Thursday, 26 November 2015


The Private Finance Initiative does not look like good value for money. Sigh.
Private finance provides a short-term cash flow benefit for a department. However, over the long term it will not have an advantage as it will have to spend its future budget (over a 25- to 30-year period) to repay the capital and interest of the debt and a return on the investors’ equity to compensate the private sector for their participation in the project....

The Office of Budgetary Responsibility estimates that official government debt levels would be 2% of GDP higher if public rather than private finance had been used in government private finance deals. 
In [two previously mentioned] cases the decision to use private finance was made at a time of low private finance costs relative to gilts but by the time these deals were closed the spread above gilts had increased significantly but the ability to use public financing was no longer available to the department....
Note that the NAO's method of calculating private vs. public borrowing costs looks rather back-of-the-envelope (divide total payments this year by total debt held this year).

Wednesday, 25 November 2015

Why not inflate?

John Cochrane and Noah Smith debate whether a bit of inflation would be a good idea for Japan.

As an observer with a poor grasp of macro, my suspicion is that inflation sometimes happens because it is a socially optimal (read: least painful) way to deal with past debts. I suspect it will happen to the Eurozone at some point too. But an awful lot of institutional and ideological scaffolding will first have to be dismantled. Interesting.

One question I'm unsure about is whether expected inflation does the job of deflating debts. I assume it does for e.g. social security transfers, but not for inflation-proofed debt or short-term debt which has to be rolled over. I don't know how much this vitiates the argument for inflation as a "soft default".


A Westboro baptist church member who changed her mind. This is not just about the good side of social media. It is a story about the process of conversion:
I once was lost, but now am found
Was blind, but now I see.
More on messy science, from a journal editor in psychology. I wonder if economics (including experimental economics) should be playing catch-up.

Just for the record

I believe the Paris attacks clearly have implications for Europe's refugee policy. Three of the attackers arrived in France from Syria via Greece. In other words the current system's lax controls, and the mass movements engendered by Germany's open door policy, threaten the security of EU citizens. Not surprisingly, and rightly, those citizens don't like it. Manuel Valls is right, whatever people on Twitter may think.

Thursday, 19 November 2015

Wednesday, 18 November 2015

Friday, 13 November 2015