On public debt, yields and its affordability

On public debt, yields and its affordability

The government and Labour MPs seem fascinated by bond yields. They present the fact that UK yields are high is seen as a short cut to arguing that the Government can’t afford the interest rates on bonds and arguing that the last word on the deficit has to be held by the markets.

This article looks at what the ‘yield’ actually is, argues it is the outcome of policy decisions, that rising yields have no effect or at least very little effect on public finances. It also argues that quantitative tightening makes the affordability of the deficit worse and that alternative debt management operations would ease the situation. It also suggests that the credit default swap price is a better indicator of the market assessment of the viability of public finances. …

On the autumn statement 2026

Rachel Reeves in front of No 10/1 with a red box

A quick note on the budget, remembering I wasn’t as critical of last year’s as some, at least not on macro-economic grounds. I was obviously against the failure to abolish the two child cap, but also against the failure to properly fund universities, students, and local government.

So this budget is, to me, a bit meh and I agree with Fisher, why wait for a year? Still nothing on HE or Local Government finance, and the wealth taxation is very weak and poorly focused. No capital gains tax equalisation, no financial transaction tax.

The freezing of tax free allowance amounts is probably more damaging to those on the margin of the upper rate tax band but as I read it, it’s a piece of accounting magic. There were no plans to change it for the next two tax years anyway, and they can change their minds, although some of the impact will occur after the next election.

Also the FT reports that leading business people consider it insufficiently stimulating of growth, which in their case is probably not code for, “We need to rejoin the single market and customs union.”, although there are many, including me and Liz Webster, that are saying so; our macro-economic arguments recently augmented by a report from the US non-partisan National Bureau of Economic Research and by Ryan Bourne’s recanting of his pro-Brexit position.

Image Credit: from freemalaysiatoday cc 2024 by …

About the AI Boom

an AI chip on a board

Five things

  1. There’s no positive business model, they can’t replace staff, or at least not without new supervisors.
  2. They are now borrowing to invest in each other.
  3. Hallucinations are a feature, it gets things wrong,
  4. The rule base’s ownership is obscure and Code is Law
  5. It’s [deliberately] wasteful of resources which people need to live.

It’s useless as a pillar of a growth/industrial policy. …

The downsides of the A.I. industry.

Karen Hao in front of a book shelf

I have recently, watched the YouTube video, “How tech CEOs are lying to you”, where Karen Hao is interviewed by  Aaron Bastani on Novara Media's channel. Ms Hao has just published a book, “Empire of AI” and the interview covers the topics of the book.

At the centre of her arguments are, that large language modules aka AI, and their use of resources, water, power, land and rare metals are a choice, and one that society cannot afford. She questions the business model of the AI industry, sees it as a threat to [US] wealth and notes its scofflaw approach to its own regulation and its oppression of poor and vulnerable communities. She is highly critical of the motivations of the oligarchs funding the AI bubble.

The remainder of this article, which is over 2000 words is overleaf, use the "Read More" button ....

How much has Brexit cost us?

Reuters Square, if its still called that in black and white.

While posting my notes on my reference back for Labour Conference I fell back on the OBR statistic that Brexit had cost the UK 4% of GDP. I thought a chart would have been helpful and so went looking for one.

The NIESR published an article, Revisiting the effects of Brexit, which now they’ve archived it, no longer has the chart they made from the model, but google search can still find it today.

Their model tries to disentangle the effects of the COVID slump, and the article, dated 2023, says,

These estimates suggest that Brexit had already reduced UK real GDP relative to the baseline by just under one per cent in 2020 as consumers and businesses adapted their expectations even before the TCA came into force. Our estimates further suggest that three years after the transition period, UK real GDP is some 2-3 per cent lower due to Brexit, compared to a scenario where the United Kingdom retained EU membership.

 …

On the necessary regulation of AI

a robot issuing a parking ticket, generated by deepai.org

I wrote a piece for Chartist on AI & its regulation, which I have signposted on LInkedin. I look at its likely macro-economic effects and the essential defence of Article 22 of the GDPR, where I say,

… the most important defences that we as citizens, workers, and consumers have is the EU’s GDPR, which in Article 22 & Recital 71 establishes what they call a right to “freedom from profiling”. This, through the rulings of the CJEU, has become quite extensive and now prohibits such things as ‘general monitoring’, a legal protection brought forcefully to light by the French supervisory authority fining Amazon €32m for violations of the GDPR within their workforce management regime.

In the article, I talk about the problem of Authority vs Popularity, the need for open source, and source citation. I also review the need for some innovators for privacy and competitive advantage and the possible future of regulation of AI to ensure decency and accountability. I also look at the patchy European response and the paradoxical attitude of the US.

I conclude.

In summary, there are plenty of laws to ensure that AI and its owners behave decently, and in some European countries, the will and resources to enforce them, but it’s not universal. Also, there are important economic countervailing forces opposing the creation of a privately owned “Global Intellect” even if the current technology is capable of such a task.

 …

Tariffs and other trade barriers

image of the alaskan highway

Last night I watched a video about Canada raising a large toll on lorries travelling from the Lower 48 to Alaska, and it documents and forecast the impact on the fragile Alaskan economy. It reminded me of the trade barriers that the UK has put in place due to Brexit. This is potentially disastrous for Alaska, and is clearly so for the UK where today the FT reports that according to the ONS, the UK economy shrank for the second quarter in a row.

The trade to GDP rate in the UK is 63%, which seems enormous to me, but it seems to be merely above average and yet it illustrates the UK’s dependency on the rest of the world to feed itself and keep itself warm and sheltered. The US rate is 25% which is low by international comparison and may be one of the reasons that Trump can afford to be as foolish as he is with his tariff policies, noting that it’s the US consumers who ultimately pay his tariffs. Source: World Bank.

The EU flag, before castor and pollux,

But for the UK, this is another piece of evidence that the UK needs to rejoin the EU’s single market, but even if this common sense actually strikes this Labour government, I doubt that the Eire/Holland/France traffic will return to the UK. …

Brexit, reset or stall?

the staircase at Lancaster House

Last week, the UK and the EU met at the most senior levels in what the labour government has described as a reset of EU relations. As usual, the conclusions are best documented on the EU website where they published a joint communique. Certainly the results of the negotiations have changed few minds. While I consider that the best result would be if both sides walked out thinking they’d won, my feeling is that this was a draw, although no major breakthroughs occurred and a huge opportunity wasted, primarily due to the lack of vision and ambition on the part of the Labour government. The rest of the article can be read over leaf ...