Thursday, November 12, 2015

"Shredded" by a dead sheep

A guest post by Andrew Morrison

Kevin Hague’s sidekick Neil Lovatt has tried to dissect my previous posting on Scot Goes Pop. He claims to have ‘shredded’ it and some of their less intelligent followers appear to believe this. Let’s see. (Any quotations shown are from Mr Lovatt’s ‘Shredded’ document.)

“That outcome was to present copy which will read to those who do not understand the numbers as a challenge to Kevin's analysis of GERS and help James Kelly's fundraiser.”

There have been a lot of claims that this was a fundraising gimmick and that a blogger raising funds is somehow wrong. The Scot Goes Pop fundraiser met its target within a couple of days and deservedly so. It didn’t need any gimmicks. If someone writes something intelligent in a newspaper I’m happy to pay money for it, likewise if a blogger gives consistently intelligent content it is worth paying for.

“Would be very interested what that Economics training was as this would flop out of any Introductory Economics class.”

If we have not as yet compared credentials, it is a kindness on my part to spare his alma mater from embarrassment.

He then attempts to show that my example of the United States and Mexico is not an accurate reproduction of Kevin Hague’s work. After working through some calculations he arrives at a conclusion different to my $365 billion Hague-style ‘deficit gap’.

This though is only because he has used a different example with different figures. He looks at the problem as though the US and Mexico were already in union (fair enough) but changes the pattern of expenditure so that spending per capita is the same in both countries. This is now an entirely different example – it is using different numbers so of course it is going to show different deficit figures. Amusingly, he changes the example by assuming that both parts of a union will have the same level of spending, yet their whole argument centres on the fact that this does not happen.

The calculations are basically sound other than some confusion of Income and Spending figures. To his credit, the analysis is based on comparing each individual country with the figures for the union as a whole. His spiritual leader does not do this. That was my point. See for example footnotes 3 and 4 of ‘Full Fiscal Autonomy for Dummies’.

Next he reproduces my Snow White example and seems to get it right. He says just exactly what I did. Then comes my very favourite bit. He ‘shreds’ Kevin Hague.

“The GERS analogy would be comparing an indy Scotland with the position of rUK but that would be ridiculous as you can only compare Scotland to its current position within the UK or its position outwith the UK.”

It would indeed be ridiculous – now consider Footnote 3 in Mr Hague’s ‘FFA for Dummies’.

‘3. I compare Scotland to "rest of UK" (rUK) because otherwise we are comparing to a UK figure which includes us. I don't understand why so few others do this - maybe because it's a little more analytical work.’

Has he even read the stuff he is defending? Kevin Hague’s method is ‘ridiculous’ but you don’t have to take my word for it. That is Neil Lovatt’s description.

He moves on to my zombie analogy, spots the Snow White error (which his mentor would not) and claims that this is an error on my part. I had specifically noted that I had intentionally left in the error. Mr Lovatt has not only not read his guru’s work, but he has also not properly read the piece he aims to critique.

I used zombies to simplify and exaggerate the point I was trying to make. This was that you should not compare deficits in ‘per capita’ terms because varying proportions of the population in different countries will be unproductive. You must compare the deficit with what income the population can generate. It was not supposed to interpreted literally. If necessary, I could formally model a more realistic example where the unproductive people also require additional government spending. This would help the more literal reader but would less clearly isolate the central point. Just say the word and I’ll do it but it will show up the same flaws in the per capita measure.

Some of Mr Hague’s brighter supporters have conceded this point and indeed defended him by showing examples where he has used the ‘deficit as percentage of GDP’. A broken clock gets it right twice a day. ‘Full Fiscal Autonomy for Dummies’ does not use this approach, nor did its little brother in the Daily Record. Only sometimes using the correct approach is not enough if you are churning out articles titled ‘The Power of Being Persistently Right’.

Neil Lovatt is not among the group who have conceded the point although he is starting to accept that measuring as percentage of GDP has some merit:

“No a per capita basis is far more valid as its the individual taxpayers who generate the required income and debt is allocated per head not per GDP. A GDP basis will however give you some idea of your room for manoeuvre, i.e if you need to find more money to tax is there any there?”

Compare a young single lawyer and a working couple on minimum wage with 4 kids. Who do you think can afford a loan for a new BMW? The ‘per capita’ argument is that the minimum wage couple can better afford this borrowing because it is shared across more people. The ‘percentage of GDP’ line is that we should instead look at what income they are able to generate to service the loan. The reader can decide for themselves but I see more lawyers in BMWs than minimum wage couples.

The final defence is that the manipulation of the figures ‘hardly made any difference’. Why then would Kevin Hague go to the trouble of adjusting the figures? He could just have copied and pasted the graph from the GERS report. Why take the trouble of changing the basis of comparison and converting into per capita terms if it hardly makes any difference?

The truth is that these bogus adjustments add up to many billions of pounds over the period covered. Consider just 2010-11, the manipulated figures show a relative deficit of around £150 per capita so around £800 million overall. The GERS figures for that year actually show Scotland having a small surplus relative to the UK position. That’s almost a one billion pound difference right there alone.

He concludes with evasion on my proposed wager:

“AM's argument has been shredded with a tiny bit of math and logic, Furthermore I’m not having my name going to a university with such an obviously flawed document any expert would simply look at me and ask why I ever wasted their time.

If I were you, AM, I would reflect on your understanding of the numbers and try again then get someone who actually understands the numbers to go through them with you. Clearly I wouldn't suggest James as he either doesn't understand himself or perhaps he just set you up for humiliation, in which case choose your friends more wisely.”

His concern is misplaced. I have in the past submitted work of a similar standard to four of Scotland’s universities. They didn’t ask why I was wasting their time. Indeed they quite liked it and gave me scrolls of paper as a reward.

Discussing economic methodology is central to what economists do in universities. I think they’ll be OK with it, with or without the name of Neil Lovatt.

This is not going to go away. I was ready with rebuttals for much stronger arguments so I’m not about to be intimidated by a ‘shredding’ that is as confused as it is condescending.

*  *  *

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  1. An excellent shredding of Neil "The Shredder" Lovatt. He and Kev are the numerical equivalents of the semantic contortionist, Duncan Hothersall.

  2. Yes but their followers will still promote them as economic gurus, such is their desperation to discredit the professional economists who Rev Stu quotes in the Wee Blue Book.

  3. I should make clear at this point that the above is based on Neil Lovatt's original 'shredding'.

    A second version appeared later. It looks very like Kevin Hague had spotted that NL was actually shredding him. A lot of additional material about FFA and currency union was added to justify their Snow White fallacy. Batman realised Robin had gone off-script.

    Their additions are still wrong.

  4. Glasgow Working ClassNovember 12, 2015 at 2:03 AM

    I was impressed listening to Prof Amartya Sen Indian economist and intellect who was interviewed on Newsnight last night. A man that knows about real poverty. He had praise for Gordan Brown and had a great knowledge of British economics since Atlee.

  5. That was a good read, seems like you know your onions. I didn't understand a word of it. Did we win? :D

  6. Glasgow Working ClassNovember 12, 2015 at 2:34 AM

    Anon, you do not need to understand as it will not affect the price of milk or cereal. Honest.

    1. Ah a cult follower of the Great Kev!

  7. Why don't YOU just submit the argument to the Universities and forget the wager.
    The only way to undermine the naysayers is to have reputable economists deal with it?

    1. It's happening. KH is happy with the bet.

      I nominate Scot Goes Pop for payment if I win. I think there would be an implosion if I made it Wings.

  8. I can't quite believe that you are sticking by your original USA/Mexico comparison. You just took two independent countries and compared their deficits and tried to claim that was some how analogous to the Scottish indy/FFA debate. Neil Lovatts hypothetical union may not be that similar to the Scottish situation either (you chose the countries not him) but its a lot closer than your original analysis.

    As for the per/cap vs GDP debate, there are pros and cons to using either (as Hague details in his latest post). He has posted the relative deficit as a %GDP graph repeatedly, including on the 'FFA for Dummies' article you criticise. If you are so confident that using the GDP figures would make a big difference to the relative deficit figures why not post a graph yourself?

    1. Another cultist of the Great Kev.

    2. Actually the GDP graph wasn't present on the 'FFA for Dummies' post, sorry for the mistake.

    3. The USA and Mexico example follows exactly the KH methodology. Whether going from union or moving towards union the analyses would be symmetrical.

      The example looks ridiculous and so people can't quite believe it but that is because the methodology is ridiculous.

  9. You are right Lovatt is a dead sheep. Hasn't much of a clue about basic economics and is really clueless when it comes to considering different economic parameters and forecasting ahead from these. I know because I had a 'discussion' with him re Scottish oil, and oil forecasts but gave up because it was like banging my head against a brick wall. He starts from the basis that the current oil price is 'fixed' and will not change over time and no argument will make him change his mind. At the time the oil price was around $40 a barrel. Today it is around $47 and forecast to be $80+ in a few years. But who really knows?

    Anyway I've now blocked him on Twitter so I don't see any of his lunatic observations. And a long time ago I had a look at Hague's 'economics' and dismissed them as rubbish after the first few paras. I have never gone back nor will I because he has little grasp of the subject.

    1. James - when exactly did I say that the oil price was fixed? I always us ethe futures price as a guide. I guess if you have to make up your facts you would agree with Andrew.

  10. Good to see the usual BritNat apologists getting rattled. Worth every penny donated to scotgoespop. Now standing at over £5,300.

  11. Latest TNS full Scotland Poll.

    58% SNP
    24% Lab
    12% Con
    4% Lib

    52% SNP
    25% Lab
    11% Con
    5% Green
    5% Lib

  12. Happy to donate to ScotgoesPop, well worth it for the intelligent analysis rather than the prittle prattle of the unionist media fed to the people, who pay for it day in day out.
    Ditched radio, tv, bbc, and all the hello magazines, ie papers, a few years ago, never looked back.

    1. Glasgow Working ClassNovember 12, 2015 at 7:39 PM

      You seem the type that would have ditched the Hydro Electric Scheme's. Women over the sink and walking miles to fill a bucket. Such are the Nat sis who will never admit the Union brought progress and ridded us of the Clan Chiefs. Och aye Joke of the North.

    2. You win todays prize for the most error strewn post.

    3. Glasgow Working ClassNovember 12, 2015 at 10:38 PM

      Explain the errors.

  13. Andrew
    I wonder if you will be taking up the Daily Recird offer to print an alternative view to that of Kevin Rage which they published recently. I'm sure they had a window offering to publish any document that challenged the Rage's view.

  14. Yes Richard I'd be up for that. I would need a guarantee of full editorial control of the article.

    It's not a newspaper I read so could you send a link to the offer?

  15. It might be in one of Wings articles. I'll take a look around and see but I would start there.

  16. Or you could tweet Davies Clegg who, I believe, issued the challenge. But I'll get hunting

  17. It really doesn't Andrew, trouble is you really dont understand but this post confirmed it beyond all doubt.

  18. In your Snow White analogy you are not picking on whether she would be £7 or £8 pounds worse off if she leaves the group.

    You have confirmed but are ignoring the big picture, that she will have at least £7 less to spend if she leaves the group

    1. 'nit picking'. Bloody phone.

    2. You can call it 'nit picking'. I see it as highlighting clear logical flaws in a body of work that seems to be gaining an uncritical media fan base. As I've said, the differences add to many billions of pounds.

    3. "the differences add to many billions of pounds"

      Have you read Hague's latest addendum.

      It appears that the differences are now ~ 0.2 £Billion.

      So it's still something more than £8 Billion less to spend.

      Do you agree?

    4. Even his latest calculations show that the difference over the period is several billion pounds. And that's after making a fairly heroic assumption.

      My points were about errors in methodology. They still stand. Once we're all agreed on that we can move on to what conclusions we might reach.

    5. "difference over the period"

      Are you summing the difference over the period?

      If so, why? It's a very dis-ingenious thing to do.

      The only thing that matters is the deficit that we would start with _at_any_point_in_time_ if Scotland became independent.

  19. It's hardly disingenuous if it's what I explicitly said in the original post. I also gave a figure for an individual year - close to £1 billion error in 2010-11.

    Yes, the deficit/surplus we would start with is the key point. To even start forecasting that we must be using the correct methodology.

    1. It's like saying a speedometer that's X% out is 'wrong' because if you add up all the deltas it's been out over the last hour it adds to a big number.

      What's the motivation to do this?

      It serves no purpose (unless you're trying to pull the wool over people's eyes).

      "close to £1 billion error in 2010-11"

      So we can say the deficit would have been >> £7 Billion?

    2. I do take your point on summing the errors. It is not totally irrelevant though. The sum of the errors would give us the error in any estimate of Scotland's hypothetical total debt. But, yes, it would be better to discuss it in annual terms.

      On the other hand, no you cannot say that the deficit for 2010-11 would have been £7 billion. There was a small surplus relative to the position of the UK as a whole.

    3. "The sum of the errors would give us the error in any estimate of Scotland's hypothetical total debt"

      Only if we maintained _exactly_ the same finances that we would have as part of the union, which we won't.

      The only thing it can tell us is the position at the potential point of separation.

      "On the other hand, no you cannot say that the deficit for 2010-11 would have been £7 billion. There was a small surplus relative to the position of the UK as a whole."

      Bollocks. Workings?

    4. It's really isn't bollocks. GERS figures: Net Fiscal Balance for Scotland -8.4% of GDP and for UK -8.5% of GDP.

      Workings?? Ok: -8.4% - -8.5% = +0.1% relative surplus for Scotland.

  20. Andrew,

    I get the idea that you know your stuff....must be the northern air! The zombie stress test was a give away...and the dead sheep! ......Hague and companies lack of recognition of what these actually were does highlight he is a self taught amateur with an obvious agenda.

    SO...Can I ask how skewed statistically is Kevin Hague's stuff?

    1. "The zombie stress test was a give away"

      What, that if you divide a number by a bigger number than before you get a smaller result? That's all it's showing.

    2. No, it shows that we can change the divisor when the affordability of the deficit has not changed.

      If the divisor is GDP, we can't increase the divisor without the deficit becoming truly more affordable.

    3. Anonymous:

      Some years are more skewed than others. I've described 2010-11 differences in the original post.

      So what about 2009-2010? KH shows a relative deficit of around £400 per person. GERS figures show a relative deficit of 0.2% of GDP which is less than £60 per person.

    4. I said this would get interesting below...

      If KH had used the normal GPS methodoligy and converted directly into per person values,...and purely for fun at his expense.... How many real live scots would he have to assume to become non influencial but income earning zombies for the year? ...i.e. just turn brain dead... to skew the deficit figure from £60 to £400 per person.

      In other words, what is his zombie rating of accuracy? 100K zombies, 250K 1million?

      I like this version of zombie assumption better than the invasion.

      How many financial zombies will Scottish independence create? Kevin Hagues public need to KNOW!!!

    5. "No, it shows that we can change the divisor when the affordability of the deficit has not changed"

      This is pure sophistry.

      You can't change the population without changing the affordability of the deficit. Adding 'zombies' had no useful benefit for any sort of realistic financial analysis.

      You're trying to pull the wool over people's eyes.

    6. "So what about 2009-2010? KH shows a relative deficit of around £400 per person. GERS figures show a relative deficit of 0.2% of GDP which is less than £60 per person"

      KH includes this graph, the last two years don't look too healthy...

      What's your prediction for this year?

    7. The zombies were a specific case of a general principle. This principle applies if the marginal tax revenue per person from the new people is less the average revenue from the existing people (quite likely) and the marginal expenditure per person from the new people is less than the average expenditure on the existing people (very likely).

      In such circumstances a 'per capita' approach would show an improvement even when the deficit has become no more affordable.

      If anything, I'm very patiently trying to remove the wool from people's eyes.

    8. As for the last two years, I said way back in the very first blog posting that "the figures for the last couple of years will readily confess that this is not the brightest ever period for Scotland’s public finances".

      All I'm saying is that the figures should not be exaggerated by applying illogical adjustments.

      This is not sophistry, nor is it pulling the wool, and it certainly isn't bollocks.

    9. Well, I can confirm that your zombie description has helped clear the smoke and mirrors of Kevin Vague's disengenuous distortions.

  21. really???

    ..You really dont know do you? And KH didnt know either?

    This WILL get interesting.

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