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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The economics of outrage: Why you haven't seen the end of Katie Hopkins

Her distasteful tweet may have cost her a job at LBC, but this isn't the last we've seen of Britain's biggest troll. 

Another atrocity, other surge of grief and fear, and there like clockwork was the UK’s biggest troll. Hours after the explosion at the Manchester Arena that killed 22 mostly young and female concert goers, Katie Hopkins weighed in with a very on-brand tweet calling for a “final solution” to the complex issue of terrorism.

She quickly deleted it, replacing the offending phrase with the words “true solution”, but did not tone down the essentially fascist message. Few thought it had been an innocent mistake on the part of someone unaware of the historical connotations of those two words.  And no matter how many urged their fellow web users not to give Hopkins the attention she craved, it still sparked angry tweets, condemnatory news articles and even reports to the police.

Hopkins has lost her presenting job at LBC radio, but she is yet to lose her column at Mail Online, and it’s quite likely she won’t.

Mail Online and its print counterpart The Daily Mail have regularly shown they are prepared to go down the deliberately divisive path Hopkins was signposting. But even if the site's managing editor Martin Clarke was secretly a liberal sandal-wearer, there are also very good economic reasons for Mail Online to stick with her. The extreme and outrageous is great at gaining attention, and attention is what makes money for Mail Online.

It is ironic that Hopkins’s career was initially helped by TV’s attempts to provide balance. Producers could rely on her to provide a counterweight to even the most committed and rational bleeding-heart liberal.

As Patrick Smith, a former media specialist who is currently a senior reporter at BuzzFeed News points out: “It’s very difficult for producers who are legally bound to be balanced, they will sometimes literally have lawyers in the room.”

“That in a way is why some people who are skirting very close or beyond the bounds of taste and decency get on air.”

But while TV may have made Hopkins, it is online where her extreme views perform best.  As digital publishers have learned, the best way to get the shares, clicks and page views that make them money is to provoke an emotional response. And there are few things as good at provoking an emotional response as extreme and outrageous political views.

And in many ways it doesn’t matter whether that response is negative or positive. Those who complain about what Hopkins says are also the ones who draw attention to it – many will read what she writes in order to know exactly why they should hate her.

Of course using outrageous views as a sales tactic is not confined to the web – The Daily Mail prints columns by Sarah Vine for a reason - but the risks of pushing the boundaries of taste and decency are greater in a linear, analogue world. Cancelling a newspaper subscription or changing radio station is a simpler and often longer-lasting act than pledging to never click on a tempting link on Twitter or Facebook. LBC may have had far more to lose from sticking with Hopkins than Mail Online does, and much less to gain. Someone prepared to say what Hopkins says will not be out of work for long. 

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