Europe

The EU thing draws ever closer.

Some unstructured thoughts:

The Brexiters bringing about a legal challenge to which one of them should be the official campaign brilliantly illustrates the abilities of the average brexiter to get along with other people. Likewise, many brexiters seem very confident of things they can’t possibly predict. Bertrand Russell springs to mind: “The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.”

But…

…it’s a huge distraction to look at this by the players involved. Both sides are headed by politicians with vested interests. You can’t condense this down to “I shouldn’t back an exit because Nigel Farage is an idiot” (which he is), because ‘remain’ has some pretty shady characters too.

The net cost of EU membership, according to R4’s More or Less, is in the region of £9bn per year. This is a tiny sum; we spend 10 times that on state pensions alone. If membership of the EU has an effect on our economy, it is almost certainly an effect far greater than this number. It is a rounding error. So the statistic of “we send £large_number per day to the EU” is not a useful point to consider.

Freedom of movement is a raw deal for most people in the UK. Easy supply of cheap labour undermines wage growth and productivity. Voting to leave on this issue alone is perfectly justified.

However…

…two of the most notable nations going it alone against the EU, Norway and Switzerland, both accepted freedom of movement deals with the EU because the EU is quite strict on the idea that free movement of goods requires free movement of people. It’s naive to think that in the event of Brexit we’d be able to secure sufficient levels of international trade without the EU, or manage to secure large amounts of trade with the EU but avoid being pressured into accepting some kind of migration deal. If immigration is your main reason for voting, think very carefully.

The previous point illustrates something important. The EU is an influential entity which exists on our doorstep. I don’t think in general that the existence of the EU is a good thing for Britain, but leaving it won’t make it disappear. It might reduce our dependence on it, but probably not sufficiently to justify that we’ll lose almost all of our influence over it. I think most brexiters conflate the ideas of leaving the EU and dismantling the EU.

This is explained concisely in Yes Minister, which might be even more relevant now than when it was recorded.

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British Steel

The steel issue is complex, but the general overview is simple. The Chinese government is attacking British (and other nations’) steel industries with a standard monopolistic tactic called predatory pricing; they undercut it by running at a loss and you can guarantee that when they’ve put the competition out of business they’ll hike the price up. The EU wanted to counter this by increasing tariffs on Chinese steel to make it nearer the real ‘market value’, but the UK blocked it. Note that predatory pricing is illegal under EU law too.

This isn’t a matter of the free market de-selecting an uncompetitive business, because the market here is not free.

The government’s response to this so far seems to be “oh, ok then”.

It’s important to avoid the collapse of the UK steel industry because:

1. Port Talbot has a population of around 35k and is simply not going to withstand suddenly losing 4k jobs. It will cripple the local area and since the taxpayer will end up subsiding it anyway via welfare we might as well subsidise the steel production because that way we also keep the skills and production capacity there.

2. Steel is important to the defence industry, and as we are one of the only countries in Europe who maintain a decent defence capability it would be wise if we continued to do that. China pressuring our defence capability, indirectly or not, isn’t something we should just shrug off.

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IDS

Iain Duncan Smith resigns, citing ‘indefensible’ cuts to disability benefits.

I feel like I’ve walked into a parallel universe.

I know I’m missing the point here a bit, but this is a fantastic bit of politicking by IDS. So clever in fact … that maybe it was Boris’s idea?

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Budgets

It seems to me that George Osborne is increasingly at risk of boxing himself into a dead end. He’s been a very smart and cunning politician so far but he’s making the mistake of sticking to what worked in the past while the situation around him changes.

The cuts tactic worked well when Labour was still in recent memory and key members of the previous government were in key positions in the shadow cabinet. But people’s memories fade and now the inherent negativity of cutting spending is harder to deflect onto Labour.

Ultimately, balancing a budget by cuts becomes extremely difficult if not impossible past a certain point, because you end up cutting the things that indirectly bring in more money than they cost you.

While some cuts are almost certainly necessary, they become harder to make as time goes on because you’re left with fewer options. At that point, the focus should shift away from “how do I lose less money?” to “how do I earn more?”, which is an inherently more positive message. There are three or four fairly obvious policies that would help with that. All it will take is for a more charismatic opposition leader to emerge and Osborne’s going to be easily framed as a pessimistic miser who lacks the imagination to grow the country’s economy.

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Friendships are hard

Here’s a strange one.

For the past couple of years I’ve been chatting online to a guy maybe three times a week. To start with he seemed difficult to talk to and it amused me he would keep on messaging me only to not have much to say, but he was non-threatening so I humoured him. At some point he opened up a bit more and wasn’t quite such hard work, and I don’t know when it happened, but I started enjoying talking to him. That’s not the most flattering introduction, but I suppose it makes a bit more sense now.

A few days ago he dropped a bombshell on me and revealed that he has a life long degenerative physical disease that makes him disabled to the point that he has a live-in carer. It has completely thrown me. I had absolutely no idea he didn’t lead a normal if slightly boring life. It is obvious to me in retrospect that he intentionally led me to believe this because he uses his online presence as an escape from his real life, and I don’t begrudge him that one bit.

If you’d asked me last week what I felt about him I’d have just said I enjoyed talking to him and not thought any more about it. But it turns out I genuinely care about him and his well-being. I am a bit surprised. Sure, I only know him online, but the emotions are real.

He is a bit younger than me, but he is about the same age as the average life expectancy for someone with his condition. I haven’t quizzed him on this directly, because, well, how can you? But there’s a lot of variance in that average and it’s by no means impossible that he could live for another 15 years. He’s often seemed subdued in the past so I didn’t think much of it at the time, but over the last few weeks he has consistently seemed particularly low. After some deliberation, I decided to flat out ask him if he’d chosen to reveal this now because it’s getting worse and he’s worried about it. He denied it while saying he was worried about possibly increasing costs of care (due to politics), and this is very plausible, but I still can’t shake the idea.

In any case… I’m having a hard time dealing with it. There are a mixture of emotions. I feel:

Dissonance – I keep expecting to realise I imagined him telling me and actually he’s fine. A very bizarre feeling that I’m sure everyone is familiar with, but not normally in exactly this setting.
Worry – is he going to disappear at some point soon?
Frustration – because his situation is really fucking unfair and it is completely beyond anyone’s abilities to change it.
Absolute confusion – because, what do I do now? The answer to this is I keep treating him as I did, which is what I want to do and what (I assume) he wants me to do. But what I did before was I chatted to him a few times a week, or less if not convenient, feeling absolutely no obligation to do so. I think it’s important for both of us that I keep this casual approach going, but now I have to make an effort to keep it casual because I feel a mental obligation to entertain him and try to make his life better… which I can’t and shouldn’t try to do.

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PENSIONS

So, thanks to the government, I am now the proud owner of a pension which is growing at a rate of £55 a month (total), and is costing me only £14. I can increase my contribution to this, which will not increase my employer’s contribution, but will increase HMRC’s. Based on this, it sounds like I should increase my contribution to take advantage of HMRC. However:

1. I don’t really get the deal with the tax. OK, so HMRC contribute to it, but then I have to pay income tax when I come to withdraw it. I don’t fully understand here if they are really giving me free money or whether they are just letting me wait until I’m 70 to pay tax on my current earnings, in which case I don’t understand if this is a good deal or not. I think it is a good deal if I’m a higher rate tax payer now and get higher rate tax relief, but expect to pay the lower rate when I retire. This is just a long way of saying “higher earners get free money from the taxman, low earners don’t”. I find this confusing because it is clearly stupid.

2. The fund seems sub optimal. There are some options but they place disproportionate weight on the UK’s stock market. I didn’t get any choice over pension provider.

3. The fund’s fees are 0.5% per annum. If I’m expecting an average of about 3% return per year, that fee is not insignificant.

Over the past few years I’ve been funnelling a large percentage of my income into a stocks and shares index tracking ISA (with lower fees than 0.5%), which I’ve always viewed as a retirement saving. It is hard for me to understand if a pension offers anything more than that does. I don’t think it does. With the higher fees, it seems like I would just be donating some money to the pension fund manager.

As far as I can tell, the main advantage of a ‘real’ pension vs an ISA is the employer contribution, and if I’m maxing that out (which I am), it doesn’t matter where the rest of my money goes. The main drawback of the pension is that the money is inaccessible to me for a long time.

So, options:

1. Pensions are not more important than ISAs => keep things as they are
2. Pensions are important => Pay more in
3. Pensions are important, but this one could be better => Get a private pension that gives me more preferable fund options and lower fees and pay into that instead (employer contribution still goes into first pension).

So far, I am leaning towards option 3 for a bit of diversification, but I will wait for George Osborne’s pension reforms to unfold in a few weeks.

UPDATE: Since I first drafted this, it looks like Osborne is going to do away with tax-relief and move to an ISA model. People are whinging about this, but it makes more sense to me because it means 1. the system is more transparent, and 2. standard rate tax payers taxes aren’t used to subsidise higher earners’ retirement contributions before their own and subsequently end up drawing benefits out in their old age because they didn’t save enough…

UPDATE #2: Oh it turns out he’s scrapped that. I suppose I was being optimistic expecting the conservatives to do something fiscally sensible.

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The EU

The EU thing is very confusing and I think the reason for this is that neither side has handled it very well.

On the one hand, the EU seems steadfast against any kind of reform suggested by us and view us with suspicion for even suggesting it, while simultaneously blundering its way between crises of its own making. Cameron asked for little of importance and after much posturing from both sides, got even less.

On the other hand, the domestic situation here is also bad. Cameron’s demands seem pretty weak and yet as a man who has built his entire career on being quite bland and inoffensive it’s hard to believe he’s really pushing hard for them. The big names in the ‘leave’ campaign are suspicious.

We have people like Nigel “should I stay or should I go” Farage, who discredited himself with his own imbecilic behaviour in the run up and immediate aftermath of the general election; we have Daniel Hannan who is a very convincing and talented speaker, but it’s easy to be a convincing orator if you don’t limit your arguments to facts; we’ve got a growing band of useful idiot Tory ministers like IDS, Priti Patel and Michael Gove who are consistently on the wrong side of common sense and the best interests of the British public; and then we’ve got speculative people, which might include Boris, who just want to back the winning side to give them the best career options post referendum (in Boris’s case, number 10).

In summary, spearheading one campaign is a bunch of politicians and spearheading the other campaign is a bunch of politicians. We just have to choose the least wrong option. I have no idea which that is.

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