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Frances Coppola

Frances Coppola

I’m Frances Coppola, writer, singer and twitterer extraordinaire. I am politically non-aligned and economically neutral (I do not regard myself as “belonging” to any particular school of economics). I do not give investment advice and I have no investments.Coppola Comment is my main blog. I am also the author of the Singing is Easy blog, where I write about singing, teaching and muscial expression, and Still Life With Paradox, which contains personal reflections on life, faith and morality.

Articles by Frances Coppola

Arithmetic for Austrians

3 days ago

This piece grew from a number of conversations with people of Austrian economic persuasion, mostly Bitcoiners and goldbugs (which these days seem mysteriously to have converged). I thought of calling this "Monetarism for goldbugs", but decided to preserve the mathematical slant of the previous pieces in this series. But it’s monetary arithmetic, of course. And as Austrians tend to obsess about "sound money", it is specifically sound monetary arithmetic. (Note: Someone has pointed out on Twitter that the arithmetic in this piece is considerably more advanced than the equations themselves suggest. If you are bit rusty on the mathematics of change, I suggest reading the first piece in this series, Calculus for Journalists). 
Inflation is complicated
As "sound money" seems to mean "no

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The Bitcoin Standard – a critical review

13 days ago

For over a century now, the world has lacked a genuinely international means of payment. This is partly due to decisions made at the Bretton Woods conference in 1944, when the US dollar was adopted as the principal international settlement currency, rather than John Maynard Keynes’s suggestion of an independent global currency that he called "bancor". Although the Bretton Woods gold-backed structure ended in 1971, the US dollar became ever more dominant. In 2008, the dollar’s global reach enabled an American financial crisis to spread to the entire world, causing a deep recession and long-lasting malaise. Ever since, there has been a deep longing for a more stable international financial system, one which didn’t depend on debt, wasn’t dominated by the US and was immune to political

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The EU is not a bastion of protectionism

March 15, 2018

Jamie Powell at FT Alphaville has debunked the USA’s claim to be the least protectionist trade area in the world. With the help of a couple of useful charts, he shows that it comes in a modest ninth on the list in trade-weighted terms. Go Jamie. The "victim America" narrative really needs to be stamped on, hard. America’s trade deficit is not caused by mercantilist trade policies in other countries, it is an inevitable consequence of the dominance of the dollar – and is thus a measure of America’s post-war success. But in the course of debunking the USA, Jamie also incidentally debunked the Ultra Brexiters.
The Ultras insist that the EU is a bastion of protectionism, with extremely high tariff barriers to third countries. Indeed it does have very high tariffs for some products, mostly

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The sad story of Maplin Electronics

March 7, 2018

Last week saw two high-profile corporate failures in the UK. Toys R Us finally went into administration after a stay of execution over Christmas. And private equity firm Rutland Partners pulled the plug on geeky electronics retailer Maplin. Total job losses from both failures amount to something in the region of 5,000 across the whole of the UK.
No-one was particularly surprised by the failure of Toys R Us. The company had proved slow to respond to the rise of online shopping and the trend away from large out-of-town retail outlets in favour of small local shops. In the US, Toys R Us filed for Chapter 11 bankruptcy protection (the American equivalent of administration) in September 2017. Despite the American company’s insistence that its European operations were not affected, it was

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An Alternative Brexit Polemic

February 23, 2018

You would think, wouldn’t you, that an "Alternative Brexit Economic Analysis" by four highly experienced and qualified economists would be a rigorous exercise in economic forecasting, supported by excellent econometrics and with care taken to avoid confirmation and selection bias?  A new paper from the Brexit-supporting thinktank Economists for Free Trade critiques the Government’s recent forecast that Brexit would cause a GDP loss of between 2 and 8 percent over 15 years, with the "hardest" Brexit causing the greatest loss. Or at least, that’s what the paper says it is doing. But the way it goes about it is decidedly odd for something claiming to be an "Alternative Brexit Economic Analysis". The first section of the report is an extensive discussion of the reasons why no-one should

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The misery of Mitie

February 12, 2018

The failure of Carillion has brought to light widespread moral hazard in the outsourcing sector. For years, companies that deliver crucial public services relied on expectation of government support to keep their borrowing costs low and enable them to please shareholders by giving dividends they couldn’t afford. They, and the banks and investors that funded them, assumed they were too important to fail. So when Carillion was on the brink of failure, RBS tightened the screws, clearly believing that the UK government would eventually cough up (my emphasis):
RBS….insisted that this revised arrangement "would be in place until support from [the Government] had been agreed and that the terms of this support would determine whether other uncommitted facilities with RBS would be

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Clearing out Carillion’s cupboards

January 29, 2018

Those excellent researchers at the House of Commons Library have produced a briefing paper on the Carillion collapse. It is clear, succinct and well-researched. And extremely grim.The researchers seem to have gone back through the reports & accounts to about 2009. And they conclude that Carillion was a basket case not just in the last year of its life, but from about 2011 onwards. I’ve now done the same exercise, and I agree with them. Carillion’s cupboards were virtually bare, and the little that was in them stank.This chart summarises the mess that Carillion got itself into:

We need to be a little careful with this chart, of course, since it is comparing stocks and flows. But what it shows is that a large uplift in loans in 2010-12 generated absolutely no additional net cash revenue

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The Carillion whitewash

January 20, 2018

The Carillion whitewash has begun. Carillion’s interim CEO, Keith Cochrane, is spinning the line that had banks not pulled funding, its collapse could have been
averted. And the Financial Times has
released details of a letter Carillion sent to the Government at the
beginning of January, in which it asked for short-term advances to tide it over while it underwent restructuring. Labour MP Pat McFadden has written to the Treasury
Secretary asking whether it would have been more cost-effective for the U.K. Government
to support Carillion, rather than allowing it to collapse.
This looks to me like a campaign to deflect blame from Carillion’s management to its lenders and customers. We are being led to believe that it wasn’t insolvent, it was just illiquid, and depriving it of short-term

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The Fat Controller of the Lightning Network

January 17, 2018

The geeks to whom my post on probability was addressed responded exactly as I expected. "You don’t understand the tech", they said. And they went on about network routing protocols and Dijkstra’s algorithm. Someone even sent me a spec for an onion routing protocol for the Lightning network. I read it and sighed. They had completely missed the point.
To be sure, I had made an incorrect assumption about Lightning. I assumed that Lightning devs respected property rights. It turns out that they don’t even know what property rights are, let alone respect them. They see Lightning’s pathfinding problem as entirely a technical matter. If it were, then solving it would simply involve developing algorithms to oversee the network and find the most efficient payment paths. I did mention this

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Tribalism in political appointments

January 11, 2018

So Toby Young was eventually hounded into resigning from the board of the Office for Students. I confess, I was one of those who hounded him. I thought, and still think, that his appointment was wholly inappropriate.
I was not sorry to see Jo Johnson subsequently moved out of the Department for Education, either, though personally I would have sacked him. Johnson, who was instrumental in bringing about Young’s appointment, defended it to the House of Commons on the extraordinary grounds that Young was on a "developmental journey". It’s absolutely fine for Young to go on a developmental journey, of course, but not paid for by my taxes or affecting the lives of my children (my daughter is currently a university student).
But there is a much bigger issue here. Why was Young ever appointed

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Probability for geeks

January 9, 2018

The Lightning network is being touted as the solution to Bitcoin’s scaling problems. If lots of transactions can be taken off the main chain, the thinking goes, then Bitcoin can still take over the world despite its considerable performance problems. Lightning enthusiasts say that when fully enacted, the network will be able to process millions of transactions at, er, lightning speed, without compromising decentralisation, security or transparency.But there are dissenting voices. For example, in this piece, Jonald Fyookball disputes the claims of the Lightning enthusiasts on the grounds that the mathematics doesn’t stack up. Predictably, the Lightning geeks have fought back: the pseudonymous "Murch", a software engineer at the Bitgo cryptocurrency exchange, describes Fyookball’s

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Toby Young’s repugnant eugenics

January 4, 2018

Eugenics has a bad reputation. Even the word "eugenics" is repugnant to many people, associated as it is with atrocities – forced sterilization programmes in America, for example, and of course the horrors of Nazi Germany. We like to see eugenics as discredited pseudo-science that has been consigned to the dust of history. Never again will we treat people as expendable simply because of their inherited characteristics.
But ideas that we discard because of their horrible consequences have a way of returning, dressed up in respectable clothing. Eugenic ideas have existed – and been acted upon – since ancient times. The idea of eliminating those who are, or will be, a burden on society because of disability raises hackles now, but in ancient Rome it was regarded as a public duty. The

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The terrible price of austerity

December 28, 2017

In August 2014, I wrote this post arguing that harsh austerity during the Depression caused Hitler’s rise to power. At the time, my argument seemed controversial, at least in Germany. There, it is not the austerity of 1930-32 that is blamed, but the debt-driven hyperinflation of a decade earlier. Germans remain terrified of both inflation and debt to this day.I am certainly not the only person to identify a causative link between austerity and Hitler. Here is Paul Krugman slapping down Eduardo Porter in 2015, for example:
Yes, there was a hyperinflation in 1923, which may have helped radicalize German politics. But the proximate factor in Hitler’s rise to power was the great deflation of the 1930s, brought on by a disastrous attempt to stay on gold. 
Disastrously staying on gold might

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Thirty-three flawed Theses

December 18, 2017

Five hundred years ago, so legend has it, a dissident priest called Martin Luther nailed a list of 95 "theses" to the door of the Castle Church in Wittenburg. His action launched the Protestant Reformation. 

Last week, the dissident economist Steve Keen "nailed" a list of 33 Theses to the door of the London School of Economics. His aim was to launch a Reformation in economics as significant as the religious Reformation that Luther started. It was a bold gesture.But for such a movement to take hold, there has to be substance in the criticisms. And as I read the 33 Theses, my heart sank. For these are in no way like the 95 Theses.Luther’s 95 Theses are a brilliantly argued academic case against the (then) Roman Catholic doctrine of indulgences, which was a clerical scheme for fleecing

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Demolishing a straw man

December 13, 2017

This is David Hencke’s response to my comment on his blog. You can find the Coppola Comment version of my comment here.For the record while not replying to all your points.
1. I cover a wide range of topics on my blog – child sex abuse, domestic violence, bad treatment of the disabled, the rise of Jeremy Corbyn, dodgy privatisations, institutional racism etc.
2. Given the government has to write to everyone telling them when their pension is due, it is not beyond the wit of man or woman to tell everyone personally when the change came into effect.
3 your main point seems to be that pensions are not a right but a benefit that presumably could be means tested. I am afraid they are not marketed like that – with all the qualifying rules for NI to get one for a start. they are still a

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Never mind WASPI, just look at Back to 60

December 12, 2017

The Back to 60 Campaign is attracting the attention of some high-profile people. Michael Mansfield QC has publicly endorsed it, although he has backed off from providing legal representation in their claim for state pension at 60. And now the journalist David Hencke has written a blogpost about the campaign.The sole source of Hencke’s information about the campaign appears to be this video, in which a number of women complain about the effect that not receiving state pension at 60 has had on them and their families. As is all too often the case with 1950s women’s pensions campaign material, the video is littered with gross factual errors, such as the talk of "earned dues" being wilfully withheld, and the notion that the government is in breach of contract. There are also some frankly

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Trade and currency, a Brexiter’s delusion

December 6, 2017

If there is one industry Brexit has stimulated, it is the
production of daft ideas for regenerating the UK economy after its exit from
the EU. Many of the offerings have been from people who really like the idea of
Britain becoming a European version of Singapore. But the left wing is not
short of silly schemes either. This one, from businessman and self-styled economist
John Mills, is one of the silliest I have seen.John Mills is chairman of John Mills Limited (JML). On his
biography, he describes this as “a consumer goods company specialising in
selling products requiring audio-visual promotion at the point of sale, based in the UK but with sales throughout
the world.” Emphasis is mine, for reasons which will shortly become
apparent.
John Mills is also a long-standing supporter of

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Productivity and Employment: A Cautionary Tale

November 24, 2017

Ah, productivity. Who knew that our whole prosperity was totally dependent on a concept as nebulous as this?To be sure, it doesn’t sound nebulous. It is output per worker per hour. What is so difficult about that?The problem is how you define "output". Usually, we take this to mean GDP (gross domestic product), though we might use GNP (gross national product) or GVA (gross value added). In this post, I shall use GDP.As Diane Coyle has engagingly written, GDP is a deeply flawed measure. Yet we are obsessed with it. The Eurozone uses government debt-to-GDP and deficit-to-GDP ratios to justify harsh spending cuts and tax rises. In the UK, "WE MUST PAY DOWN THE DEBT!" roar the headlines, entirely missing the point that debt-to-GDP is a ratio, so even if we never borrowed another penny, it

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The Amazing Conversion of Sir James Dyson

November 20, 2017

“Will you tell me how long you have loved him?” asks Jane
Bennet, on receiving the astonishing news that her sister Elizabeth is to marry
Darcy, the rich aristocrat she used to hate.
“It has been coming on so gradually, that I hardly know when
it began,” replies Elizabeth. “But I believe I must date it from my first
seeing his beautiful grounds at Pemberley.”
This is from the end of Jane Austen’s Pride and Prejudice. Austen is lampooning the British 19th
century marriage market, in which women (and men) pretended to “fall in love”
when in fact they were marrying for money. But for cynics like me, such a remarkable
conversion has echoes in the 21st century. When someone suddenly becomes
an ardent supporter of an ideology they had previously – equally ardently – opposed,
always follow the

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More on productivity

November 15, 2017

The ONS’s latest flash productivity estimate is rather good. Productivity in Quarter 3 2017 was up by 0.9% on the previous quarter. Here’s what ONS has to say about it:
Output per hour growth in Quarter 3 2017 was the result of a 0.4% increase in gross value added (GVA) (using the preliminary gross domestic product (GDP) estimate) accompanied by a 0.5% fall in total hours worked (using the latest Labour Force Survey data). This fall in total hours was driven primarily by a 0.5% fall in average hours per worker.
Yes, yes, I know – economics jargon. Let me translate. ONS in plain English:
People are working fewer hours, but they are producing more every hour. 
Of course, this should be set against the backdrop of persistently low productivity since the 2008 financial crisis. Productivity

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Money creation in a post-crisis world

October 29, 2017

As many of you know, I have spent much of the last seven years explaining to
anyone who will listen that banks do not "lend out" deposits or
reserves. Rather, they create both loan assets and matching deposit liabilities
"from nothing" by means of double entry accounting entries. Creating money
with a stroke of the pen (or a few taps on a computer keyboard) is what
banks do.But this does not mean that the money that banks create comes from nowhere. It doesn’t. It is only created when they lend (or when they purchase assets, which is equivalent to lending). As Pontus Rendahl explains in a comment on my previous blogpost, what banks do is liquidity transformation – exchanging long-term illiquid assets for short-term liquid ones:

How do private banks create money? They create a deposit.

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Beyond disappointment

October 23, 2017

I’m sitting in a coffee shop opposite Haymarket Station in Edinburgh. Just up the road, the Institute for New Economic Thinking (INET) is holding its conference. I’m supposed to be there, as I was yesterday and the day before. But I am not at all sure I want to go. The last two days have left a very bitter taste.This conference, grandly entitled "Reawakening", is supposed to be a showcase for the "new economic thinking" of INET’s name. I hoped to hear new voices and exciting ideas. At the very least, I expected serious discussion of, inter alia, radical reform of the financial system, digital ledger technology and cryptocurrencies, universal basic income (recently cautiously endorsed by the IMF), wealth taxation (also recently endorsed by the IMF), robots and the future of work. And I

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Lehman’s Aftershocks

October 12, 2017

Peter Praet’s speech at the Money, Macro and Finance conference last week was a goldmine. I’ve already discussed the central bank credibility problem revealed by his final slide. But his presentation went far, far wider than central banks. It raised serious questions about the future of the global economy.This slide – the first in his presentation – shows that there have been three significant global shocks in the last decade, not one:

The first, obviously, is the deep global recession caused by the failure of Lehman Brothers in September 2008. But what are the other two?As Toby Nangle’s annotations to Peter Praet’s second chart show, the second is the Eurozone crisis, and the third is the emerging market crisis triggered by the unwinding of the oil & commodities boom:

Looking at

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Central banks’ credibility problem

October 4, 2017

In a speech in London the other day, Peter Praet discussed the ECB’s unconventional policy measures. I was there, and I have to say that he deviated considerably – and rather entertainingly – from the version of the speech on the ECB website. But his core message was still the same:
"Rates are expected to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.
So, no interest rate hikes for a long time to come.But that’s not what his final chart says:

Market expectations are that interest rates will start to rise any day now. And no, this is not expectations of rate rises due to the end of QE, which the ECB has arguably signalled for early 2018 (or at least it didn’t signal that it wouldn’t end then). This is the short-term

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The UK’s political crisis

September 27, 2017

On the evening of Friday, September 22nd, the credit ratings
agency Moody’s downgraded the UK’s credit rating. Admittedly, it was only by
one notch. But coming as it did hard on the heels of Theresa May’s grand speechin Florence, it was a shattering blow. 

Credit ratings agencies lost much of their lustre in
the financial crisis of 2008, when they were revealed to have been complicit in
the mispricing of complex financial derivatives – the “toxic waste” that
brought down some of the world’s largest financial institutions. So it is
tempting to dismiss Moody’s action as pointless and its analysis as economically
illiterate. I confess that I have done so myself, in the past. But this time,
Moody’s is on the money. It tells a story of a tragically weakened government
struggling with a

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We need to talk about productivity

September 12, 2017

"We need to discuss the complete disconnect between the marginal product of labour and labour wages," said Sir Chris Pissarides, speaking on the closing panel of the Lindau Economics Meeting.I tweeted this comment. Laurie MacFarlane of the New Economics Foundation promptly responded with this chart that brilliantly illustrates Sir Chris’s point:
"Quite why marginal productivity theory is still taught as something which explains the real world is beyond me," commented Laurie. Marginal productivity theory says that profit-maximising firms will only employ workers who can generate at least as much additional return for the firm as they are paid. Expressed like this, it seems sensible: why would a firm employ a worker who is a net cost? But marginal productivity theory also says that the

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Tariffs, trade and money illusion

August 21, 2017

In the past few days, I have read three pieces from Economists for Brexit – now renamed "Economists for Free Trade" – extolling the virtues of "hard" (or "clean") Brexit and calling for the UK to drop all external tariffs to zero unilaterally after Brexit. Two are written by professors of finance (Kent Matthews and Kevin Dowd). The third is from the veteran economist Patrick Minford.All three of these pieces wax lyrical about the benefits to GDP and welfare from unilaterally reducing external tariffs to zero. But bizarrely, not one gives adequate consideration to the currency effects of trade adjustment and the likely monetary policy response. Minford’s brief discussion contains a schoolboy error (of which more shortly). The other two never mention it at all.In today’s free-floating

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Calculus for journalists

August 8, 2017

“What do they teach them at these schools?” wondered the Professor in C.S. Lewis’s The Lion, the Witch and the Wardrobe. The Professor, of course, was concerned about logic. But I wonder too – not about logic, but about maths. Especially among journalists writing about life expectancy and other long-term trends.Here is the FT proclaiming "Average life expectancy falls". This is the headline for a chirpy piece about how reduced life expectancy could make things easier for pension funds facing big deficits. 
There’s only one problem with this. Life expectancy isn’t falling. And the report the FT cites does not say that it is.
This is how the press release from the Institute and Faculty of Actuaries summarises the findings of their report:
Recent population data has highlighted that, since

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Bitcoin and bimetallism

July 31, 2017

I wrote a piece on Forbes recently in which I described a bimetallic system of coinage and suggested how such a system might work – or rather, fail to work – for Bitcoin. These are the relevant paragraphs:
In a bimetallic system, there are effectively two currencies which are linked by a fixed exchange rate set by fiat. At the end of the 19th century – the time of Bryan’s speech – Britain’s copper penny was worth 1/144 of one pound. Other denominations of coin were created by multiplying up the penny: so the silver sixpence was unsurprisingly worth six copper pennies, and the silver shilling was worth twelve pennies, or 1/20 of a pound. All these relationships were fixed by fiat.

So, suppose that instead of using bitcoin as the medium of exchange, we use some other coin – let’s call

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Crypto-tulips

July 12, 2017

Here is a very familiar financial bubble, in pictorial form:

And this is what it looks like, charted:

In those days, of course, tulips at least had to be able to flower. But things have changed since then.There are three key stages in the lifecycle of a financial bubble:The "Free Lunch" period. A long, slow buildup of price distortion, during which investors convince themselves that rising prices are entirely justified by fundamentals, even though it is apparent to (rational) observers that they are buying castles built on sand.
The "This is nuts, when’s the crash?" period. Everyone knows prices are far out of line with fundamentals, but they carry on buying in the irrational belief they can get out before the crash they all know is coming. Speculators pile in, hoping to make a quick

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