Negative interest rates are fun for Governments

£30bn infrastructure programs! Ending taxation!

When bond yields are negative in real terms (as they are in Germany, the US and the UK) it leads to weird economic incentives.

Jonathan Portes has previously written about how interest rates this low mean that the government could embark on a £30bn infrastructure investment package for just the income raised each year by the now-defunct pasty tax. Portes, who is the director of the National Institute for Economic and Social Research, argued that:

If the government were, as I suggest, to fund a £30bn (2 per cent of GDP) investment programme, and fund it by borrowing through issuing long-term index-linked gilts, the cost to taxpayers - the interest on those gilts - would be something like £150m a year. . .

Twenty, or fifty, years from now, economic historians will look back at the decisions we are taking now. I cannot imagine that they will be anything but incredulous and horrified that – presented with these charts and figures – policymakers did nothing, international organisations staffed with professional economists encouraged them in their inaction, and commentators and academic economists (thankfully, few in the UK) came up with ever more tortuous justifications.

Today, Tyler Cowen argues that there is a dangerously underexamined hidden assumption in Portes' argument:

Keep in mind that the interest rates on quality government debt are down, in part, because the risk premium is up.  Non-governmental investments are perceived as riskier. . .

You might think the government investments are “low hanging fruit” in terms of quality.  Maybe yes, maybe no, but the low real interest rate doesn’t signal that, rather it signals merely that people expect to be repaid.

In this argument for more government investment, the notion of government investments as low hanging fruit is doing a lot of the work.

Cowen doesn't seem to be taking a fair approach to the situtation. Government investments aren't low hanging fruit so much as all other investments are unfeasibly risky. The long-term usefulness of transport, energy or education infrastructure, for instance, is little changed due to the current economic climate, so the multiplier for investment in them remains the same as it ever was.

But if investment in infrastructure is too risky, Matt Yglesias suggests another use for negative real interest rates: Stop collecting taxes. Yes, all of them:

Normally you face a tradeoff. Taxes impose costs on the present-day population that might impair wealth creation over the long-term, but to avoid taxes by borrowing you need to pay interest to creditors.

But the real interest rate we're being asked for is low. Less than zero. So what's the tradeoff?

Why not sell as many negative-yield ten-year bonds as the market will buy (sell enough bonds and presumably interest rates will rise) and let that auction revenue "crowd out" taxes as a way of financing government activities?

The really interesting thing about such a plan would be seeing the political fallout. In so many economic arguments, taxation, spending and size of government are used interchangably; lefties like big government, high taxes, and high spending, and right-wingers the opposite. But put a massive disconnect between the taxing and spending sides of government, and who knows which side of the line people will fall? Are the Taxpayers Alliance in favour of low taxes or small government? What about David Cameron?

The Bank of England at night. Could negative real interest rates change politics? Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Want to know how you really behave as a doctor? Watch yourself on video

There is nothing quite like watching oneself at work to spur development – and videos can help us understand patients, too.

One of the most useful tools I have as a GP trainer is my video camera. Periodically, and always with patients’ permission, I place it in the corner of my registrar’s room. We then look through their consultations together during a tutorial.

There is nothing quite like watching oneself at work to spur development. One of my trainees – a lovely guy called Nick – was appalled to find that he wheeled his chair closer and closer to the patient as he narrowed down the diagnosis with a series of questions. It was entirely unconscious, but somewhat intimidating, and he never repeated it once he’d seen the recording. Whether it’s spending half the consultation staring at the computer screen, or slipping into baffling technospeak, or parroting “OK” after every comment a patient makes, we all have unhelpful mannerisms of which we are blithely unaware.

Videos are a great way of understanding how patients communicate, too. Another registrar, Anthony, had spent several years as a rheumatologist before switching to general practice, so when consulted by Yvette he felt on familiar ground. She began by saying she thought she had carpal tunnel syndrome. Anthony confirmed the diagnosis with some clinical tests, then went on to establish the impact it was having on Yvette’s life. Her sleep was disturbed every night, and she was no longer able to pick up and carry her young children. Her desperation for a swift cure came across loud and clear.

The consultation then ran into difficulty. There are three things that can help CTS: wrist splints, steroid injections and surgery to release the nerve. Splints are usually the preferred first option because they carry no risk of complications, and are inexpensive to the NHS. We watched as Anthony tried to explain this. Yvette kept raising objections, and even though Anthony did his best to address her concerns, it was clear she remained unconvinced.

The problem for Anthony, as for many doctors, is that much medical training still reflects an era when patients relied heavily on professionals for health information. Today, most will have consulted with Dr Google before presenting to their GP. Sometimes this will have stoked unfounded fears – pretty much any symptom just might be an indication of cancer – and our task then is to put things in proper context. But frequently, as with Yvette, patients have not only worked out what is wrong, they also have firm ideas what to do about it.

We played the video through again, and I highlighted the numerous subtle cues that Yvette had offered. Like many patients, she was reticent about stating outright what she wanted, but the information was there in what she did and didn’t say, and in how she responded to Anthony’s suggestions. By the time we’d finished analysing their exchanges, Anthony could see that Yvette had already decided against splints as being too cumbersome and taking too long to work. For her, a steroid injection was the quickest and surest way to obtain relief.

Competing considerations must be weighed in any “shared” decision between a doctor and patient. Autonomy – the ability for a patient to determine their own care – is of prime importance, but it isn’t unrestricted. The balance between doing good and doing harm, of which doctors sometimes have a far clearer appreciation, has to be factored in. Then there are questions of equity and fairness: within a finite NHS budget, doctors have a duty to prioritise the most cost-effective treatments. For the NHS and for Yvette, going straight for surgery wouldn’t have been right – nor did she want it – but a steroid injection is both low-cost and low-risk, and Anthony could see he’d missed the chance to maximise her autonomy.

The lessons he learned from the video had a powerful impact on him, and from that day on he became much more adept at achieving truly shared decisions with his patients.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide