Author Topic: Sovereign Fiscal Responsibility Index  (Read 717 times)

atseacliff

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Sovereign Fiscal Responsibility Index
« on: March 23, 2011, 17:33:26 GMT »
Launched today the Sovereign Fiscal Responsibility Index aims to "provides unique and useful insight into the fiscal sustainability of countries across the globe by incorporating a wide range of important factors". The SFRI is the result of a Master's Thesis project completed by a team of Stanford University graduate students under the guidance of the David Walker, the former Comptroller General of the United States. The SFRI incorporates both quantitative and qualitative metrics, to define 'fiscal responsibility' and to conduct cross-country comparisons. 

The SFRI found that Australia and New Zealand are the most fiscally responsible countries; however Estonia, China, Chile and Brazil are also rated amongst the top 10. Notsurprisingly, Portugal, Italy, Ireland, Greece, Spain and Japan are ranked near the bottom of the list. The United States is ranked number 28 out of the 34 countries analyzed.

The full report and robustness of the underlying methodology will be worth examining in further detail over the next few weeks.  All materials relating to the Index are available on the Comeback America website http://tcaii.org/stats_other.htm.

harnett

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Re: Sovereign Fiscal Responsibility Index
« Reply #1 on: March 25, 2011, 14:13:29 GMT »
Interesting - thank you.  One wonders if the level of "responsibility" in the US reflects a "too big to fail" attitude at all.

atseacliff

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Re: Sovereign Fiscal Responsibility Index
« Reply #2 on: March 30, 2011, 19:17:20 GMT »
I'm really interested in Mr Walker's work.  He is attempting to discuss the serious weaknesses in the American fiscal position in a non-partisan way. For me its very liberating to hear critical issues of slow economic growth, aging populations, fiscal deficits and public sector pensions discussed without descending into political dogma.  I wonder if he will manage to steer relatively free of political labelling - his comments on the British Government tackling the deficit raised a few eye-brows at the CIPFA conference. 

On that tack - an interesting view from the Economist which highlights the mess the Labour party is in in presently an alternative vision to the coalition which adds up.

Britain and the public spending cuts
Ed Miliband shunted off the television news by anarchists
Mar 26th 2011, 23:29 by Bagehot

BLIMEY, Bagehot thought, Miliband's early. Your blogger was in Hyde Park in central London at an anti-cuts demonstration organised by the Trades Union Congress, and the Labour leader Ed Miliband had unexpectedly popped up on stage to address the crowd. The odd thing was, half the crowd was not there yet. It was just before two in the afternoon, and the grassy expanse set aside for the rally, stretching down from Speaker's Corner, was still sparsely populated with trade unionists and their friends. Mr Miliband was in a suit and tie, and as he appeared and started speaking, a sprinkling of hardline leftists began booing him and jeering. Others listened politely, but without wild enthusiasm. He spoke so early that when I bumped into a member of the shadow frontbench team, half an hour later, she had missed her leader's speech, and asked me how it had gone down with the crowd.
I assumed, without knowing what was going on elsewhere in central London, that Mr Miliband was anxious to speak before anything violent kicked off. I could see three helicopters hovering over Oxford Street and the West End, a mile or two to the right, and wondered if there was trouble underway. Mr Miliband's whole appearance reeked of caution: the dark grey business suit, the preamble about how "the Tories said I should not come today," his studiously generic tributes to inspiring protests of the past from the American civil rights movement to anti-apartheid campaigns, rather than any more red-blooded rhetoric about British trade unionism.

It was only later that a BBC colleague told me that violent protests had started at almost exactly the same moment as Mr Miliband began his remarks, prompting the rolling news channels to split their screens before finally cutting away from Mr Miliband completely.

Did Mr Miliband mess up? In a way, he had wretched luck. The main trade union march was strikingly peaceful. There were small children and babies in prams, and lots of marchers sitting down having picnics. The marchers were overwhelmingly public sector workers, and in real terms that meant the park was crammed with health visitors, nurses, teachers, college lecturers, tax inspectors and council town hall staff. Compared to the angry entitlement brigade I had met the previous day at Labour's People's Policy Forum in Nottingham, the TUC marchers were reasonable people. I made a point of asking scores of marchers whether they thought the cuts should be scrapped full stop, or whether they thought some cuts were inevitable. A big majority took the latter view: these were Keynesians not flat-earthers in the main. All were friendly and happy to talk.

Mr Miliband was also unlucky because the number of violent protestors was, by all accounts, small. A few hundred people vandalised branches of high street stores and banks they accuse of avoiding taxes, staged an occupation of Fortnum & Mason, the venerable Piccadilly grocers, and attacked police officers with flares and fireworks. He also repeated his honesty of Friday, telling the rally that: "I believe there is a need for difficult choices and some cuts", though this earned him boos.

But, that said, his ill-luck was also entirely predictable. Two days before the march, I found websites rallying protestors to launch physical attacks on shops in Oxford Street on Saturday, after about 10 seconds of Googling.

I think Mr Miliband's problem boils down to this. Most people in this country, including a lot of people I met on the march today, think that Britain faces a period of painful decisions and choices, because the country has been spending too much. Within that majority, there are people who are (for variously selfless and selfish reasons) attracted to a Keynesian argument that deep, front-loaded cuts are counter-productive, and so some painful decisions should be postponed. That is an intellectually respectable argument: this newspaper does not agree with it, but there are people of goodwill on both sides of the debate.

Then there is a hard core of people who simply do not accept that the money has run out. These flat-earthers think that there need not be any cuts, because if you only taxed the banks/bankers/multinationals/tax avoiders/the rich a lot more, you would unearth a hidden money pot filled with so many billions that we could keep spending as before. I don't think Mr Miliband agrees with them. I don't think most voters in Britain agree with them. I don't think even most of the marchers in Hyde Park agree with that hard core.
But that hard core has a firm grip on Labour's base, as could be seen on Friday in Nottingham. And Mr Miliband, by endorsing the wider anti-cuts movement, risks becoming associated with that hard core and their breathtaking lack of realism. He said again in Hyde Park that he was proud to be addressing the "mainstream majority". But he did not look proud: his nerves gave him away. "It is so important that this be a peaceful protest," he said at one point, almost pleadingly. The crowd seemed pretty indifferent to his presence, in return.

It was easy to get the impression that he was there because his absence felt riskier than putting in a swift, early appearance. Perhaps he had no choice. But he looked and sounded like a follower today, not a leader.
« Last Edit: March 31, 2011, 07:55:37 GMT by Napodano »

petagny

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Re: Sovereign Fiscal Responsibility Index
« Reply #3 on: March 31, 2011, 07:48:39 GMT »
I think the Governor of the Bank of England was purported to have said that the winning party of the 2010 election would be unelectable for a generation. Maybe all Miliband has to do is sit tight!

Economists have always underestimated the importance of 'fairness'. Difficult to define but, like an elephant, people recognise 'unfairness' when they see it. Most people probably recognise that cuts have to be made (although as the Economist points out, there is a legitimate debate over timing), but they need to see that it is being done in a fair way. There's an interesting article in yesterday's FT by Jeffrey Sachs on the race to the bottom on corporate tax - and, the other side of the coin, an increasing tax burden on non-mobile (i.e., low and middle income) taxpayers.

http://www.ft.com/cms/s/0/8836f284-592a-11e0-b9f6-00144feab49a.html#axzz1HsExXYxp

It's not often that I agree with Jeffrey Sachs, but I am inclined towards his arguments in this case.

I spent Tuesday with a French businessman who was insisting on the importance of low corporate income tax. He thought the Irish rate of 12.5% was about right - he would wouldn't he! At 33%, corporate income tax in France does look on the high side, but 12.5% would not meet the fairness test, nor would it in the UK.

Layard has written much about fairness. There's some important behavioural research underpinning his work, some of which shows that people are ready to accept lower absolute incomes in the context of a 'fairer' overall allocation, i.e., ratios can be more important than levels.

By the way, I don't think that most people equate 'fairness' with 'equal opportunity' as the UK Coalition seems to be trying to do.
« Last Edit: March 31, 2011, 08:05:09 GMT by petagny »

harnett

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Re: Sovereign Fiscal Responsibility Index
« Reply #4 on: March 31, 2011, 21:06:21 GMT »
Yes Petagny - all Miliband has to do is sit tight and watch the disillusionment with the coalition grow exponentially (whether this is fair or not is another matter).  So all the more surprising that he decided to turn up to the rally on cuts - little to gain and plenty to lose - or is that easy to say in retrospect?

As for fairness - the old "Ultimatum" experiment ( http://en.wikipedia.org/wiki/Ultimatum_game ) put paid to the notion of perfect economic rationality and indicated that people would not accept small increases in income if they deemed the allocation "unfair".  But in that game they knew the source of unfairness. 

The present problem appears to be that there is no mechanism to recoup losses incurred under the crash (which would be fair!!!).  Any attempt to do that on a national basis results in human and financial capital flight.  It does appear that there has been a massive transfer of wealth from relatively poor taxpayers in the world to bankers and their acolytes - for sure the money has to have gone somewhere, no?

So... what is the rational response in this situation?  We can't recoup the losses.  Debate rages about the speed and depth of cuts (though in reality there is little to choose between the main 2 British parties).  Certainly more and more people in the UK will feel the effects of cuts over the coming couple of years.  A concern must be if the forthcoming rage cannot be channelled into a positive strategy, then we'll be seeing more news items devoted to the left/anarchist fringe rather than mainstream politicians in suits.

petagny

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Re: Sovereign Fiscal Responsibility Index
« Reply #5 on: April 06, 2011, 09:55:46 GMT »
Was Miliband's presence payback time for TUC support in his election as party leader?

Harnett has a good point about a positive strategy. There is a risk of dangerous alternatives appearing appealing to a disillusioned public.

In Ireland, many taxpayers clearly see it as unfair that they have to carry an enormous burden in order to protect senior bondholders of failed banks.

In the UK, bankers bonuses has been the issue, although I see this as being a symptom of the wider problem of implicit government guarantees for risky banking activity. A good start in the fairness stakes would be to put in place safeguards to ensure that the same catastrophe doesn't happen again. We shall have to see what Sir John Vickers's final recommendations on the structure of the banking sector are before deciding whether progress in this direction has been made. The fact that the big banks have been lobbying so furiously to prevent any ringfencing of utility banking and investment banking activities indicates that this implicit guarantee is worth something in financial terms, which indicates a potentially costly risk for taxpayers (again), which seems unfair...

I wonder if Reg has anything to say on fairness.

Reg

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Re: Sovereign Fiscal Responsibility Index
« Reply #6 on: April 08, 2011, 20:28:47 GMT »
Yeah, I do as it happens, but I'm tryin' to sort out what i think about fairness from what I think about fares  - gets tricky - nice games on how we  behave in the abstract are interesting - we know we'd all torture given the right context and all that, but when you have a personal choice about being fair to all those people in Trafalgar Square blocking up the traffic and wanting to get to the city to pick up a fare from "the financial service company with whom one 'as a contract" and where the remaining staff are high enough paid to buy 'Reg's taxi app.' (TM) and use a cab rather than a night bus and give a tip to show off to their nocturnal company (temporary - who'd live with someone who works those hours?) that they spread it about a bit and know about fairness , well you get a bit mixed up if you follow my drift. 

Had that Sir John in my cab - asked him if we'd get more accounts if he did the Glassy-Stiggle thing:  he said he didn't know for sure but said  I'd be alright if I kept the accounts with C--tts and J. -.M-rg-n  (Oh yeah I used to work as credit clerk when I was a nipper, so a nod's as good as wink, at least in the square mile).

I'd appreciate some advice about how the likely senior 'piggsy' bank bond portfolio returns stand in the long term vis a vis some short term pain on public services (assuming I keep me job/cab on the road)- that Barry Eichengreen when he used my cab always said the long term returns on sovereign debt defaulters from the 30's and 80's  was alright provided you didn't need to feed your kids with Brazilian, and Chilean paper in 1983 - glad to hear they are fiscally responsible today...  must go there's a fare in striped suit waving his iphone at me...

petagny

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Re: Sovereign Fiscal Responsibility Index
« Reply #7 on: April 12, 2011, 07:55:26 GMT »
Reg,

Good to get your input! Grateful if you would keep your ears open while driving that cab of your round the Square Mile. Are your clients laughing their socks off over the Vickers Report? This is what Philip Stephens suggests in the FT - 'The Banks Get Away With It Again!'.

http://www.ft.com/cms/s/0/28c82b24-6474-11e0-a69a-00144feab49a.html#axzz1J2Jkzy2e

Stephens says: 'There are a couple of things to say about Britain’s banks. They still pose a serious threat to the nation’s long-term stability and prosperity. They rely for their profits – and for the huge bonuses paid to senior staff – on the fact that taxpayers are underwriting the risks. Thus public subsidy is turned into private profit'

Stephens suggests that the logic behind ringfencing utility and investment banking points even more strongly to breaking up the two (i.e. Glass-Steagall for the UK): 'The commission, however, baulks at the intellectual logic of its own diagnosis. What is needed is a formal separation between retail and investment banking. Such a break-up would see taxpayers guaranteeing the socially essential parts of the industry and the gamblers obliged to wager their own money. Separation along these lines would not remove all the risks. It would be an important stride in that direction.' But this is unpalatable to politicians - too much short term grief!

Regards,

Petagny

petagny

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Re: Sovereign Fiscal Responsibility Index
« Reply #8 on: April 13, 2011, 08:41:49 GMT »
John Kay also thinks the banks might have 'got away with it' (see today's FT).

The Vickers proposal 'is to rely heavily on a 10 per cent capital ratio on these ring-fenced UK retail banking operations. This is a more than adequate equity base for a traditional, conservative retail bank. But would the retail banking subsidiaries of a financial conglomerate controlled by investment bankers resemble a traditional conservative retail bank?

Or would the treasury operations of such a bank develop to a size and scale more appropriate to an investment bank – the process that undermined the Glass Steagall act’s separation of US banking activities long before its 1999 abolition. Have we not learnt that a capital ratio is an inadequate regulatory tool on its own once the range of balance sheet assets multiplies?

And there are to be no limits on cross-dealing with other businesses in the group so long as the 10 per cent capital ratio is maintained. Is this consistent with the overriding objective that government can confidently seize control of the retail activities of the retail arm of a failing conglomerate over a weekend, and put the rest of the institution in the hands of a liquidator?'

 

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