Economics

A number of papers report today that George Osborne is minded to replace the 50p tax with Gordon Brown's original proposal: a 45p tax. How the ex-PM will be laughing. As he knows, even the 45p tax will lose money — that's why Labour didn't raise the top rate until the final four weeks of its 13 years. But the Tories haven't worked that out yet, and the Treasury is still working on the false assumptions he programmed into it. In short, the amount of money that either tax rate will raise depends on what's called the "taxable income elasticity," or TIE — a figure suggesting how responsive various taxpayers are to rate changes. It varies for income groups. The lower-paid are less able to move their labour or money around than the rich.

There's been a lot of fuss about this morning's GDP numbers, but if David Cameron has his way we'll soon be fretting about an entirely different set of statistics. The Prime Minister has given the data-crunchers at the Office for National Statistics a new mission: measure the nation's well-being. The idea is to create new stats to accompany economic figures like the Gross Domestic Product as an additional gauge of how well things are going in the UK. It's an idea that makes a great deal of sense. After all, the shortcomings of GDP are well-known. As Bobby Kennedy put it back in 1968: "It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country.

The Harvard economist Martin Feldstein proposes an intriguing solution to Greece’s problems in his latest column: “A temporary leave of absence from the eurozone would allow Greece to achieve a price-level decline relative to other eurozone countries, and would make it easier to adjust the relative price level if Greek wages cannot be limited. The Maastricht treaty explicitly prohibits a eurozone country from leaving the euro, but says nothing about a temporary leave of absence (and therefore doesn’t prohibit one). It is time for Greece, other eurozone members, and the European Commission to start thinking seriously about that option.

Five years have passed since Alan Greenspan stepped down from the most influential banking job in the world. (Now that’s how to leave at the right time.) Described in books, interviews and profiles too numerous to mention as ‘the most powerful regulator/person on earth’, he served as Chairman of the Federal Reserve for 19 years. For reasons of sheer longevity, perhaps Greenspan deserves to be called the architect of the modern global economy more than any of his elected contemporaries.

Listening to BBC news, it's striking how they are still using Labour's politically-charged vocabulary. When the universities are kicking off about their budgets being cut, the BBC newsreaders are told to talk about "investment" in higher education, rather than spending. Why, though? An "investment" would be to put £1 billion of taxpayers’ money into an Emerging Markets fund, and hope it grows. Giving it to universities - many of which serve neither students nor society - is not an investment. But using the word "investment" is Labour code for "good spending". There is one particularly frequent example if this: the BBC regularly confuse the words "deficit" and "debt" - a bugbear of mine, and something James Forsyth deals with in his column in this week's magazine.

The recession has been intellectually thrilling, and I write that without a note of sarcasm. First, politicians argued as to whose understanding of Keynes was greatest; and now they’re in Keynes versus Hayek territory, over the timing and depth of cuts. The Chancellor and his Shadow have marshalled the various authorities who support their respective cases. The science of economics, if it is science, is in its adolescence. Should necessarily equivalent government policy be detirmined by pure intellectual opinions and reputations, especially as those are being forged for posterity by current events? Economics is as much history as science - like Coleridge’s lantern on the stern of the ship; it illuminates the waters through which we have sailed.