory assumes that individuals view risky choices relative to a baseline, framing them as losses and gains. Furthermore, they care more about avoiding losses than banking gains. This is odd, because the baseline is arbitrarily defined; yet it seems to be true.

What would this mean for house prices? It would mean that people are very reluctant to sell at a loss. This means more than just trying to get as much money as possible – most sellers want that. It means being unwilling to compromise, and being willing to lose the sale, if the proposed sale price is below the not-very-meaningful level of “what I paid for it”.

If sellers do behave like this, it would mean house prices would fall only with great reluctance. In particular it would mean that sales would dry up when prices fall below a previous peak. That’s certainly true: less than half as many mortgages are being approved now than before the crisis began. There is an economic reason why volumes should dry up as prices fall: a lack of access to finance could hit both price and volume simultaneously. But the psychological explanation may be even more important.

A study conducted by the economists David Genesove and Christopher Mayer provides clear evidence for this. Genesove and Mayer looked at a housing crash in Boston in the early 1990s, and they found that sellers facing the risk of a loss priced their condominiums more aggressively, winning somewhat higher sale prices but far higher risks of not selling at all. (Genesove and Mayer also present evidence that it is nominal losses rather than real losses that matter.) The researchers also argue that liquidity constraints – it’s harder to get a mortgage in tough times – do not fully explain the patterns they discovered. Prospect theory does.

What this means for the future of the housing market is, I’m sad to say, not clear to me. My reading of the economic fundamentals is still that housing is overpriced in the UK. With housing stagnating and inflation rates likely to fall to low levels again, it may be a long time before nominal house prices exceed the peaks of 2007. And it may be a long time before homeowners make peace with their losses.

Also published at ft.com.

The unlikely boons of longer train journeys

‘The benefits to passengers from the high-speed link are overstated … there is an assumption that all the time that business travellers spend on a train is wasted … this is a somewhat questionable proposition.’

Financial Times, January 11

So the High Speed Two rail link was approved?

It was indeed. The London-Birmingham link will be ready as early as 2026. Then there may be an extension linking Birmingham to Manchester and Leeds. We’ll only have to wait until 2033 for that.

The cost-benefit analysis says the project is good value for money.

Yes, according to HS2 Ltd, a company that was established to make the business case for high-speed rail. Of course, other things might be better value for money. HS2 Ltd, using Treasury assumptions, discounts future costs and benefits at a discount rate of 3.5 per cent for 30 years, and then 3 per cent. If the government borrowed £10bn at the current 10-year interest rate of about 2.1 per cent and kept rolling it over before paying it back in 60 years, the eventual repayment would be almost £35bn. But the present discounted cost would be just £150m – a massive benefit/cost ratio. If playing by the cost-benefit analysis rules, just borrowing cash and doing nothing is a winning strategy.

You’re just messing around with the numbers.

I am, and you can mess around with a lot of numbers if you are making these calculations over a 60-year timescale. I wouldn’t pay too much attention to HS2 Ltd’s forecasts, or those of their opponents.

But it’s not just about forecasts – it’s about the value of time saved because of a faster journey, right?

That’s true. The high-speed link would save about 40 minutes on a journey from London to Birmingham. How much that is worth is an interesting question.

If you have a morning meeting it might mean an extra 40 minutes in bed.

It might indeed, which is priceless. HS2 Ltd told me that they use numbers from the Department for Transport. The DfT apparently values leisure time at about £6 an hour – this, intriguingly, implies that the UK government’s official position is that anyone under the age of 21 is wasting their time earning the young person’s minimum wage and would be wise to chillax in front of the Nintendo.

What about business travel?

Well, business travel is valued at £50 an hour. Unless the business travel in question is commuting, in which case it’s £7 an hour.


Doesn’t make a bit of sense to me, either. Perhaps the idea is that commuting is eating into your leisure time, which is almost valueless apparently, whereas business travel is eating into your employer’s time, which is precious indeed. Complain to the DfT if you don’t like it.

And surely business travellers will often be able to work on trains, with laptops and smartphones.

Personally I find I often get more done on the train than anywhere else – bar an aeroplane, of course – because I’m not distracted by Twitter or videos of amusing cat antics.

That rather implies that you don’t otherwise make good use of your time.

It’s not clear any of us are that good at managing our time. Economist Alan Krueger and psychologist Daniel Kahneman studied people’s emotions while participating in various activities. Their subjects – women in Texas, in this case – most enjoyed praying and “intimate relations”, but these activities were not chiefly how they spent their days.

I’m confused. Are you implying that users of High Speed Two should be having sex on the train?

Who is to say what social mores will govern our behaviour by the time the line is finished? But I think we can agree that if rail travellers occupied themselves in this fashion then shorter journey times would not necessarily be a tremendous boon.

I’m not sure this is a helpful line of inquiry. What did Kahneman and Krueger discover about how people feel while on business travel?

Business travel wasn’t a category that was reported, but the morning commute, it turns out, is the most miserable of all commonly reported uses of time. You might think that shortening commutes would be very valuable, then – but the DfT hasn’t received that memo.

And how much of this column did you write on the train?

All of it.

Also published at ft.com.

Can the minimum wage create jobs?

If one cannot produce enough of value to justify being paid a living wage, nothing we do to the minimum wage will help

One million unemployed young people. It had been coming for a while, but when the news broke in November that the number of 16- to 24-year-olds looking for work had reached seven figures, the number retained its power to shock.

Almost 300,000 students seeking part-time work are included in the total, and although directly comparable data are not available, the situation was almost certainly worse in the 1980s. Nevertheless, given the evidence that graduating during a recession can affect one’s earnings for far longer than the recession itself, the case for doing something looks urgent. But what?

To some, such as the Institute for Economic Affairs, the answer is simple: abolish the minimum wage. This is unlikely. Minimum wages gradually fell into disuse after Winston Churchill introduced a minimum wage system in 1909. Yet after Labour introduced a national minimum wage in 1999, grumblers have kept a low profile. David Cameron said in 2005 that it had been a success, while in 2008 George Osborne said that “Modern Conservatives acknowledge the fairness of a minimum wage.”

But that is an odd comment, because the case against the minimum wage was always that the law itself was unfair. A minimum wage forbids workers to sell their labour below a certain price, and therefore would be expected to create unemployment for low-productivity workers. Employers use machines instead.

The theoretical argument is simple and compelling. But is it true? Back in 1994 a remarkable article was published by economists David Card and Alan Krueger. They performed a statistical analysis and concluded that not only did the minimum wage not cost jobs – it might even create them. Amazing.

Extraordinary claims demand extraordinary evidence, and while many economists casually dismissed Card and Krueger, commentators on the left also seized uncritically on the results. Both attitudes are a shame because the research paper is too interesting to ignore. Card and Krueger were pioneers in using what economists call a “natural experiment”: the rise of minimum wages in New Jersey, while in neighbouring Pennsylvania they did not move. They surveyed more than 400 fast-food restaurants in New Jersey and east Pennsylvania and found no great difference between employment trends. Nor did higher-wage establishments display different employment trends to those who had to raise wages relative to the minimum. These methods broke new ground and have been much emulated.

It’s fair to say that not every statistical study has come to the same conclusion. But why might Card and Krueger be right in some cases? If employers have market power in the labour market then they might actually offer a lower wage than the balance of competitive supply and demand would produce. Some workers would rather keep looking or sign up for welfare payments, and so employment is lower at this level. Introduce a minimum wage and both wages and employment increase, while profits fall.

Of course this analysis is time and place specific. Since its introduction in the UK, the minimum wage has outpaced consumer price inflation by about 20 per cent. Even if a minimum wage can offer income for the poor without destroying jobs, it would be complacent to assume this will remain true regardless of economic conditions. The Low Pay Commission has been allowing the minimum wage for younger workers to lag behind. No wonder.

But if a young adult cannot produce enough of value to justify being paid a living wage, nothing we do to the minimum wage will help. He, the institutions which trained him and the society in which he lives, have far bigger problems.

Also published at ft.com.

To tweet or not to tweet?

Economist Justin Wolfers runs a controlled experiment to test how Twitter is affecting his productivity

I don’t normally hold with the traditional New Year’s resolution of quitting some objectionable habit – even though my favourite economist, Thomas Schelling, has written very thoughtfully on the subject. (Schelling, a brilliant game theorist and long-time smoker, used a variety of game theoretic tricks to outwit a formidable opponent – his addicted self.)

But as 2011 drew to a close, I had been wondering about my addiction to Twitter, the service that allows users to publish online short messages – grumbles, aphorisms and most often, links to recommended articles. Other users can choose to whose messages they will subscribe and unlike on fully-fledged social networks, such as Facebook, this is not necessarily a reciprocal relationship. (Facebook users have friends; Twitter users follow and have followers.) My Twitter habit has the pernicious consequence of being rather time-consuming – but it has plenty of benefits too. Should I quit? Cut down? Or should I resolve only to stop feeling guilty?

Part of the problem, I realised, is the difficulty of measuring the costs and benefits of the habit. Imagine my curiosity, then, when I noticed that the economist Justin Wolfers – a self-described Twitter cynic – had joined the club and was running an experiment to test how Twitter was affecting his productivity.

“Every morning I would flip a coin,” he explained to me. “Heads, I would sign on to Twitter, tails, I would simply tweet ‘Tails: goodbye for another day Twitter.’” It might seem strange to run an experiment with a single subject, but that all depends. If the aim is to discover the effect of Twitter on the productivity of Justin Wolfers, the experimental design looks just fine.

The challenge, of course, is to interpret the results. “I tried to be scientific,” said Wolfers, who installed software on his computer to record his use of different programmes and websites, while also using Google alerts to track whether his tweets were having much impact on web chatter. “I’m not sure I succeeded.”

Wolfers rated his productivity levels at the end of each day – revealing, and “also a total bummer” – rarely topping six out of 10. But that’s not unusual: a persistent anxiety that each day has been poorly spent is, I feel, the sign of many a productive person.

Ultimately the formal experiment broke down: “After a while, I got tired of flipping coins.” Wolfers has his data; he has never bothered to analyse it. He has decided that Twitter works for him. The informal experiment of giving Twitter a try to see how it worked out was, it seems, of far more practical use than the formal experiment of randomising days on and days off.

This makes some sense. I’ve become convinced that most of us do not experiment enough with new experiences. (The first 20 years or so of life are an exhausting but stimulating exception to this rule.) Yet few of the experiments we could be trying are conducive to a proper randomised trial.

Somehow this is a great disappointment to my inner nerd. Both Justin and I like the idea of running controlled experiments in everyday life – gut feelings can be so misleading – but he warns that to do it right takes more discipline and time than many of us might want to deploy.

Yet Justin Wolfers’s experiment has inspired an unexpected insight. The toss of a coin might not have generated data that anyone cared to use, but it had the obvious consequence of reducing the days spent on Twitter by about half.

Of course one could simply decide to spend less time on Twitter, but the arbitrary dictates of the coin have a curious power. (Yes, I have read The Dice Man.) So I do not think I’ll be quitting Twitter this year; I will be using the toss of a coin to help me cut back a little.

Also published at ft.com.

Pocket money will endure even in 2012

“Families with children are shouldering a disproportionate burden.” – Katherine Rake, chief executive of the Family and Parenting Institute


“Yes, my dear?”

“I heard that austerity was affecting families with children more severely than other groups.”

“I didn’t see much evidence of that over Christmas. You ate your own weight in Toblerone. I must have words with Father Christmas about all that sugar and fat.”

“Dad stop joking around, this is serious! It’s the Institute for Fiscal Studies. You always say they’re very serious people.”

“So they are, my love, although I always find them slightly less serious when they get tangled up in macroeconomic forecasts. The trouble is that the Today programme can’t get enough of forecast stories. ‘Central bank makes forecast! Financial institution makes forecast!’ But these forecasts never pan out because the macro-forecasting business is a mug’s game. The BBC might as well report Mystic Meg’s forecast and have done with it.”

“Dad. Have you actually read this report?”

“I have indeed. Very worrying. Relative child poverty rates to rise to 26.6 per cent by 2015. That’s for a family with three children; for a family with two children, relative child poverty rates will rise to just 18.5 per cent. If only we’d had this forecast earlier, your mother and I could have been more careful – but it’s too late to send your baby brother back now.”

“I don’t even want to think about that, Dad. Is a relative child poverty rate of 26.6 per cent bad?”

“I am not sure. It shows the percentage of households living on less than 60 per cent of the income of the household in the middle of the income distribution, so it’s a measure of inequality. I don’t think many people think it’s good news that the number is rising.”

“What about absolute poverty rates?”

“Well, the report shows something it calls absolute poverty rates. They’re rising too, although as far as I can see they’re really relative relative poverty rates.”


“They’re poverty rates relative to what the relative poverty line was in 2010-11, rather than relative to what the relative poverty line will be in 2015-16 – according to the macroeconomic forecast, which will be wrong as all such forecasts are.”

“But don’t larger families need higher incomes?”

“Aha, all these numbers have adjusted for that. The IFS assumes that £100 for a childless couple is like £67 for a single adult, or £120 for a couple with a young child, or £186 for a couple with two teenagers and a toddler. It’s called equivilisation.”

“That makes my head spin, Dad.”

“It is complicated, isn’t it? That won’t stop politicians and media pundits confidently citing the numbers as though they were inescapable and simple truths about the universe.”

“But Dad, you’re still ducking the key issue – are families bearing the brunt of austerity?”

“You make it sound so harsh. In fact, we’re getting off lightly. Between the start of 2011 and the spring of 2014, the IFS reckons that a typical household will lose a little less than 4 per cent of net income thanks to tax and benefit changes. Those losses are concentrated among the poorest third and the richest 10 per cent, so I’m not sure why everyone keeps banging on about the squeezed middle.”

“Median voter theorem, Dad, you explained it to me on New Year’s Eve.”

“Of course. Now, where was I? Ah yes: an average loss of 4 per cent, but less than 2 per cent for pensioners and just under 6 per cent for families with children.”

“But that means families are losing more than anyone else!”

“I guess it does. But on the bright side: one day you’ll be a pensioner and you can get the Conservative party to fight to preserve every privilege you’ve got.”

“Somehow I don’t think it will work out that way.”

“Hmm, you may be right. But anyway, things aren’t so bad: the government has been running a deficit of 12 per cent of national income. Surely the obvious base case is that everyone ends up 12 per cent poorer after that particular gravy train runs out of steam.”

“You’re oversimplifying.”

“You were complaining that I was making your head spin a minute ago. But yes, I am oversimplifying. And you’re right: most people will pay more tax and take home stingier benefits, and families with children will suffer most of all. Happy now?”

“Yes, thanks. By the way, isn’t Saturday morning time for pocket money?”

Also published at ft.com.

7th of January, 2012Since You AskedComments off