Thatcher, Chained CPI, Real Estate, etc.

by Chris Sturr | April 10, 2013

(1) Select Anti-Thatcher Songs:

Sinéad O’Connor—Black Boys On Mopeds

Elvis Costello—Tramp the Dirt Down

The Larks—Maggie, Maggie, Maggie (Out, Out, Out)

(2) Some Articles about Thatcher:

Includes this paragraph:

[Thatcher's] name would come to be associated with laissez-faire economists like Adam Smith, Friedrich Hayek, and Milton Friedman. But Mrs. Thatcher’s guiding philosophy was really more homespun. It emanated from the shop she lived above with her mother and father, Alderman Albert Roberts, who believed in hard work, thrift, and balancing the books. “Some say I preach merely the homilies of housekeeping or the parables of the parlour,” Mrs. Thatcher said, in a 1982 speech to a banquet of grandees in the City of London. “But I do not repent. Those parables would have saved many a financier from failure and many a country from crisis.”

This reminded me of a talk by Mary Mellor at the last year’s Just Banking conference, in which, at around eight and a half minutes into the Youtube video of the talk, she talks about austerity policies as “handbag economics”—like the idea Cassidy attributes to Thatcher, this involves the false comparison between a country’s or government’s budget and a household budget, but Mellor’s nice feminist twist is to depict the advocates of austerity as financial father-figures and the people are the wife who is put on some kind of meager allowance. I Googled the term “handbag economics” (maybe it’s a standard term in Britain?} and the main reference I found was about Thatcher, from a piece in the Daily Mail comparing Cameron’s austerity policies (and photo ops) favorably to Thatcher’s:

[The Tory economic strategy] bears a surprising resemblance to the approach taken by another Conservative leader, Margaret Thatcher, whose handbag economics were famously derided by 364 economists in 1981, but which laid the foundations for Britain’s remarkable economic revival.

She understood that the nation’s finances, although involving far larger numbers, were in the end not that much different from a family’s. And that just as a family must balance its budget and make ends meet, so must the nation.

As she said: ‘My politics are based … on the things I and millions like me were brought up with…An honest day’s work for an honest day’s pay. Live within your means. Put by a nest egg for a rainy day’.

So Mr Cameron, as he attempts to make the most of his family’s finances with last ditch sales bargains from Woolies, has delivered a speech in which he makes clear that the country must practice the same thrift.

More Good Thatcher Articles:

(3) Chained CPI:

We’ll have an article about the “Chained CPI” alternative inflation measure that is Obama’s preferred method of beginning the dismantling of Social Security.  In the meantime, here’s an open letter to Obama, with a technical postscript, from Ron Baiman of the Chicago Political Economy Group:

April 8, 2013

Chicago, IL

Dear President Obama:

Please stop pretending that switching to a “chain linked’ CPI is, though unfortunately likely to reduce benefits, more “technically accurate” than the current “fixed basket” method of adjusting for the impact of inflation on social security benefits. It is not. It is more likely to result in an even greater underestimate of true cost of living increases for seniors than the current “fixed basket” method. You need to be honest with the American people and call this a “cut” and not try to camouflage this as a “technical fix” that more accurately implements the intent of the exiting Social Security program, as this is a “technical corruption” rather than an improvement of the method for estimating the impact of inflation on Social Security benefits for seniors, see Technical Postscript below.

Also, needless to say, at a time when more and more U.S. workers (through no fault of there own) have no, or much reduced (defined contribution) pension benefits, and less personal savings than at any previous time in modern history, it is the height of outrage to claim that this represents a “balanced approach” to budget cutting. Moreover, as you know, at a time when over 22 million people are unemployed and no progress has been made in increasing U.S. employment (especially not living-wage employment) relative to population since 2009, we need a budget stimulus supporting a large-scale federal jobs program that could be mostly financed by a Financial Transactions Tax, not more cuts to Federal programs (see: http://www.cpegonline.org/reports/jobs.pdfhttp://www.cpegonline.org/workingpapers/CPEGWP2010-2.pdf, and March Jobs Report forthcoming at: www.cpegonline.org)

Sincerely,

Ron Baiman
Chicago Political Economy Group

Technical Postscript

A simple Laspeyres “moving”or chain linked ( index where the base is adjusted every period is: “(last period quantities times current period prices)/(last period quantities times last period prices)” versus the standard fixed weight index which is: “(base quantities times current prices)/(base quantities times base prices)”.  More complex versions geometrically average Laspeyres and Paache chain links but however the “chain linked” index is calculated, the result will be that falling incomes cause consumers to shift  over time to less expensive quantities so that the chain link index will increase less rapidly, and vice versa for rising incomes.

It also means that if the chain-linked methodology were properly applied to consumption baskets of seniors rather than of the “average urban household” – the chain-linked methodology would probably produce a higher inflation COLA than the current fixed basket method due to continued use of new more expensive health care treatments.

The ruse here being used by the “budget cutters, is to use the “more accurate” chain-linked” methodology in a completely inaccurate way by basing COLA calculations on average households who (they/we – the bottom 99%) are becoming poorer and thus substituting for less-expensive goods and services causing the index to rise more slowly, but proposing to apply it (a chain-linked COLA) to entitlements used mostly by seniors for whom the index would rise more rapidly.

The appropriate response should then be: “fine go to a chain-linked index, but do it right!” and if you do it accurately, properly calculated COLA’s for the folks that make up the majority of recipients of the programs in question, will probably increase faster than it would under the current fixed-based CPI. (The CPI, by the way, is also calculated inaccurately for “average urban households” and thus understates the true COLA for seniors – but less so than a similarly “improperly calculated” chain-link index would).

(4) Real Estate in London and San Francisco:

 

Two piece on London real estate worth checking out, both about the uber-rich buying absentee apartments:

And two piece on San Francisco–partly about real estate, but more about the influx of high-paid tech workers:

  • Rebecca Solnit (London Review of Books):  Diary–Google Invades.  (Hat-tip:  Ben C.)
  • Ellen Cushing (East Bay Express): The Bacon-Wrapped Economy. (Hat-tip: Ben C. and Darwin B-G). This one seems a bit factually challenged, starting with the astonishing claim in the first paragraph that Google is the third largest company in the world. (It’s the second-largest tech company, but it’s something like the 200th-largest company. Unless you measure by web traffic or something, rather than revenue? But then it’d be first, surely.

(5) Jeannette Wicks-Lim on the Minimum Wage:  On the Real News Network, backing up Elizabeth Warren’s claim, in a Senate hearing, that raising the minimum wage won’t lead to layoffs.  Don’t read the comments section if you don’t want to get pissed off. 

(6) Darwin BondGraham on LIBOR:  Author of our current cover story, Darwin BondGraham (whom I got to meet in person in San Francisco last week) has a blog piece, It’s a Banker’s World, about how the litigation to recoup damages from the LIBOR scandal, “the greatest financial fraud in history,” has been thrown out.

That’s it for now!  I’ll continue to try to post shorter posts more frequently.

–Chris Sturr

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