Finding the *right* level of household debt

My last post reflected on the Borio/ Vlieghe idea that the Equilibrium Real Rates (ERR) should perhaps be defined not just by inflation, but also by changing debt levels. Since then I have been thinking about that list of tricksy questions I listed at the end of the post. I want to have a stab at one – specifically, whether it is possible to define the ‘optimal nonfinancial debt’ for an economy. Short answer: maybe, but I don’t have the skills to know*; in the meantime I’ve got a way to think about it from 30k feet. 

Thinking about optimal debt loads from 30k feet by cleverer people than me has had a frankly shocking record.** That said, my MPhil thesis on the geopolitics of emerging market finance, has given me familiarity with debt sustainability models that I think could maybe be helpful. The bottom line of debt sustainability frameworks tends to be that there is rarely an impossible level of debt, but debt does get meaningfully tougher to service as debt rises, rates rise, and growth slows. Big surprise.

Let’s look at the UK household sector as a whole through the lens of a super-simplified sovereign debt dynamics framework.*** We know what disposable household income growth and effective interest rates have recently been. And we know where the household debt stock has got to. As the chart below shows, it has risen to 138% of disposable income.

So what is the ‘primary surplus’ (or in the households’ case the net acquisition of financial liabilities minus interest payments as a percentage of household disposable income) required to stabilise household debt-to-disposable-income at 138%? The answer is around about 2% right now. And what is the actual ‘primary surplus’? Around -2%. So debt is growing, and is growing quickly. And the Bank of England appears to be worried about this worrying rise in household debt. (Again, read the last blog on this here.)

We can compare the primary surplus required to stabilise debt levels over time (blue line in the chart below) to the actual primary surplus recorded by households (grey line). You may notice that when the grey line is below the blue line, debt rises. When the grey line is above the blue line, debt falls. It’s a super-simplified little framework. The chart on the right compares the gap between the two lines to the change in debt-to-income: we can see that it doesn’t capture everything, but it sort of works(ish).

While extremely simple, this framework highlights the degree to which the issue of changes in debt sustainability (a somewhat different and easier question to the optimal debt load question) is a function of income growth, interest rates and debt loads. And in seeking to answer the question as to why households have re-levered recently, we can quickly hypothesise an answer that doesn’t involve a spending splurge. (The incredibly smart Neville Hill at Credit Suisse, who kindly shared his data with me that I used to calculate the blue line, argues exactly that here.)

What pushes the blue line up and down so erratically? Well, the most volatile input to the little debt dynamics ‘model’ is household income growth. The spike up in the blue line in recent quarters appears to have been driven by a collapse in nominal household income growth through 2016. In other words, it sort of looks like households are expecting the sharp recent slowdown in income growth to be temporary.

If the slowdown in household income growth isn’t temporary and the Bank of England raise rates to try to control household debt growth, the blue line gets a double-whammy. The following projection shows the path of the breakeven primary surplus in an environment where household disposable income growth continues at the sluggish pace of the last year and three rate rises over the next three quarters:

Actual household consumption would have to drop consumption pretty darn quickly to stabilise debt levels. And I can see households interpreting this as monetary policymakers arguing that the beatings will continue until morale improves.

Where does this leave the idea that an understanding of the ERR should take into account debt growth? I’m still scratching my head on this, but it seems to introduce some qualifications at the least.

* Given the importance of this question for all sorts of things, it is frankly weird that there hasn’t been more research on it. I feel pretty confident that it might be advanced by some awesome econometricians who have experience in mining large panels of ONS household data, but is there anything to say on the matter before then?

** In the wake of the GFC, Ken Rogoff and Carmen Reinhart’s empirical work on debt at a sovereign level attracted sufficient policymaker attention to get them cited as the intellectual handmaidens of austerity. Indeed, ex-UK Chancellor George Osborne cited their work directly ahead of the fact as the rationale supporting austerity. But since the aspects of the R&R work looking for debt optimality has been shown to be uncharacteristically error-strewn.

*** Simply d[(r-g)/(1+g)]=pb, where d = debt/ disposable income; r = effective household interest rate; g = annual growth in household disposable income, and; pb = household net acquisition of financial liabilities minus interest payments as a percentage of household disposable income.


How to think about debt?

I attended Gertjan Vlieghe’s speech yesterday at the Society of Business Economists annual conference in London. The speech had a market impact because it challenged the consensus perception of Vlieghe as an uber-dove. It had an impact on me for another reason.

But first, a bit of context.

Back in May I was reflecting that many people seem to have become either really cross that monetary policy is way too tight (looking at low levels of inflation), or really cross that monetary policy is way too loose (reflecting either historical anchoring, or looking to debt growth). For a sample of this crossness, you could do worse than look at my compendium of tl;dr versions of submissions to the Treasury Select Committee’s inquiry into the effectiveness and impact if post-2008 UK monetary policy.

Anyway, I drew the following chart, to try to understand this bad-temperedness. 

It shows for each calendar year since 1983 the pace of US inflation (y-axis), the change in US private nonfinancial credit to GDP ratio, and then the bubble size relates to the real interest rate (blue is positive, white is negative; large is large, small is small). I can see that the debt folk (I’ve labelled as Austrians, but this is probably unfair) probably reckon that anywhere right of the y-axis means that rates have been too low, while inflation folk see anything below the x-axis as evidence that rates have been too high. In the top right and bottom left quadrants, debt and inflation folk would probably get on okay at a drinks party without coming to blows. The top left and bottom right quadrants are, by contrast, times when these folk are likely to spend most of the time either talking past – or slinging abuse – at one another. You will notice that we’ve spent a good deal of time in the bottom right quadrant in recent years: inflation has been scarce, but real interest rates low and increased leverage forthcoming.

Claudio Borio, Head of the Monetary and Economic Department of the Bank of International Settlements, wrote an interesting paper in 2013 arguing that the idea of the output gap had kind of gone astray. Typically, monetary policymakers seek to identify potential economic growth with reference to non-inflationary economic growth. Borio argued that this is, if not bogus, too restrictive: the pace of economic growth may be unsustainably strong, and the economy operating beyond capacity, if financial imbalances (aka leverage) are building up. In other words, Borio argues that changes in the price level (inflation) and changes in the stock of private nonfinancial credit (leverage) are each important in determining the sustainable pace of economic growth.

I’ve got some sympathy with Borio. If this sounds a bit abstract think of China today: inflation is not a problem, but credit growth is rampant,  perhaps to the extent that it might point to faster growth than is ultimately sustainable. Central bank mandates in many – perhaps most – developed economies are meaningfully oriented towards delivering low levels of price inflation, variously defined. Why? Because inflation is a form of monetary instability. And preventing monetary instability so that people can get on with their lives rather than obsess over the nature of money  – via the creation and execution of an inflation-targeting mandate – seems a pretty reasonable thing for a monetary sovereign to do.

But, as the Global Financial Crisis made baldly evident, inflation is not the only form of monetary instability. During the GFC, Central Banks resurrected their age-old response to this episodic type of monetary instability: by acting as Lenders of Last Resort and clearing up *after the fact* with super-easy monetary policy.

Whether central banks should act *before the fact* and ‘lean against the wind’ so preventing the build up of bubbles has been a live and heated debate probably for as long as they have acted as Lenders of Last Resort. There are good arguments on both sides, simplifying as:

  1. Pro-leaning: bubbles are dumb (aka lead to capital misallocation), and big bubbles bursting hurts (aka deliver large loss of welfare, can be associated with financial and monetary instability etc). If your whole job is to maintain monetary stability, going on and on about how hard it is to lean against the wind is a bad look.
  2. Anti-leaning: By definition, people won’t agree that something is a bubble until after it bursts. Furthermore, while bubbles might hurt a few people a lot, tightening monetary policy more than would otherwise be called for comes at a real cost for many (fewer jobs, slower investment, etc). Better to clear up after the event with some ultra-easy policy response if necessary. In other words, it might be really important to stop bubbles, but it’s also both practically impossible and trying to do do is likely to be pretty damaging. 

The Global Financial Crisis did highlight the arguments of the pro-leaners, but didn’t really challenged the arguments of the anti-leaners. I see Vlieghe’s speech as an elegant take on this debate: maybe even a way to square the circle.

In the speech Vlieghe introduced what he called the Finance Theory of the Equilibrium Real Rate (ERR). At it’s simplest it is an intuition that interest rates are low and the risk premia attached to equities are high when the world is risky. Few would disagree. ‘Risky’ in this context means consumption growth has a lot of volatility, and (importantly) negative skew and kurtosis. The intuition is demonstrated with an historical econometric analysis of a couple of hundred years of UK data, and different regimes are identified – some with a high ERR and some with a low ERR. The different regimes have some shared characteristics of credit growth, realised equity risk premia, realised nominal rates and inflation, as well as distributions of consumption growth (expressed in terms of mean, standard deviation, skewness and kurtosis). I would urge you to read it and make up your own mind whether it says more than real policy rates are very low and equity returns are very strong in periods following economic busts. I think that it does.

How is this linked to thinking about the current state of monetary policy? Importantly, Vlieghe’s Finance Theory of the ERR doesn’t actually help define where the ERR might be, ex ante. But one of the things he associates with high or low ERR regimes is the change in the stock of household credit. If households are deleveraging, chances are that you are in a low ERR regime, and even an ultra-low nominal Bank Rate might not be very far below the ERR. But if households are releveraging, maybe you’re moving *out* of a low ERR regime, and Bank Rate might be very far below the ERR. Over the past year or so, UK households have been releveraging, so a question is introduced as to whether the UK is moving out of a low ERR regime and into a higher ERR. Through this lens monetary policy in the UK may be becoming ever-easier unless Bank Rate is raised. And so Vlieghe argues, without a hint of Austrianism, that the easiness of a given monetary policy becomes defined by changes in the price level (inflation) and changes in the stock of private nonfinancial credit (leverage).

Vlieghe’s Financial Theory of the ERR, like Borio’s Financial Theory of Sustainable Economic Growth (OK, I made up that name), doesn’t argue ‘sure, inflation is important – but there’s this other thing too called financial stability/ leverage to worry about’. It isn’t a new target variable to chuck into your optimisation. Instead, it is a variable that reconfigures other terms in the optimisation process in a potentially unknown and whacky way.

If this understanding is right (and, to be fair, I would be surprised if Vlieghe even recognised it as such) I am left with some questions:

1. The circularity question.

Isn’t inter-temporal substitution supposed to be a pretty major transmission mechanism? And doesn’t this manifest in changes to credit stock? Maybe I should reread James Cloyne’s awesome 2016 paper that finds the transmission mechanism isn’t all about intertemporal transfers, but also about transfers between households. 

2. The reversion to *which* mean question.

But if we target stable debt to GDP, are we stabilising at a level that is above or below equilibrium level of debt at a whole economy level? What is equilibrium level of private non-financial sector debt-to-GDP? Is the equilibrium level of debt conditional upon the term structure of interest rates available to, and the whole shape of the prospective distribution of economic growth as experienced by, each debt-bearing demographically-unique cohort? Do we have confidence that we know what this is for any economy?

3. The FPC question.

The whole point of the FPC was supposed to be to a means of exerting control over stuff like leverage growth. This was a sort of nod to the Leaners (without actually going the whole way and saying that rates should be changed to lean against the wind). Is Vlieghe saying the whole project is just a bit rubbish? Or, to put it as a meme:

4. The globalisation question.

Isn’t the location of all those dots in the bottom right quadrant of the chart more easily explained by the idea that there is global overcapacity in labour owing to a global labour glut that will turn as Chinese governance-adjusted unit labour costs reach developed market governance-adjusted unit labour costs? This dovetails into the @rajakorman question (simply put, is @rajakorman right that the whole thing can be put to bed by adding an international flows dimension).

I didn’t really expect a really impactful speech. I was dead wrong.

20 years in

It was twenty years ago today that I began working in fund management. 
What advice would I offer someone starting out in the industry, based on my experience? I’ve spent a good few tube journeys pondering this question, and this is my best effort.

1. Treat the job as if you are lucky to have it, because you are.

    There are many wonderful people with brilliant minds who will never get the opportunity to sit in your seat. Somehow, you’re sitting here. This is an amazingly fabulous opportunity. Do something with it, and don’t waste it.

    2. You can never truly *know* the mixture of luck and judgement attached to your results. 

    As @xkcd puts it:

    This is a big big deal, and will likely gnaw away at your insides if you are at all reflective, no matter how successful you are. (If it doesn’t, check that you haven’t got Dunning-Kruger syndrome.) Use this doubt to humble you, especially when things are going very well. Make sure that you do a really good job on the things that are absolutely within your control (the careful implementation of your investment process; well-prepared, respectful and unpatronising interactions with, and attitudes towards, clients; strong risk management, etc). And read this piece by @ericlonners.

    3. Despite #2, learn quickly that Every Job is a Sales Job.

    This was an absolute shock to me on leaving university. Nicely expressed in this thread.

    But also worth recalling one of my boss’s mantras here: 90% of life is about managing expectations. You live with the consequences of your sale (to others and to yourself); by over-selling you raise the bar that you must clear in order to not fail.

    4. Pick a good boss.

    This is hard when you’re starting out and literally know nothing about your boss and know nothing about what makes a good boss. So while your first boss will be a bit pot luck, choose your second carefully. Think about the values you have and how these are reflected in your boss; think about the way your boss succeeds or doesn’t succeed. You absolutely don’t need to share the same political, social or religious views, but you must be able to respect them professionally. If your boss doesn’t get some *core* stuff (personal integrity, centrality of the client etc) then change your boss. 

    5. Don’t (over)-job hop.

    You need a really good reason to not stick out your first job for at least two years. It is possible that you will be given mindlessly basic grunt work for two years. No biggie. You are being paid to learn: take every opportunity to do so.

    You may find an earnings or opportunity jump occurs each time you do change firms, but your ability to jump diminishes over time. No one will want to employ someone who has a history of not sticking around. Try moving internally rather than externally if it’s a role thing. (Once you’ve spent a long stretch with one firm this doesn’t apply so much.)

    6. When you have worked out what you think, make sure that you take enough risk on your view.

    You have the potential to lose your job with every decision* that you make, but it helps no-one if you make good judgements and their impact is insufficient to really make much difference.

    *(Don’t worry, you won’t be allowed to make many decisions until that time when you are competent to make them if you have a half-decent boss.)

    7. There is a part of you that will *become* your job/ profession.

    We don’t come out of the womb as accountants, psychiatrists, fund managers, journalists, etc. And we spend our formative years building an identity which may not ‘fit’ with our target profession. But after years of pretending to be the sort of person who is a finance professional you will find that you aren’t pretending anymore. If you can make peace with this early, you will have a better time of things. Incidentally, Hashi Mohamed did an awesome Radio 4 documentary on social mobility which I thought was a masterclass on extreme adaptability. Listen to it here

    8. Never Ever say that we live in unprecedented times.

    Stuff happens all the time. And the incidence of stuff is no excuse for doing a bad job for your clients; in fact it is the successful navigation of these that will add value to your clients. In my 20 years the following stand out: the Asian crisis, the Russian default, LTCM, Brazilian depeg, Dotcom boom/ bust, Argentina crisis, 9/11 and War on Terror, Brazilian electoral crisis, Worldcom/ Enron/ Anderson client crisis, Gulf War, all that stuff that is generally wrapped up into the Global Financial Crisis, the European sovereign debt crisis, Commodity meltdown/ deflation, Anglo-Saxon populist electoral wave. Each of these (and many others) felt like they could be fairly existential for markets on which I was professionally focused. Each was heralded as unprecedented. And each was. But navigating frequent unprecedented events is … er … the job. I don’t buy that the last twenty years is particularly challenging in the broader sweep of history. If a particular couple of decades further back in time look relatively calm I would suggest that this probably signals a lack of curiosity of the past.

    9. Read books.

    My job involves reading a lot of documents. Downtime consists in reasonable part of reading documents that I don’t have time to read during work time but feel I should read, or think might be useful to read. I could fill every hour of every day doing this and not read all that I think I should read. The idea of squeezing in time to read some professionally irrelevant book is not always appealing. (In fact, there seems to be no time.) But make room for books. Books get inside your head, and great books will touch on themes that are recurrently relevant. There are people way more professionally successful than I will ever be who find time to fit in reading a book or two a week. I read at least twelve a year. It’s a start.

    10. Don’t stop asking silly (but relevant) questions.

    The more you know, the more you know you don’t know, as the saying goes. But try to work out where you can get away with asking them.

    And finally, some advice I would offer, not based on experience? Learn to code.

    Tl;dr for the TSC

    A few months back the UK Parliament’s Treasury Select Committee (TSC) invited anyone and everyone to submit in 3,000 words their views about post-crisis monetary policy. I can imagine that TSC members’ junior researchers must have been thrilled by the prospect of reading all the submissions for their political masters on the 16 open-ended essay questions set in the terms of reference.

    I read all thirty four of the written submissions and post the tl;dr for each below so you wouldn’t have to. Thirty four. I hope that the authors who see each of their 3,000+ word missives so ruthlessly and flippantly précised (with potential misreading) take this in the good spirit in which it is done.

    Why did I do this? Erm… It seemed like a better idea at the start than it did by the end?

    Actually, three reasons. First, political support for Bank operational independence has been sagging. The Prime Minister has been drawing attention to distributional inequitiesassociated with QE. The Chancellor had to make a statement to Parliament in support of QE after City rumours of private briefings in which he inferred that backing for further rounds of QE would no longer be forthcoming. Senior Conservative politicians have publicly attacked the Bank (for example, here or here). And the Labour front bench have been airing prospective reforms that would remove operational independence. It was in this political context that the TSC, which holds the Bank to account, launched its inquiry into post-2008 monetary policy. I wanted to get a sense as to what the submissions said.

    Second, I read a lot of policymakers, academics and investment bank stuff about QE. Much of it is very good. But this is a genuine free for all from bloggers, academics, finance professionals, think tanks, former policymakers and private unaffiliated individuals who could be bothered to express a view. I found in the submissions some perspectives that were genuinely new and interesting to me. Reading them has sparked a bunch of thoughts.

    Third, I submitted myself, and so was interested as to where my views sat within the body of submissions.

    I also learned during the course of reading these about the Cobden Centre, which appears to have done a decent job of making its presence felt rather firmly. The Centre which appears to campaign for an end to fiat money was founded by Steve Baker MP, a member of the TSC, who used to work in IT at Lehman Brothers before turning to politics. Affiliates of the Centre submitted five of the thirty four written testimonies and gave one of the three oral testimonies. I have no sense as to whether these submissions were coordinated or not, but thought it striking that only one of the five written submissions mentioned their affiliation in their self-description.  Four of these written submissions can probably be summed up with the words ‘buy gold’; the fifth was fascinating. I have put these together at the end.

    The summaries are in the order shown on the Parliamentary website, but grouped into policymakers, academics, finance folk, think tank, unaffiliated, and Cobden; I include Twitter handle where I could find it. They start long and get shorter…


    Current and former MPC members

    Ben Broadbent, Deputy Governor Monetary Policy, Bank of England

    Monetary policy can affect nominal quantities, but not real ones over the long term. Real bond yields are set globally, diverging due to local risk premia or the market’s currency expectations. As a small open economy, our real rates are imported and low policy rates are a symptom, not a cause. Target saving can’t be a thing if savings rate falling. QE works. DB pension deficit not our fault, but probably haven’t hit growth much. Precautionary hiking to lean against the wind of financial imbalances appropriate only if macropru unavailable; BoE has FPC. Distributional impact analysis shouldn’t leave out impact of looser policy on overall income of both savers and borrowers (Cloyne 2016). Low productivity leads to low rates, not vice-versa. When QE is unwound BoE balance sheet will, nevertheless, need to be pretty big given regulations and banks’ demands for reserves.

    Professor David Miles, ex-MPC member

    Like @moyeenislam, reckons post-QE will still see huge reserve balances for banks, but QE need for duration will be absent. So BoE should own UKTBs to limit capital risk.*

    *But he knows there aren’t enough T-Bills and so is flagging that the UK government needs to change its debt profile and shift it much shorter as QE unwinds. It could also be interpreted as an area for monetary-fiscal collaboration that saw the BoE signal that it will be a steady holder of short-term financing instruments for HMT and so HMT can benefit from lower debt service costs (if term premia proves to be positive).

    Andrew Sentance, PWC and former member of the MPC (October 2006 – May 2011) @asentance

    Rate cuts and QE were appropriate responses to crisis but ushered in generally above-target inflation but not stronger growth. Much of the time the BoE was ‘looking through’ ‘one-offs’, but this looks a little silly over a decade. Adverse consequences from post-08 monetary policy felt in housing (boosting prices), pensions (elevating deficits), savings (incentivising people to spend or buy risky assets) and productivity (zombies and service sector getting trade boost from GBP weakness that made it unnecessary to invest). Hike rates.

    There is also an oral testimony that you can watch here from Charlie Bean and David Miles,as well as Detlev Schlichter – a guy from (you guessed it) the Cobden Centre.



    Professor Huw Dixon, Cardiff Business School @Econdixon

    Policy of financial repression is being pursued and is mistaken given economic output and employment are around ‘natural’ levels, hurting savers and retail banks and helps hedge funds and investment banks. Inequality a problem but not one for monetary policymakers. Hiking rates to 3-4% will boost confidence. Doesn’t seem to understand basic monetary economics double-entry book-keeping.

    Professor Emeritus Sheila Dow, University of Stirling, and former special advisor on monetary policy to the Treasury Select Committee (2001-10) @sheilacdow

    Distributional effects of monetary policy changes should be analysed ex ante as they impact effectiveness of policy transmission. Also, in concerning itself with aggregates rather than distribution, a value judgement is made that market processes ensure a just distributional outcome (wages and salaries reflect worth, etc). Distributional impact of monetary policy can create social problems that require fiscal spend to fix. Bank-HMT cmte should form to discuss interdependencies.

    Professor Richard A. Werner, D.Phil. (Oxon), Chair in International Banking, University of Southampton who invented the term Quantitative Easing as a recommended policy for Japan in 1995 @ProfessorWerner

    Interest rates are not a useful tool of monetary policy but should rise. BoE should desist QE, try to steepen the curve, and pressure UK banks to lend to non-financial SMEs. Bank credit creation determines nominal GDP growth. HMT should stop issuing bonds and borrow from banks.

    Isaac T. Tabner, PhD, CFA, DipPFs, Senior Lecturer in Finance, University of Stirling Management School @IsaacTabner

    Lower interest rates make house prices rise, absent generalised deflation.

    Roger E. A. Farmer, Research Director for Macroeconomics, NIESR @farmerrf

    There is no NAIRU or natural rate of interest. If inflation doesn’t rise, BoE should hike rates while either HMT does coordinated fiscal easing or BoE buys lots of equities. FPC can and should maintain a price for the average value of publicly traded equities that is consistent with full employment.

    Lord Skidelsky, cross-bencher and Keynes biographer @RSkidelsky

    Near-ZIRP & QE have probably helped at the margin but the distributional impact has been counterproductive and adverse, threatening independence. Fiscal is better. British Investment Bank. People’s QE.

    Tony Yates, Professor of Economics, University of Birmingham @T0nyyates

    QE was necessary (although not flawlessly executed); Forward Guidance was pants; inflation target should be raised to 4%; MPC should declare expected rate path; and an institutional architecture should be prepared for large-scale private asset market intervention, technocratic fiscal coordination, and introduction of helicopter money.

    Professor Philip Haynes, University of Brighton @profpdh

    QE boosted asset prices, including house prices. Rents too. And wealth inequality. Monetary policy should target credit at productive investment, working with the Chancellor.

    Professor Mariana Mazzucato @MazzucatoM and research fellow Matteo Deleidi, University of London

    Lower rates boost household demand for housing and goods, pushing debt higher; corporates investment intentions don’t respond to changing price of debt. Fiscal expansion would’ve been better than QE.

    Eric J. Levin, Reader in Economics (Retired), University of Stirling and Robert E. Wright, Professor of Economics, University of Strathclyde

    Viscous loop in play: demographics forcing up savings rates, pushing down demand and interest rates, wrecking pensions funding and boosting demand for bonds.

    Professor Francis Breedon, Queen Mary’s University of London

    QE could have been £2bn cheaper if executed via HMT issuing directly to BEAPFF (although this would have been illegal under Art 123 of Lisbon Treaty).


    Finance folk

    Association of British Insurers (although written by NIESR) @BritishInsurers

    QE has increased DB pension deficits and lowered annuity rates. Under Solvency II, lower interest rates increase both the value of liabilities and the quantity of capital that insurers need to hold to insure their non-market risk, creating a trade-off between the fund’s valuation and its solvency. The highly sensitive nature of these movements to interest rates can generate volatility, which is a challenge to manage, dis-incentivises the insuring of longevity risk, and acts pro-cyclically. 50bp rate change moves Risk Margin by 20%.

    Robin Churchouse (Finance Director) and Andrew McPhillips (Chief Economist), Yorkshire Building Society @Yorkshire_BS

    Savers hit by QE, and markets have grown dependent on central bank support. Target saving not really observed, but nor have low rates reduced saving. Distribution is a matter for HMT.

    Professor Mark Blyth, Brown University, @MkBlyth and Eric Lonergan, fund manager at M&G @ericlonners

    QE1 was good, less so later versions. Success of policy 1980-2008 maybe dependent on coming from starting position of anachronistically high real rates. Monetary policy largely out of road; heli-money to households is the way the BoE should best respond to a downturn, should it come before rates are high enough to be cut in response.

    Toby Nangle, Global Co-Head of Multi Asset, Columbia Threadneedle Investments @toby_n

    Target saving a thing, but jury out on how big. QE sorta worked by boosting asset prices but houses are assets too. Death of DB pension system accelerated by QE, but regs and global environment too; low rates an opportunity for HMT. Nangle-Goodhart. Awesome charts.

    Building Societies Association @BSABuildingSocs

    QE was necessary, but further rate cuts, and in particular negative rates, could be counterproductive. Target savers abound, their number boosted by rising house prices and falling rates. Brexit will hit investment and economic growth.

    Peter Dixon, senior economist at Commerzbank AG @commerzbank

    Monetary policy is overburdened in the UK but the BoE has done a decent job. Target saving is a thing.

    Neil Smith, Altus Investments & Plymouth University @NelsonSmythe

    QE is bad unless it’s People’s QE. Abba Lerner was right and the UK should embrace Functional Finance.


    Think tanks

    Tomorrow’s Company, think tank @Tomorrows_co

    QE sort of worked by boosting asset prices and household wealth (unsustainably), but a shame it was needed. Sectoral flows approach taken and monetary toolbox empty, absent overt monetary financing. Companies never reduced their hurdle rates so diminished monetary transmission. BoE chat kept GBP firm, undermining international rebalancing.

    Positive Money, think tank @PositiveMoneyUK

    Banks don’t really lend to businesses any more so low rates & QE just boosts asset prices (incl housing) and heighten inequality, especially between generations. People’s QE.

    New Economics Foundation, think tank @NEF

    Loans make deposits. QE1 stopped a liquidity crunch but made the rich richer. Bank lending overwhelmingly secured on property so property cycle key. BoE should target inflation, finl stability, inequality, house price inflation and employment at a regional level, public and trade deficits and ecological considerations. And a pony.

    Jubilee Centre, a Christian think tank @JubileeCentre

    The system is broken. Move to 100% reserve-based banking, complete household deleveraging, and abolish LOLR as well as tax breaks associated with incurring debt.

    pH report

    The UK population is ageing. We can prove it. Also, monetary policy isn’t set up to deal with this.



    Michael R Garrard, a straight-talking autodidact

    This man has been successively ripped off, is rightly pissed off, and is articulate. Reckons MPC is not in control: private companies are.

    Richard Simmons studied as an economist and has worked in businesses

    QE should fund big venture capital funds that can equity-finance early, mid, late-stage projects or infrastructure, with spin-out privatisations profiting the state.

    Ralph Musgrave, economics blogger and unsuccessful British National Party PPC in the 2010 General Election @RalphMus

    Today’s regime is a dog’s dinner! People’s QE.


    Cobden Centre @CobdenCentre

    I thought it best to group all the affiliates of the Cobden Centre together (where affiliates are defined as people described by the Cobden Centre on their website as their authors, founding fellows, directors etc). The Cobden Centre campaigns for an end to fiat money and was co-founded by Steve Baker MP who sits on the TSC.

    Toby Baxendale, former vendor of wet fish and co-founder of The Cobden Centre @TobyBaxendale; Max Rangeley, founder of ReboundTAG @NotesfromMax

    QE is immoral; shift to 100% reserve banking and a low tax regime should happen. The global liberal elite should be worried. Things will end badly.

    Alasdair Macleod, Head of Research at Goldmoney @MacleodFinance

    Buy gold. We need a policy of sound money to build solid foundations for economic growth, and a gold standard works deliver sound money. Buy gold.

    Vishal Wilde, student who ‘devote[s] his life to fighting for Freedom and Justice because he believes God’s Will is a Free and Just Will’ and has written for the Adam Smith Institute

    Multiple monies in circulation and free banking would be great.

    Keith Weiner, founder of the Gold Standard Institute USA @kweiner01

    Whatever the question, gold is the answer.

    Anthony J. Evans, ESCP Europe Business School and IEA @anthonyjevans

    BoE should target nominal income rather than inflation. Policy is too loose and has generated malinvestment. Markets provide better answers than policymakers. Some nice framing of epistemological questions.




    A quick post to say that I was lucky enough to be invited onto the Odd Lots podcast by Joe Weisenthal and Tracy Alloway to talk about money and my kids savings.

    Joe and Tracy managed to weave the chat such that we covered the establishment of the Nangle Household Bank, and the evolution of its monetary policy, the basics around inside and outside money, and the complications that target saving poses to monetary policy (where interest rate elasticity of demand has the potential to become small or perversely negative). And they did this in a way that is still fun to listen to, which is quite an achievement! If you are into podcasts and like this blog, it may be of interest.

    We didn’t quite get on to the nature of money Venn that I trialled on Twitter the other day (below), but that’s probably good because I have had to rethink the whole Moon thing (with help from Twitter).

    And if you want a more worky outline of all of the above, here is a document I wrote a while back that tries to pull it together.

    Saving up

    The deadline for written submissions to the Treasury Select Committee’s inquiry into the effectiveness and impact of post-2008 monetary policy is on Sunday. They put out a call for thoughts a few months ago with a very long list of very open-ended questions some time ago, and the very first one on the list is really interesting.

    Their first question concerns “the effectiveness of holding Bank rate near zero and whether extremely low rates can encourage more, rather than less, saving”.

    My first thought was that the UK parliament is contemplating following Turkish President Erdogan into the realms of neo-Fisherism. This would be quite a thing.

    My second thought was the IPSOS cross-country survey that ING commissioned and analysed a little over a year ago about attitudes to saving in a low or negative rate environment. I found this pretty fascinating stuff. And even if it didn’t deliver a knock-out blow to the conventional notion that lower interest rates discourage rather than encourage savings in aggregate , it did find a considerable minority (14.5%) of UK consumers saved more in response to falling interest rates (although this proportion was much lower than the 27% who indicated that they had reduced saving in response to lower rates). The sample size is small, it lacks a time-series, is democratically rather than plutocratically-weighted. As such it is hard to draw from it sufficient inference to overturn the notion that lower rates would reduce saving/ increase borrowing or the inverse. But still.


    My third thought though was my kids. I have blogged about the Nangle household bank twice before. My 7 year old ‘target saves’ for big ticket items, using compound interest to his advantage. If I cut rates would he save more or less? As I was on a train I put out a quick ten minute Twitter poll (to test your views on the matter). This is what I got back:

    (Although Lorcan did also advise me to ditch this idea altogether.)

    Most of the tiny sample of people replying reckoned lower rates = lower saving. This is how stuff tends to work in the real world, right? Lower rates encourage borrowing over saving. But my kids can’t borrow at an interest rate; they can only save at one. They literally ‘save up’ for things rather than debt-finance their spending ambitions. And the interesting thing is that they are not the only ones. In fact, I reckon that I could make the case that the group of people ‘saving up’ in the UK is bigger than it has ever been. And almost all of them are, like my 7 year old, are target savers, accruing savings for a big ticket item.

    Two distinct and pretty large cohorts of people who are engaged in saving-up spring to mind.

    The first cohort consists of those for whom credit is unavailable by design. This cohort includes highly creditworthy agents seeking to purchase items for which credit is not available (eg, housing, vehicles, plant) due to the lending appetite of lenders, and the macroprudential environment. If you’re a Millennial a few years out of university working in even a highly paid job and like the idea of buying a flat, you are probably in this category. Also in this category are people deemed so uncreditworthy by all lenders that no one will lend to them. Lower rates seem likely to increase savings and reduce borrowing for these agents as they are forced to save up rather than access finance.

    Macroprudential regulation has the effect of changing the size of this cohort of agents for whom lower rates means more saving up rather than more consumption. As house prices have risen (partly due to low rates) and macroprudential policy has impeded mortgages from being advanced at ever-higher multiples of salaries, so prospective home-purchasers (first time-buyers and those moving up the housing chain) will be required to save up to a greater extent than in previous times. The chart below from @resi_analyst  shows the level of first time buyer deposit required as a proportion of their disposable income, calculated using the Council of Mortgage Lenders median loan to value and median loan-to-income ratios. It’s an amazing chart. Saving up is clearly a more central aspect today than it may have been in previous times among aspiring homeowners.

    First time buyer deposits required as a proportion of disposable income


    The second cohort is those for whom credit will never be available no matter the macro prudential environment owing to the thing for which they are saving up. This cohort consists of people who want to generate a specific retirement income that they can look forward to spending. With the private sector defined benefit system a shadow of its former self, and retirement *the biggest lifetime purchase, bigger than a house* this cohort is probably large and growing.

    This isn’t market failure, it’s just a thing. No lender is going to lend money to someone on an uncollateralized basis specifically so that the borrower can stop working (forever) and go spend their borrowed money  (although there is a market for heavily-over-collateralized lending designed to be repaid upon death). And so, for these folks, lower rates (and associated bond, dividend and rental yields that come from higher asset prices), will likely increase savings and reduce borrowing. Bottom line: these folks are forced to save up more than they would otherwise as rates fall to generate the same target retirement income. Or they could alternatively invest in riskier assets in the hope of getting higher returns, or adjust down their retirement ambitions through some combination of less time spent in retirement or lower income in retirement.

    Savings rates tend to be higher amongst those in the two decades before retirement, in preparation for retirement. This cohort is better paid and so outsized economic influence per individual, and is larger in relation to the general population than it has been. Furthermore, the defined benefit pension system is meaningfully less-inclusive than it has been in previous periods, potentially leading to a change in savings behaviours. As such, we can speculate that the impact of lower rates in forcing higher levels of saving in this cohort is higher today than it would have been in previous times. The chart below is an elementary effort to capture the changing saving habits required over time to purchase a private pension income equivalent to 40% of median salary over time. As interest rates have fallen so required savings rates for ‘saver-uppers’ have increased, and at an economy-wide level the level of saving up is further boosted by the ageing demography.

    Level of target savings required to deliver private income of 40% of median income in retirement[1]


    There is in addition a third group that is large and unstable in the form of defined benefit pension scheme sponsors, some of which sit in the camp of ‘saver-uppers’ who must save more as rates fall, and some of which sit in the camp of agents that can access borrowing who can save less as rates fall. The potential requirement of a pension fund-sponsor to ‘save-up’ for the retirement of its workers is contingent upon the market’s perception of its expected longevity. Businesses with a long-expected life can borrow from future profits to fund the retirement needs of past and current workers. Businesses with an uncertain life-expectancy will be unable to borrow to fund the short-fall at attractive rates, and will need to increase saving – and increasingly so in a lower rate environment. The shift towards a lower rate environment itself, given the unavoidable system-wide mismatch of pension fund assets and liabilities from an actuarial and accounting perspective, has increased the number of institutions sponsoring defined benefit pension schemes in deficit, a proportion of which have an uncertain life-expectancy.

    So where does this leave me? With more questions than answers I’m afraid. How large and important are these different groups in the UK financial landscape, and to what extent are their actions swamped by the opposite actions of others? If they are important, what is the relative importance of: a) the combination of high house prices and macro prudential policy caution; b) the decline of the private sector defined benefit pension system; c) the demographic bulge working its way through the UK’s population pyramid. Is this all just another way of calling long-dated bonds a Giffen Good?

    And my 7 year old? What did he do when I cut the Nangle household bank rate? Well in the end I didn’t. In matters of parenthood, as in matters of Eurosystem financial plumbing, it’s worth listening to what Lorcan says.


    [1] This required level of saving is based on an age-indiscriminate savings rate, that savings are into annuity-purchase products, and that that inflation-linked annuity rates can be proxied by nominal long-dated Gilt yields.

    A Bad Week in the UK

    I was shown a really interesting App (Explain Everything) when looking around a school today. The classroom seems to be ahead of the boardroom as far as interactive technology goes.

    I thought I would play around with it on my phone and test it to give my personal view of things going on in the UK this past week.

    This is a corrected version after the first one erroneously said that Marine Le Pen had tweeted in approval of Theresa May’s conference address. Like the Huffington Post, I had been fooled by a supporter’s account.


    Still an awesome chart!

    Today the Resolution Foundation released an excellent and fascinating paper looking at data behind Branco Milanovic’s ‘elephant chart’, and asking what conclusions can be realistically drawn from it.

    My tweets may have played some small role in popularising the chart – the reporting of an opinion I tweeted that it is ‘the most important of the last decade’ is footnoted a couple of times in the paper, and it even appeared in a Dutch Trade Minister’s speech a couple of weeks ago.

    Here’s the tweet, which I drew on my iPad of a picture that I snapped while reading Milanovic’s terrific book:

    I have been thrilled to have had a role in drawing attention to the work that Milanovic’s and Lakner have conducted, a summary of which can be read here.

    But judging from my Twitter feed this morning you would think that the Resolution Foundation paper has found major methodological flaws that makes a nonsense of the chart.

    Not so.

    To reiterate, the elephant chart is an amazing chart. It paints in one graphic a picture of the global economy that is (in my opinion) unrivalled. It is so good precisely *because* it combines income changes and demographic changes; it tells the story of recent global history and the degree to which the rise of China (and India) have changed the world. It also illustrates that lower income households in the West have largely not participated in the remarkable global growth over the two decades. The original Milanovic & Lakner paper  dwelt at length on the compositional issues behind the chart, and there was even an animated gif that @MaxCRoser put together using country-specific compositional data contained therein which is pretty stunning, and was widely distributed before inexplicably disappearing from Twitter. Luckily I have been able to find and embed a copy below: global-income

    The Resolution report does the world a service by further drawing out the data behind the chart, discussing what policy implications can and cannot be drawn from the chart, and reminding people of the compositional issues.

    Compositional issues are hard. And this is probably the most striking chart in the report for people interested in the impact of compositional issues. It even makes its way into the FT.


    This chart is complicated. As its title suggests, it shows ‘Growth in average per capita household income of each percentile group (rolling average) if there had been no income growth and changes were solely due to uneven population growth’.

    I think that this means that it imagines a situation where:

    1. every worker is put into an country-specific income decile in 1988, and the mean income of the decile is then fixed in real terms;
    2. net new workers per country are distributed evenly across these country-specific deciles;
    3. all countries for which there is data have their country-specific deciles chucked into a spreadsheet in 2008;
    4. the income required to make it into each percentile in 2008 is then compared to the income required to make it into each percentile in 1988.

    The outcome is then charted. (Apologies if I’ve misinterpreted.)

    If this understanding is correct, the chart then shows the impact on the elephant chart of

    1. poorer countries having had faster population growth than richer countries;
    2. starting the exercise in 1988 when the global income distribution had the following shape:


    Or, as the author of the Resolution report, Adam Corlett, puts it:

    “For example, the poorest decile of people in the US were in the 70-75th percentile range in 1988. But population growth among poorer countries would have pushed those Americans up into the 75th-80th percentile range by 2008. The bottom US decile would be replaced in the 70-75th percentile part of the global distribution by the richest urban Chinese, but the latter’s average income was around $1,500 compared to the former’s $2,600: producing a fall in the average income of those percentiles.”

    And so, when holding constant the country population share the elephant chart looks as follows (red line):


    Is this a ‘truer’ version of the original elephant chart? Not at all. In fact, holding constant population shares stable is a nonsense: it no longer shows a picture of profound changes that have been experienced across the global economy as a whole. The author both understands this and makes no attempt to conceal it, because he is trying to do something important and useful to which this new chart is particularly well-suited: to correct a misperception as to what the original elephant chart showed.

    Specifically, it issues a corrective to claims that working class developed market incomes have *stagnated* in real terms during the period. And here, despite being one of the people who actually read Milanovic & Lakner, I am at least partly culpable. In a blog for voxeu among other places, I have used the elephant chart and stated “there is a large section of people who are well-off in global terms who have largely not participated in global growth over the past 20 years. That section is populated largely by the Western lower middle and working classes”.  The words may not be technically incorrect, but to say that they fail to draw attention to the compositional issues underlying the chart is more than fair. Furthermore, they mask the fact that while I have looked at US income distribution in some depth, and think myself relatively familiar with the data that is published in the UK, the impact of Japanese income data on the overall chart had passed me by.

    When we look at the constant country population share chart from the Resolution paper we can see that my claim that a large section of Western lower middle and working classes largely not participating in global growth might more accurately (but not massively more accurately) be described as having experienced a cumulative real income growth of c25% (although this will vary *meaningfully* by country – with Japanese lower income deciles experiencing contraction, US lower income deciles experiencing low but positive growth, and Western European lower deciles experiencing c45% cumulative income growth). These levels of cumulative income growth have been lower than the income growth at the top of each of the income distributions for the respective developed market block (leading in many developed countries to higher levels of income inequality), and lower than the income growth of the global median or global poor (leading to lower levels of income inequality across the globe, principally due to the rise of China). And so while real incomes have risen for lower middle and working classes in absolute terms, the bottom 80% labour share of GDP in the UK and US has declined as a proportion of GDP (defined as the labour share of GDP multiplied by the proportion of labour income received by the bottom 80% of the income distribution, see chart below), while the relative cost of labour in the West vs the rest of the world has reduced. (It is also notable that the big decline in the UK occurred in the 1980s, with an evening out thereafter.)


    I don’t think that all these things are disconnected, and I’m pretty sure that the Resolution Foundation report isn’t arguing that they are disconnected. Instead, it is seeking to quash a meme that real incomes have stagnated for developed market middle class workers on account of globalisation. It does so with aplomb. As Torsten Bell, also of the Resolution Foundation, blogsboth those saying globalisation automatically benefits everyone and those saying that developed world middle classes have seen no income growth are wrong. Perhaps most crucially, where individual countries lie in between those extreme positions is to a significant degree down to policy choices.”

    Given that I read Milanovic & Lakner’s compositional discussions in the original paper, why did I not major on these compositional discussions? Well, I didn’t think that they change the use to which I put the chart (discussing the global labour glut that came about with China joining the global trading system, the associated substitution of capital for labour, and the loss of labour bargaining power in a variety of developed market economies). Although I was not aware of the contribution the Japan had made to the distribution until reading the report.

    I tend not to be accused of oversimplifying things. But given the reaction to the Resolution Foundation report, I certainly feel complicit in propagating the end-product of a complex piece of analysis without due caveats.

    However, it’s still an awesome chart.

    You break it, you pay for it

    So we’re a month into the post-EU referendum period and the lights have not gone out. Yes, we’ve gone through a pretty shaky political patch for the Conservative Party leadership which was unnerving to say the least. And the Labour Party is either nearing the point of exuberant rebirth or self-immolation depending on your perspective. But things seem somewhat more stable than they did a month ago.
    From an economic data perspective we are still an essentially pre-data period, or at most a period of anecdata, collected/ assembled with various levels of formality. The Economist put together a piece about data it had scraped from the web which was interesting, but really illustrated how little data we really have. 
    We have seen data from a few forward-looking surveys come out, the sort of which market-folk like me digest when trying to understand likely developments at a macro level. They are, by definition, snapshots taken at a point in time. 

    Here is a quick recap of what we have seen:

    • The GfK consumer survey data, which was dire. However, this was taken during the period of peak national political insanity. So perhaps it should be taken with a big pinch of salt.
    • The RICS survey fell sharply, and tends to lead house prices by around six months, a point made by Sam Tombs here:

    • The Bank of England Agents’ summary of business conditions which was widely interpreted as being more positive, painting a picture as it did of firms somewhat in shock but trying to get on with life. This bullet point is a fair summary of the post-Referendum part of the report, but you might as well read the whole report. It is only three pages in total, so shame on you if you discuss it without having bothered to read it.

    • The Markit survey of Purchasing Managers (the UK PMI) released today, which was pretty awful, although contained an important caveat from its chief economist Chris Williamson that signs of confidence began to lift later in the month as the new government took shape.

    • The CBI Business Optimism index fell sharply, although the orders component was decent and the survey was taken between 27th June and 13th July (recall that May became PM on 13th). [This bullet added 25th July.] Here’s Samuel Tombs again:

    But to reiterate. This is not hard data. And without hard data we risk projecting our priors onto the straws in the wind that so far exist, as Tim Harford wrote most eloquently here
    And so it is perhaps natural to see a variety of commentators seizing on individual bits of information that *proves* that the UK is either booming or collapsing. Perhaps the whole thing looks rather emotional to the outside observer, and perhaps it is.
    But the truth is that we simply don’t know. We each have guesses. Furthermore, we can infer from market prices the degree to which our guesses are more or less consensus. But we don’t know and we won’t know (unless the bottom falls immediately out of the economy) for a little while.
    But the reason I’m writing this blog is that I’ve started seeing snippets of commentary from folks who supported Leave that I find somewhat disturbing. I’m happy for them to point to data that they reckon proves a UK boom. I’m happy for them to change their mind and say that they were wrong (although would be surprised if this should happen since we are still in the pre-data period). But I am not happy for them to say that the economy was already broken before the Referendum. And this is what I’ve started to see sneak in.

    Similarly, I’ve seen folks who supported Remain appearing to relish the bad pre-data that we’ve seen, perhaps seeing it as enhancing their reputation for analysis. This is really distasteful. There is nothing to celebrate about a downturn.

    I was one of the 288 signatories of the letter organised by Paul Levine, Tony Yates and Simon Wren-Lewis.  I stand by its wording, but I very much hope that I’ve been wrongly pessimistic on the impact on the UK of voting to leave the EU. The prospect of eating humble pie is wildly attractive because I want the UK economy to blossom. In fact I am working bloody hard to play my part in ensuring that it thrives. Economic recessions are frankly awful. They carry a distinctly human cost.

    But if it does turn out that we have scored an economic own goal by voting to Leave I’m simply not having those who belittled the prospective economic costs of Leaving wash their hands of their responsibility and telling the rest of us that the UK economy was already broken. It wasn’t.

    Liberal Cosmopolitanism & Cognitive Dissonance

    I read Branko Milanovic’s new book over the Bank Holiday weekend. I think that it is very good and appears to have been written to be read. It has data that surprises and challenges, but is devoid of any traces of data geekery that might put off the casual reader. And it doesn’t shy from challenging the reader to think for themselves about some quite fundamental issues with which I at least have struggled without resolution for some time.

    There is a lot in the book about endowment. That is to say, stuff you are born with. Endowments are massively important in determining people’s ultimate income. And while income doesn’t buy happiness, it does make unhappiness less uncomfortable.At a domestic level, we think of endowment as a form of inheritance. For the purposes of public policy discussions, this is often narrowed down to discussions of inherited wealth and maybe the way institutions selling education services are taxed. And wealth tends to cascade down through generations – think interesting work by Piketty, Saez & Zucman, Corak etc. As an individual you can take a personal view on whether it is right that the economic life chances of unborn children should be determined not by their own aptitudes and application but by their parents’ wealth. Your views on inheritance tax, the way in which welfare states are organised etc may be informed by your view on this question.

    But the really interesting thing about Milanovic’s work is that it looks at data from an global perspective. Milanovic estimates the degree to which income is a function of the country in which someone is born, and in so doing asks us a second question about endowment. Is it right that the economic life chances of unborn children should be determined not by their own aptitudes and application but by the state in which they are born? And the answer you give to this question has somewhat more profound policy implications. Actually, it’s the combination of your two answers can point to quite radical policy preferences or maybe highlight to you your own cognitive dissonance.

    As I was reading I tweeted this matrix I drew using iAnnotate:

    Yes, they do sound like expensive cocktails.

    And then – and this is why Twitter is actually awesome – Milanovic responded, suggesting that the matrix worked and would be populated by political affiliations as follows:

    Paul Mason suggested that there should be additional boxes to reflect some of his thoughts that he outlines in his book Postcapitalism, but having not yet read it I didn’t follow sufficiently well to make another diagram.

    Anyway, I ran a Twitter poll with the genuine interest in where folks saw themselves in the matrix.

    I was really surprised that the Liberal Cosmopolitan category won out. Policy associated with that category could include (variously) free movement of people, global rather than national government redistributing wealth from the global rich (pretty much everyone in developed markets) to global poor in an effort to offset national and familial endowments. And I would expect it would be pretty hard to rationalise welfare states enjoyed by the likes of the UK – given as they might be understood as offering social protection only to those who were lucky enough to be born in the right country. I have met someone who lives there life true to these beliefs, but, to my knowledge, only one person.

    I kind of thought that Natalie Holman sought to explain this is a masterful and funny subtweet:

    But actually, I think that the truth is that few self-professed liberals (I am very much including myself here) are properly clean of cognitive dissonance. I see top right as the ‘correct’ box, but find in myself an attachment to nation as an exceptional community. I’d like to think that this is a transient thing while the rest of the world gets up to speed (with our support). But that just sounds like a way of rationalising cognitive dissonance.