Bernankeology

Why so much is read into the words of the Fed chairman.

Following Fed chairman Ben Bernanke's speech yesterday, the usual bout of trying to understand quite how much we can read in to his words has begun. Yet unlike the normally perjorative "Kremlinology" – attempting to infer things from the most minuscule turns of phrase – this Bernankeology is understandable and quite useful.

Central bankers have a strange job. They don't actually have many tools at their disposal; largely just the tripartite decision to raise, lower, or maintain interest rates. Yet many of the outcomes they create come, not from actually using this power, but from creating expectations as to their future use.

Suppose Bernanke knows he is likely to raise interest rates in the first quarter of 2013. Even though his actual power is relatively limited, he can create a wide spectrum of outcomes depending on how he announces this. The market reaction will be extremely different if Bernanke says now that he will raise rates in a years time, compared to if he maintains right up until the day that a rate rise would be inappropriate.

But this power to persuade brings with it its own problems. Just like a legislature, a central bank is fundamentally unable to constrain itself; it can make promises, but everyone knows that it is free to break them at any point.

All of this means that every speech Bernanke gives is likely to be very carefully aimed at creating just the right set of expectations. On the one hand, he can't ever gain a reputation for untrustworthiness, so they have to be scrupulously honest; on the other, actually saying what he believes may create the wrong impression.

Last week, Ryan Avent provided a detailed breakdown of exactly what the benefits of Bernankeology can be, focusing on the Fed's "forward guidance" where it hinted that it would keep interest rates low until at least 2013. He writes:

On the one hand, a pure focus on the language of the Fed's statement indicates that rates are likely to remain low through that period based on the state of the economy... On the other hand, the Fed may be hinting that it will be willing to keep rates low through late 2014 even if the trajectory of the economy warrants a rate increase.

In other words, the Fed might be attempting to commit itself to a deviation from its normal policy rules of the sort that might generate more rapid growth and inflation.

The problem the Fed has is that it needs to generate growth, but that growth is likely to come with relatively high inflation, of the sort which Bernanke has historically fought against. In order to help the economy, he needs to convince "the markets" that interest rates will be kept low even if inflation spirals out of control. The problem is that this, from an inflationary hawk like Bernanke, is unbelievable.

Avent points to a paper (pdf) which breaks down the distinction into two categories:

Delphic, corresponding to the first category above, and Odyssean, corresponding to the second, in which the central bank attempts to commit itself to deviations from typical rules.

Matt Yglesias offers a less refined version of the same strategy, breaking Bernanke's possible responses into an Eeyore response and a Tigger one. Either the Fed chief can "avoid optimistic forecasts as a way of signaling that rates will stay low for a long time," or he "can say we're climbing out of a steep hole so rates will stay low for the next 18 months come what may".

The test for Bernankeologists is to work out whether yesterday's gloomy speech is Odyssean-Eeyore, using gloominess as a mast to bind himself to, or simply Delphic, with the chairman making his most honest predictions and still being pessimistic.

Occupy LA activists march against the Fed in November. Credit: Getty

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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There is nothing compassionate about Britain’s Dickensian tolerance of begging

I was called “heartless” for urging police to refer beggars to support services. But funding drug habits to salve a liberal conscience is the truly cruel approach.

In Rochdale, like many other towns across the country, we’re working hard to support small businesses and make our high streets inviting places for people to visit. So it doesn’t help when growing numbers of aggressive street beggars are becoming a regular fixture on the streets, accosting shoppers.

I’ve raised this with the police on several occasions now and when I tweeted that they needed to enforce laws preventing begging and refer them to appropriate services, all hell broke loose on social media. I was condemned as heartless, evil and, of course, the favourite insult of all left-wing trolls, “a Tory”.

An article in the Guardian supported this knee-jerk consensus that I was a typically out-of-touch politician who didn’t understand the underlying reasons for begging and accused me of being “misguided” and showing “open disdain” for the poor. 

The problem is, this isn’t true, as I know plenty about begging.

Before I became an MP, I worked as a researcher for The Big Issue and went on to set up a social research company that carried out significant research on street begging, including a major report that was published by the homeless charity, Crisis.

When I worked at The Big Issue, the strapline on the magazine used to say: “Working not Begging”. This encapsulated its philosophy of dignity in work and empowering people to help themselves. I’ve seen many people’s lives transformed through the work of The Big Issue, but I’ve never seen one person’s life transformed by thrusting small change at them as they beg in the street.

The Big Issue’s founder, John Bird, has argued this position very eloquently over the years. Giving to beggars helps no one, he says. “On the contrary, it locks the beggar in a downward spiral of abject dependency and victimhood, where all self-respect, honesty and hope are lost.”

Even though he’s now doing great work in the House of Lords, much of Bird’s transformative zeal is lost on politicians. Too many on the right have no interest in helping the poor, while too many on the left are more interested in easing their conscience than grappling with the hard solutions required to turn chaotic lives around.

But a good starting point is always to examine the facts.

The Labour leader of Manchester City Council, Richard Leese, has cited evidence that suggests that 80 per cent of street beggars in Manchester are not homeless. And national police figures have shown that fewer than one in five people arrested for begging are homeless.

Further research overwhelmingly shows the most powerful motivating force behind begging is to fund drug addiction. The homeless charity, Thames Reach, estimates that 80 per cent of beggars in London do so to support a drug habit, particularly crack cocaine and heroin, while drug-testing figures by the Metropolitan Police on beggars indicated that between 70 and 80 per cent tested positive for Class A drugs.

It’s important to distinguish that homelessness and begging can be very different sets of circumstances. As Thames Reach puts it, “most rough sleepers don’t beg and most beggars aren’t rough sleepers”.

And this is why they often require different solutions.

In the case of begging, breaking a chaotic drug dependency is hard and the important first step is arrest referral – ie. the police referring beggars on to specialised support services.  The police approach to begging is inconsistent – with action often only coming after local pressure. For example, when West Midlands Police received over 1,000 complaints about street begging, a crackdown was launched. This is not the case everywhere, but only the police have the power to pick beggars up and start a process that can turn their lives around.

With drug-related deaths hitting record levels in England and Wales in recent years, combined with cuts to drug addiction services and a nine per cent cut to local authority health budgets over the next three years, all the conditions are in place for things to get a lot worse.

This week there will be an important homelessness debate in Parliament, as Bob Blackman MP's Homelessness Reduction Bill is due to come back before the House of Commons for report stage. This is welcome legislation, but until we start to properly distinguish the unique set of problems and needs that beggars have, I fear begging on the streets will increase.

Eighteen years ago, I was involved in a report called Drugs at the Sharp End, which called on the government to urgently review its drug strategy. Its findings were presented to the government’s drugs czar Keith Hellawell on Newsnight and there was a sense that the penny was finally dropping.

I feel we’ve gone backwards since then. Not just in the progress that has been undone through services being cut, but also in terms of general attitudes towards begging.

A Dickensian tolerance of begging demonstrates an appalling Victorian attitude that has no place in 21st century Britain. Do we really think it’s acceptable for our fellow citizens to live as beggars with no real way out? And well-meaning displays of “compassion” are losing touch with pragmatic policy. This well-intentioned approach is starting to become symptomatic of the shallow, placard-waving gesture politics of the left, which helps no one and has no connection to meaningful action.

If we’re going make sure begging has no place in modern Britain, then we can’t let misguided sentiment get in the way of a genuine drive to transform lives through evidenced-based effective policy.

Simon Danczuk is MP for Rochdale.