"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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