Of butterflies and bees

I stood to one side of a supermarket car park
and sat for a smoke on an abandoned rust-brown girder
enmeshed in vigorous wild-grown grasses, hardy shoots,
as the melancholy shoppers in red shorts/ saris/ sandals
wheeled to each vehicle a high-stacked silver cage.
The sun unEnglishly vital, I remember, the clean smell of tar
as I watched fat bumblebees excellently hovering/
pollen shopping/ in and out of the grey-haired perfect thistles,
and my mind unfocused, an orange butterfly fluttering
in thorn-to-cabbage-bloom unbroken movement, aptly random,
until drawn in by a single plant leaf, lustrous, waxy,
on a single irrelevant plant stem—as in the fizz of some
wondrous relaxing tonic I sensed my guilts dissolve
so that a puff of animated pollen held in suspension there
and the butterfly stopped still in the motionless air.
And visioning all about me as desolate-peaceful—
the suburbs rubbled, the twin towers of Tesco's now decrepit—
I sat in a greeny Eden raised like a hill above time,
and I thought I saw below me, down the hill, souls in torment
circling, monsters in the trashcans refining anguish,
survivors in the ashes suffering the same; mine too
was down there in the thick of it as the Spanish horseman
galloped by on his way to fantasies impregnable to mere reality—
but how could I hope to help or intervene, as only
in the ad hoc haven I'd invented, in the greenness of it,
could I stub out anguish as easily as the embers of a cigarette
to watch both ash and filtertip nourish in the soil
the tawny bushes as an ideal home for butterflies and bees?

(1999)

Tell me, what is real?

Chapter nine of the WinEcon program, the first of the macroeconomic sections, turns immediately to some of the basic issues and indicators—interest rates, GDP growth, inflation and the balance of payments—with which macroeconomics deals, as well as some of the tools used to manipulate, describe and analyse them. This is used as a way of introducing some important definitions and distinctions concretely.

Kinds of variables
The first such distinction is between variables that show a pattern of increase or decrease over time (trended variables) and those that show no consistent long-term pattern (non-trended variables). The former include GDP and its components, inflation and the money supply; the latter include ratios such as unemployment rates, interest rates and exchange rates. A second basic distinction is between nominal variables, which measure changes in value, and real variables, which measure changes in volume or physical quantities. Ratios constitute a third category of variable.

Calculating real interest rates
This distinction between nominal and real is investigated in relation to interest rates, which indicate the scale of return on lending, or the cost of borrowing. A nominal interest rate is a ratio of asset yield to asset value (the asset could be a loan, for example), whereas the real interest rate—which takes into account movements in the price of goods and services—is a measure of the extra quantity of goods and services that can be bought from the loan plus the return. An approximate measure for calculating real interest rates is therefore the nominal interest rate minus the rate of inflation; the formula for a more accurate calculation is as follows:

Real interest rate (RR) = (1 + nominal interest rate/1 + inflation rate) -1

Therefore, if the annual nominal interest rate is 10% and the annual inflation rate is 6%, the crude measure gives a real interest rate of:

RR= 10 - 6 = 4%

Using the more accurate measure, the calculation is as follows:

RR = (1 + 0.1/ 1 + 0.06) -1 RR = 0.0377358—ie 3.77%

That is, rather than getting 10% more goods and services for the 10% return on your loan, with an inflation rate of 6%, you only get 3.77% more goods and services.

High inflation rates can turn real interest rates negative, with potentially profound economic consequences—helping to explain fluctuation in investment across time, for example. The pattern of interest rate developments in a selection of developed Western countries over three decades shows, broadly, that real interest rates were:

• low but positive in the 1960s;
• negligible to negative in the 1970s; but
• relatively highly positive in the 1980

Detrending GDP
Next, the program looks at three ways for analysing the patterns of economic growth, introducing the idea of detrending—a method by which any cyclical changes in trended variables can be separated out from the trend itself (this is useful when looking at short-term fluctuations in aggregate data).

Deviation of GDP from the linear trend. One method for detrending is to fit to observations of the level of GDP a line that minimises the sum of the squared deviations. The pattern of deviations from this line, when graphed, brings out the periods in which growth is above or below trend. (The formula for calculating the percentage deviation from trend level GDP is as follows: [real GDP - trend GDP/ trend GDP] x 100.) Looking in this way at the components of GDP by expenditure for the UK for 1955-2004, we can see that:

• household consumption grew at a rate below trend between 1975 and the late 1980s, but above trend since the late 1990s;
• government consumption was below trend for most of the 1990s, but above trend since the coming to power of the Labour Party in 1997;
• the growth of exports has been above trend throughout the 1990s; and
• the pattern of investment growth has been more erratic.

Deviation of natural log of GDP from the log-linear trend. If a variable grows at a constant rate, however, a second method can be used to get an accurate picture of patterns of change separate from the broad trend, which is to log the trend to produce an analysable linear graph, and then calculate the deviation of the logged GDP data from it. (We calculate the percentage deviation from a log-linear trend as follows: [natural log of GDP - log of trend] x 100.)

Period GDP growth rates. A third, more widely used, approach for separating out patterns of change in trended variables from the trend itself is to use growth rates of GDP in each period, with periods of high positive growth indicating a boom, and periods of contraction (typically, three quarters in succession) indicating a recession.

Constructing a price index
Inflation is the rate of change of the average price level (whereas hyperinflation is defined as persistently high rates of inflation, typically stemming from the inability of the authorities to tax and borrow amid generalised societal breakdown, often as a result of war, civil war or revolution). To get a realistic picture of inflationary patterns, it is important that the weighting of the goods and services in the price index reflects their relative importance in current patterns of spending, since these change over time. The first method, a base-weighted index, asks the question: How much do you have to spend, measured in the prices prevailing in each subsequent period, to buy the same quantity of goods as in the original, base period? A second method, a current-weighted index, asks: What would spending be if prices had stayed the same? The important GDP deflator is a ratio of the sum of the current values of all goods and services that make up GDP to the sum of the value of the same output in constant (base-period) prices, and it is used to work out real rates of economic growth.

The impact of devaluation on the balance of payments
The balance-of-payments records an economy’s transactions with the outside world, and may be used, among other things, to produce a picture of the geographical distribution of a country’s most important markets and suppliers. The balance-of-payments accounting framework may also be used to analyse the likely impact of using a devaluation of a fixed-exchange rate to address persistent external deficits—which should make exports cheaper and imports more expensive, stimulating and discouraging them, respectively, in order to close the external gap. Looking at the empirical results of just such a devaluation in the UK in the late 60s, we see that the external position temporarily worsened before it improved (the so-called J-curve), because both foreign and domestic demand takes time to adjust. In the short run, export quantities and prices in local-currency terms are unaltered; import quantities too are fixed, but local-currency prices for foreign goods and services rise straight away, so that the external imbalance is initially exacerbated. In the long run, however, export quantities increase and those of imports fall, as expected, reducing the external deficit.

Co-movements
A final section touches on the interesting and important topic of the interaction between macroeconomic variables, both within the domestic economy and between national economies. Plotting a scatter point diagram of GDP growth against a number of other domestic economic variables, the degree of correlation between them is indicated by the closeness of the co-ordinates to the best-fit line through the scatter points.

• A best-fit line with a positive slope indicates a pro-cyclical relationship—that is, one in which both variables move in the same direction. Those variables with the strongest pro-cyclical relationship with economic growth empirically include consumption, investment and imports.
• A negative slope indicates a countercyclical relationship, which means that a rise or fall in GDP growth is associated with a fall or rise, respectively, in the other variable. Empirically, changes in the rate of unemployment and inflation exhibit just such a relationship.
• When the best-fit line is horizontal, the relationship is described as acyclical, and no systematic relationship is discerned.

Correlations are scored between +1 and -1; the closer the correlation is to +1, the closer the scatter points to the positively sloping best-fit line, with a score of +1 indicating a perfectly positive correlation, in which all of the scatter points coincide with the best-fit line.

However, the linked movements of one macroeconomic variable and another are not always simultaneous. Sometimes a change in a variable occurs before a change in economic growth, and leads it; sometimes the change happens after a change in GDP, lagging it. Making an allowance for possible leads and lags in this way helps to untangle evidence regarding the difficult question of cause and effect.

GDP growth and interest rates. The relationship between economic growth and the Treasury-bill rate shows a strongish countercyclical lead movement, suggesting that an increase in the interest rate is associated with reduced output growth in the later period. The contemporaneous relationship is weakly pro-cyclical, but this strengthens when the variables are lagged, yielding some evidence that increased output growth pushes up interest rates, although with a delay.

GDP growth and changes in the unemployment rate. There is strongish countercyclical relationship when the variables are contemporaneous, which strengthens when the variables are lagged—that is, the rate of unemployment falls with rising economic growth, and this effect becomes more powerful over time.

GDP growth and inflation. An empirical investigation between output and inflation in the UK in 1951-93 reveals the interaction of the two to be slightly more complex than expected—specifically, there is a positive short-run connection between output growth and lagged inflation, but with periodic shifts, so that increases in output growth in the sub-period 1975-82 are associated with much larger increases in lagged inflation than for either 1951-74 or 1983-92.

Money supply and inflation. The strongest positive correlation between the rate of growth of the money supply is seen when plotted against data for the rate of inflation lagged for two years.

GDP growth and growth in other economies. Here, the question is: To what extent are booms and recessions transmitted? This depends on the degree of openness of a national economy to world trade and who its main trading partners are, which is often linked to geographical proximity. Thus, the GDP growth of the UK is most strongly positively correlated to economic growth developments in the US, Japan and France; for the US, GDP growth is most strongly linked to economic growth in Canada; for France, Italy; for Japan, Germany.

The Triumph of the West

After some time away from blogging—mostly trying to get to grips quickly with the politics and economics of the Kyrgyz Republic—I intend to get back on track with my studies of maths and economics more broadly, starting with a critical review-stroke-summary of How Capitalism Was Built, a new book by Anders Åslund in which he outlines the main sequence of events of the transition process in eastern Europe and the former Soviet Union, as well as the theoretical and policy debates linked to them.

Contest of Viktors

I've been in the Donbass for a week, doing a bit of research.

Ostensibly, political tensions are rising in the run up to the vital parliamentary election, set for the end of September.

The picture shows the campaign poster backing the Ukrainian president, Viktor Yushchenko. This is on Artema Street, the main road through the middle of Donetsk, which is the centre of power of the president's rival, Viktor Yanukovych, and his vehicle, the Party of Regions: that is, at the centre of a region said to be inimical to the "Orange Revolution" of 2004. The quote from Mr Yushchenko at the top of the poster says: "MPs have to create laws, but they cannot hide from them." For an apparently liberal grouping, the backdrop of the raised clenched fist—the universal symbol of workers' power—seems to me a little incongruous.

Interestingly, in Yenakivo, the sign that I saw for the Party of Regions—which preys on the fears of Ukraine's ethnic Russian minority of domination by their former ethnic subordinates—was written in Ukrainian, and made use of the yellow and light-blue of the Ukrainian national flag. The sign boasted of the region's industrial prowess and, to me, had about it a strong whiff of "political technology".

Although some of the fears of a previously paramount group are undoubtedly real, much of the split between Ukrainians and Russian looks a bit artificial, fomented, stoked. For instance, some of the pro-Russian graffiti (eg "The Donbass is Russian land", sprayed on a corrugated fence along Kuybysheva Street, on the way up to the rather grand-looking railway station) was suspiciously neat and prominent. The posters of the "red-brown" Natalya Vitrenko—the leader of some left-wing-sounding Russian chauvinists masquerading as pan-Slavists—said "No to NATO" and "Ukraine, Russia, Belarus: together we are strong".

Новая кухня

I've been busy for over a month installing a new kitchen in my house—which, I can tell you, was hard work, although you can "learn from anything, if you're not too proud".

However, I intend to get back soon to the study of economics, history and Russian. First, I must finish my novel (I'm going to Donetsk for a week for some last-minute research). It would also be good to write some poems, if there's time.

Whipping a deceased steed

On the uses of political violence
Mr Younge's worthy if unexceptional take on many contemporary political issues would not put him at the top of my list of radical political journalists—even supposing that the compilation of such a list was possible. In fact, whenever I read one of his rather plodding pieces (for sociological research, so I tell myself, to sample the waters of mainstream leftish opinion), I am usually reminded of a phrase from Attila József's eponymous poem: "Some people will remain pedestrian no matter what form of transport they travel on". And so here is Mr Younge, once more riding his rudimentary cart along a well worn path, flogging a dead horse.

Executive summary: Individual terrorism isn't right, because it works against the terrorist's cause. But if you have some community support for killing your opponents' civilians, and are able to do so in a reasonably well-organised manner—in this way bringing the opponent to the negotiating table—all well and good.

A hyperbolic paraphrase? Perhaps, but not by much.

In short, much of the mainstream left doesn't appear to have advanced a single centimetre beyond the narodnik "means and ends" debates of late 19th century Russia, or, at best, Trotsky's Their Morals and Ours—which is not his best book (that would be The History of the Russian Revolution), but is rather an exceptionally clear exposition and defence of what we would nowadays call "moral relativism", then a daring subversive position, but today the unthinking stock-in-trade of soft-left establishments everywhere. Of this work Viktor Serge memorably says:

"Trotsky thinks that his party, formerly in power and now in opposition, has always represented the true proletariat, and himself the true morality.

From this he concludes the following: executing hostages takes on a different meaning according to whether the order is given by Stalin or by Trotsky or by the bourgeoisie."

(Note to myself: the contradiction between cultural-relativism-eliding-into-moral-relativism, on the one hand, as against the aspiration to universal human values, is one of the contradictions at the heart of Marxism.)

There is much else that I would like to say here, as I think attitude towards political violence is one of the crucial issues dividing today's fairly popular, if also fairly populist and reactionary, left from the tiny humanist fringe that remains. But anyone who waffles on this issue could not be relied upon in a fix—that's my guess.

An empire tries to strike back

Two articles on the fate and aspirations of contemporary Russia, here and here.

The first, by George Schöpflin on openDemocracy, argues that, domestically, Russia is a "consensual authoritarian" system, "ruled by a rent-seeking elite", and glued together with xenophobia and support from eastern Orthodoxy; internationally, the author spies emergence of neo-imperialism the country's power plays with it hydrocarbons resources and infrastructure.

Though there might be a case for seeing this as neo-imperialism—if that means exercising control through economic strength rather than directly by force—I'm not sure that there's anything wrong per se in charging market prices for your oil. (If it is possible to see oil subsidies as a means of maintaining influence in post-Soviet countries, can raising prices also be? You would have to look at the specific political conditions in each case.) Nor does there necessarily seem much of a territorial claim implicit in the phrase "near abroad".

Also: the definition of "European" as somehow synonymous with democracy seems a little strange, given that half of Europe has only established (or re-established) democratic institutions in the recent past.

The second article, by Perry Anderson in the London Review of Books, is a more wide-ranging and historically well-informed piece. It starts off with the Russian authorities' touchy relocation of the funeral of the assassinated investigative journalist, Anna Politkovskaya, to an obscure cemetery on outskirts of Moscow, which is portrayed as both shabby and fearful, then moves quickly on to a speculative, though broadly plausible, account of the basis of Putin's appeal and high ratings in the opinion polls (basic answer: he's not Yeltsin); the intimate connections, despite differences, between the Yeltsin and Putin regimes; the re-merging of political and economic power under the latter, in parallel with the fusion of the state and security apparatus; the resubordination of the media; the lamentable fate of the liberal intelligentsia (but: they shouldn't have backed Yeltsin); the widespread indifference to the horrors of Stalinism; the demographic catastrophe that looms on the horizon; and the symptoms of ongoing cultural degradation and decline (symbolised by the decadent cult of "retro-Tsarism").

Mr Anderson lays into various commentators over for their benign assessment of the state of contemporary Russia: Andrei Schleifer (neo-liberal crook) and Andrew Jack (neo-liberal dupe/ colonial apologist). Richard Pipes gets a grudging thumbs up for his theory that Russians, hemmed in by a political culture that predisposes them to favour order over freedom, don't necessarily rate democracy that highly.

In addition, the author points to a number of interesting-sounding theorists of contemporary Russia more approvingly, such as Anna Ledvna's study of the informal practices that characterise Russian political and economic life (whenever this topic comes up, I think, for some reason, of the phrase "what you call corruption, we call culture", intoned in a rasping Mafioso baritone), and gives an outline of Dmitry Fruman's idea of Russia's present-day "managed democracy" as the phase of a process that broadly mimics the phases of the Soviet era (but this time heading towards real democracy?). This looks a bit like a regurgitation of the ever-popular "cycles" theory of civilisational ascendancy and decline—a recycling, in fact.

Yet, for all its astuteness in places (on the possible factors behind Putin's appeal, which often looks like a bit a mystery to outsiders), as well as for its obvious erudition and breadth, the essay leaves a certain teenage, "not as bad as Bush and Blair" impression behind it. This impression, while perfectly characteristic of the rather degraded political discourse of the day, still seems to me a bit unseemly in a Marxist historian fast approaching 70.

Considering good and evil

Death had just polished off the last sponge-finger
when he had an idea for a verse: chewing the dirt beneath
his nails he scribbled the words down lazily—or spontaneously,
whichever way you prefer it—as he looked out
over the clean imagined fields of Hampstead Heath.

Death, of course, had absorbed the pacifist lessons
from the poems of World War One; some of the lines
he’d even memorised, and the one about coughing up blood
in a green sea of gas he liked so much that he’d do it
at birthdays and weddings, at Christmas, on Valentine's.

Leafing through the paper’s pages wearily,
the Sunday news wasn’t all that he’d hoped
in the first days of a fresh campaign. No elitist,
it wasn’t for nothing that they called Death the Great Leveller.
But nor did he think himself unpatriotic, or a defeatist,

for though he’d violently opposed the war of liberation,
he’d supported it too, wishing the troops well: all views
to him were an equally valid expression of subjective
experience. (Later, behind the gauze of a confessional,
he’d earwig a soldier’s session for strategies or clues.)

So if Death is a tank commander, he’s also at home
in jeans and slippers, or propped up on a study chair.
That’s why, when he entered the ancient city, it was no surprise
as he removed his goggles and dusted himself off
that it was his own strong hand that shook his welcome there.

After all, wasn’t he born here, where mum and dad
first pinched the fruit from the master’s private trees?
That landed them in no end of trouble—ie with sex
and death (a "mixed blessing"), an eternity of hard labour;
but also little naughty Cain, and Abel, so eager to please.

How shabby Eden was looking now—
and a lot less lush than he remembered; for all that,
he noted the hilltop palace he’d somehow managed to wangle,
complete with Olympic-size pool and good views
over the arid southern plains, the ascetic Ziggurat.

Now Death stands up, scratches his bony behind,
looks in the mirror. Sensing he’s lost some weight
he adds vitamins to a mental post-it. Into the absence
where moments before had been the last sponge-finger
he conjures up a new last piece on a simple stoneware plate

and, scoffing the cake down greedily, he sweeps
the crumbs to the floor so his wife won’t see them;
returns to the papers, where the problem of good
and evil just makes his eyes glaze over into two marbles:
these roll off down Skull Hill, looking out for a stratagem.

(April 2005)

Political arithmetic

Maths allows economists a greater degree of precision in the description and handling of economic relationships than would otherwise be the case. It also allows them to state their theoretical assumptions neatly and succinctly, and to show clearly the steps in their reasoning so that, for example, any faulty connections can be more easily spotted.

The section on introductory maths for economists of the WinEcon economics program that deals with the basics (chapter 22) explains the contrast between variables (which can be different values) and constants (which have fixed values), and distinguishes between the dependent, or determined, variable on the one hand, and the independent, or autonomous, variable on the other (the one doing the determining). If a change in the one variable always produces the same, unique change in the other, a functional relationship is said to exist between them. The user's grasp of all this is checked and reinforced by means of some simple quizzes.

The basic rules for fractional and algebraic operations, as well as those involving powers, are described, and we are taken step by step through simple illustrative examples.

For fractions, addition and subtraction are easy: multiply the fractions' denominators to find the common denominator, scale up each numerator proportionately, and then add or subtract the numerators as normal; for multiplication of fractions, multiply the numerator and divide the result by the product of the denominators; for division, the second fraction is turned on its head and we proceed as for multiplication.

On the rules for basic algebra, the importance of the order in which subtractions and division are performed is stressed, as is the necessity of performing the same mathematical operations on each side of the "equals" sign (transposition).

A power (otherwise known as an exponent or an index) shows the number of times a variable is to be multiplied by itself and, in algebra, is represented by a letter. For example, if a "b", representing any number, can be multiplied by itself an unspecified number of times (n times), then the number, b, is said to be raised to its power, n, with the power superscripted, so that a positive power is represented in its most general form as bⁿ.

The definitions of powers are as follows:

• for a positive power: bⁿ
• for a fractional power: any number raised to the power of a fraction is equal to the root of that fraction, with the denominator of the fraction indicating the degree of the root (ie whether it is the square or cubed root, or whether it the 4th, 5th or 6th root): b^1/n = ⁿ√b
• for a negative power: any number raised to a negative power is the same as the number raised to that power positively, divided into one: b^-n = 1/bⁿ (eg 16^-3/2 = 1/√16³)
• for a zero power: any number raised to the power of zero equals one: b⁰ = 1

For performing mathematical operations, the rules for powers are as follows:

• to multiply, add the powers: b^m * bⁿ = b^m+n
• to divide, subtract the powers: b^m/bⁿ = b^m-n
• to take exponents of numbers that already have exponents: (a^m)ⁿ = a^mn; eg (2²)³ = 2²*³ = 2⁶ = 64
• the product of any two numbers raised to a power is equal to the same two numbers when the power is a factor: numbers raised to the same power separately and then multiplied together: (a*b)ⁿ = aⁿ * bⁿ; (2*3)² = 2²*3² = 4*9 = 36
• powers cannot be added

The (very) basic principles for plotting co-ordinates on a graph—to show visually how the variable on the vertical axis (y) changes as the horizontal axis (x) does—are given.

Memorising these relationships and rules gives the student a few handy tips when the equations get more complex a little further down the line—as all of this is a way of providing the student with the tools necessary for handling functions and equations. Specifically, we look first at linear, quadratic and simultaneous equations, and then at the special properties of exponents and logarithms, which are useful for modeling more complex economic phenomena. Problems analysed using these equations are usually solved either by graph, or by algebra or by formula.

Linear equations of the type y = ax + b describe the simplest functions, where the relationship between variables is straight and unchanging; "a" gives the slope of the line and "b" the intercept on the axis of the independent variable (the y axis). The slope is a ratio of the degree of change in the (dependent) y variable—how much it goes up—to the (independent) x variable (how much it goes across). Slopes can be positive or negative.

Quadratic equations of the type y = ax² + bx + c are used for modeling non-linear relationships and are the simplest of the polynomials. Graphically, they have characteristic "u" or "hill" shapes, and often have many-to-one relationships: that is, there can be two values of the independent x variable that correspond to a y value of zero. The programme takes us through the manipulations necessary to arrive at the formula needed to calculate these two x values, which is:

± x = −b ± √ b²−4ac/ 2a

So it goes

This is what I remember of Kurt Vonnegut: in Mother Night, the main protagonist is a Lord Haw-Haw type character, propagandising for the Nazis—although, all the time, he is really an undercover agent working for the democratic side. Later, he comes to wonder whether he hasn't been a better propagandist than a spy.

In Bluebeard, Rabo Karabekian, an abstract expressionist and escapee of the Armenian genocide, paints his greatest works using some cheap industrial paint that soon falls apart.

Cat's Cradle—the invention of a religion and a dictatorship, so that the eternally poor have something to live for and to fight against: ie so that they have a meaning.

In Slaughterhouse Five: Billy Pilgrim falling backwards through time and seeing the bomber plane on TV extract the shrapnel out of the dead, as if by magic, as it flies backwards over the battlefield.

Refresher course

A review of the WinEcon economics learning software, part one

With the eventual aim of undertaking some modest empirical descriptions of the economic transition in eastern Europe and the former Soviet Union over the past 15 years or so, concentrating—though not exclusively—on the topics of economic growth and the economics of labour markets, about a month ago, I took a week off work to study economics again from scratch.

The course I chose was the WinEcon software (version 7.1), which can only be bought and downloaded over the Internet. This process was quite straightforward. By right-clicking on the desktop shortcut icon so installed (a little red-blue-green bar chart), I was able to enlarge the display to fill the whole screen (640 x 460 screen resolution), making on-screen reading easier (mind you, this disables the program's calculator, I think). By right-clicking the “start” button in Windows desktop and then “properties”, it is also possible to prevent the Windows taskbar from intruding over the top of the WinEcon software.

During my study week, I completed about a quarter of an undergraduate economics course—that is, six out of 25 chapters: two on microeconomics (chapters 1 ands 2), two on macroeconomics (chapters 9 ands 10), and two on maths and statistics (chapters 22 ands 24). Later, I read chapters 11 (the circular income-expenditure economic model), 12 (theories of money supply and demand) and 13 (mostly Keynesian short-term macroeconomics).

Although quite standard in terms of content, chapters 1, 2 and 10 were reasonably thorough and lucid, and the bit-by-bit interactive presentational style helped to sustain interest.

Chapter 1 presents definitions of basic economic “oppositional” terms (macro vs micro, nominal vs real, positive vs normative, command vs the market) and develops a familiar definition of economics as the study of rational agents forced to choose between competing resource uses in conditions of scarcity. Some of the rather abstract ideas involved are usefully conveyed by means of concrete examples and game-like illustrations. The most interesting section, however, was the exposition of economic modelling, in which the process is broken down into the following stages:

• statement of the problem;
• whittling down of influences to leave us with a set of simplifying assumptions;
• development of a theory to answer the question(s) posed at the "problem" stage;
• testing the theory against evidence; and
• provisional acceptance of the theory, if it comes through the test.

These stages are then illustrated using two well-known economic theories: the Keynesian consumption function (household consumption is mainly influenced by changing levels of income) and the Fisher hypothesis (interest rates rise and fall with inflation).

What quantity of a good will buyers and sellers purchase and supply at each price? Chapter 2 familiarises the student with the basic tools of supply and demand analysis: how to construct supply and demand curves, and an account of the factors that affect each (for demand: product price, household income, prices of complements and substitutes, consumer tastes, the number of outlets and advertising; for supply: the product price, the price of inputs, the scale of taxes and subsidies, technology, the weather and the number of outlets); the difference between movements along the curves and shifts in the curves; the interaction of the two to produce equilibrium product prices and quantities, and how tools of this kind can be used to predict likely changes in price and quantity under changed market conditions ("comparative statics"; the examples used are polices for the support of domestic agricultural prices and other kinds of government intervention). Lastly, the concept of elasticity is introduced.

At this point, I switched to the macroeconomic sections of the program.

The second of the macro section, Chapter 10 runs through the main conceptual problems of measuring output in a national economy—seen as the level of productive activity overall, or as the total product of that activity. The first pitfall to avoid is to exclude transactions, such as transfer payments to pensioners or the unemployed, that do not represent payments for productive activity, as well as those that denote only changes in ownership of an item, since no new production is implied; the second is to count only new value added at each stage of the production process, from the extraction of raw materials to the sale of final goods—ie to avoid double counting.

The picture of the circular flow of income between households, firms, the government and external actors is built up gradually as the basis for the three alternative measures of national income accounting. (In this model, injections into the economy exactly match withdrawals from it, by definition.) The expenditure method measures the spending of households, government, investors and foreign buyers on goods and services in the domestic economy, to arrive at gross domestic product (GDP) at market prices. The output method measures what firms actually get for their production (and therefore have available to spend on factor services), and differs from the expenditure measure by subtracting indirect takes (those levied on the prices of goods and services themselves, rather than on factor incomes) and adding any production subsidies, to arrive at the gross value added (GVA) at basic prices. The income method aims to total up the payments received for the various factors of production (land, labour and capital); summing together the factor payments from firms to household, subtracting direct taxes on this income—which are siphoned off to the government—but then adding the redistribution to households of some of this tax via transfer payments, we arrive at the measure for personal disposable income (PDI). One of the advantages of having three measures of national income, each gauging monetary flows at different points in the cycle, is that they act as “checks” on one another, helping to reduce errors.

Next, the module details some of the practical problems of data collection and estimation for each of accounting method. Simplified layouts of the tables that are the end result of the data-collection process for each of the methods look something like this:

Expenditure	Output	Income
Consumption	Agriculture	Salaries, wages
households	Production	Firms' profits
non-profit institutions	utilities	non-financial
Government consumption	manufacturing	public firms
Fixed investment	Total production industry	private firms
Change in inventories	Construction	financial firms & other
Acquisitions less disposals	Service industries	Mixed income
Total domestic expenditure	distribution, hotels, repairs	GVA at factor cost
Plus exports	transport & communications	Net product taxes
Total final expenditure	business & finance	GDP at market prices
Minus imports	government & other	-
Statistical discrepancy	Total services	-
GDP at market prices	GVA at basic prices	-

Moving snapshot
Presented sequentially, these structural snapshots of the economy allow us to glimpse something of its changing character over time, to describe broad changes within it—for instance, many Western economies once dominated by manufacturing now predominantly specialise in services. From the information so compiled it is possible to get a picture of the structural features of the national income in the UK in the post-war period, as follows:

• nominal GDP had reached £1.7trn by 2004 (from £1.1trn in 1996);
• close to 60% of national income takes the form of wages (compensation to employees);
• exports make up a growing share of expenditure (19% in 2004)
• investment makes up a falling share (13% in 2004);
• aside from the government, business and distribution services are now the dominant sectors and their share of output is rising; and
• manufacturing, utilities and agriculture accounted between them for only a fifth of the UK productive activity in 2004 and the share of all of them was on a trend of long-term contraction or decline.

The reason that any of this is useful is that an accurate description of a country's economic structure, as well as the changes to its economic structure over time, is an essential basis for sound analysis, as well as for meaningful international comparisons.

Other useful topics in the chapter include instruction in two methods for calculating real output changes from nominal data (the first values output in later years at base-year prices, whereas the second multiplies the change in quantity of goods in later years, compared with the base year, by product weights established in the base year), as well as a brief look at alternative methods of national income calculation—gross national income (GNI; GDP plus net income from abroad) and net national income (NNI; GNI less depreciation)—and the possible grounds for the inadequacies of these measures for capturing accurately economic welfare more broadly.

That’s enough for one day.

72

If you want to work out how long it's going to take a country to double its income, you have to divide 72 by the country's average growth rate. Thus, at India's average annual growth rate of 1.8% in 1950-75, its economy would double in 72/1.8 = 40 years; China's, at 6% in 1975-2000, would double at a much foreshortened 72/6 = 12 years.

I also liked the one-size-fits-all coffee-cup lids as an example of the myriad kinds of rather bland, but cumulatively significant, kinds of innovation that characterise economic growth.

Movement without change

Neo-classical growth theory is an attempt to explain the conditions in which dynamically stable, or equilibrium growth, may be achieved. A key feature of the method of analysis used in neo-classical economic theory is the application of marginal techniques to the demand side (explaining commodity prices in terms of variations in marginal utility to consumers, for example) as well as the supply side (factor returns explained by their marginal products), rather than just to the supply side, as with classical theory.

Very broadly, the picture of the growth process envisioned in neo-classical theory is as follows. The level of savings in the current period is conditioned by the level of income from the previous period of production. This determines the size of funds available for current investment, all current savings being absorbed for this purpose. Investment may be used either to equip new workers with the same level of capital as all other workers, in this way maintaining the capital-labour ratio (capital widening), or to increase the level of capital per worker, in this way increasing the capital-output ratio (capital deepening). Capital widening can increase the absolute level of output produced, but not the rate of growth of output per worker. Capital deepening can increase productivity in the short run, but market mechanisms will adjust the relative prices of capital and labour in such as way as to encourage firms to economise of one or the other, bringing the capital-labour ratio to its long-run average—that is, the one consistent with dynamically stable, equilibrium growth—so that, without technological progress, only capital widening can occur.

In the long run, therefore, for a given level of technology, an economy will tend to grow at a rate determined by the growth rate of the population (the causes of which lay outside the field of enquiry of the model), because, assuming full employment of all factors of production, all other variables with potential to influence the level or rate of growth of economic output will adjust. To put this in another way, in the long run, only technological progress can permanently increase the rate of growth of output and income per head, because it increases the average product of labour for any given capital-labour ratio, raising also the capital-output ratio. Counter intuitively, the rate of saving has no effect on the long-run rate of growth of the economy.

To reach these conclusions, the neo-classicists make a number of simplifying assumptions; some of the most important ones are as follows.

1. Output is of a single homogeneous commodity. The level of output depends on the quantities of inputs of labour and capital, and is subject to constant returns to scale (ie by doubling the quantity of inputs of capital and labour, output is exactly doubled).
2. The supply of labour—which is also homogeneous in character—grows at a constant rate. This is the most important “exogenously determined” variable, the one to which the other variables, conditioning one-other within the confines of the model, must adjust. There is always full employment of labour, such that any extra contribution to productive capacity from this source translates exactly into actual contributions to output.
3. The rate of saving is constant. Whatever the level of income from the previous production period, in each new period, the same proportion of income is saved and the same proportion consumed. The current level of saving is determined by the level of income achieved in the previous period—that is, it is explained by processes at work within the model.
4. All current savings are employed as current investment in capital. This is so because interest rates on the capital market adjust to equate the two; if there is an excess of savings, interest rates will fall, raising the relative profitability and thus attractiveness of investment.
5. Capital does not to depreciate, but the “capital-deepening” process is subject to diminishing returns; that is, as the average capital per worker increases, the increase in output for each new unit of capital added to the production process is less than the last (ie the capital-output ratio begins to decline). The explanation for this for neo-classical economists lies in the low substitutability of labour and capital inputs.
6. The rates of reward to production factors are not constant; on the contrary, the movement of relative prices is the mechanism of adjustment by which a steady-state growth path is achieved.
   
   

Left well alone

Marx versus the nostalgists
Marx thought that inequality was the tool by which humanity would pull itself up by its bootstraps and in this way, eventually, escape the "realm of necessity"; only then would human history really begin—ie a history in which we would be able to break out of the stultifying "predestination" of the class system. But class inequality was the harness by which freedom would be earned.

Looking about, it is possible to spot potential new economic forms growing in embryo in the womb of the old society (eg open-source software development, where status among one's peers, rather than profit, seems to be the strongest motive for innovation). However, the old social relations are clearly still "forms of development" of productive power—which will have to be at an extremely high level if socialism is not to be maintained by force, if it is to be "stateless"—rather than its fetters.

Andrew Murray's kind of left, on the other hand—looking back for inspiration to the stark semi-poverty of the Soviet Union, with its bread queues and drab uniformity, the built-in "excess macroeconomic demand" or "sellers' market" that was the lot of your average Soviet citizen (in the good years, that is)—often seems to me to be one of the possible fetters, or brakes, on the broad trend towards progressive social change and worldwide material improvement.

Why so? How did this extraordinary situation come about? Is it not one of the most puzzling conundrums of the day?

Certainly, there are many things wrong with today's mainstream left, and Mr Murray's political praxis, I would argue, has as good a claim as anyone's to exemplify some of its least attractive features.

And yet I think that, despite itself, this nostalgic, slightly provincial, slightly chauvinist left may still serve a useful role—in as much as a thoroughgoing critique of its positions is likely to suggest what a useful left might look like, by way of contrast. Engels calls this "the power of the negative".

Instrumental anti-racism. Sometimes this school portrays free speech as merely a devious bourgeois device to protect the expression of racism. This seems to me an error of historic proportions, for when you give an inch to the state or to the dominant civic culture, it is more often than not the weaker social elements who get it in the neck, and to whom the restrictions or "protections" are thenceforth applied. Plus Mill's point applies: the more ideas, the more likely we are to come to good conclusions. Bad ideas had best be let out into the open, there to be hunted down. If only Mill had been able to put this dialectically, or, better still, in the unnecessarily complicated manner of modern French philosophy, I believe that it might have better caught on with this brand of radical conformism. In fact, far from opposing racism, of late, this left has teamed up with far-right racists, whose aim it is to impose their highly restrictive values on other Muslims.

Smash the machines! This strand of the left typically decries potentially poverty-reducing globalisation, instead of proposing an alternative kind of globalisation—one in which the undeniable benefits of international trade are more equally distributed. (By "exporting" good working conditions, for example.)

Down with this sort of thing! This leads me on to the chief failing of this clique: they have no plausible and appealing alternative to the "neo-liberalism" that they despise, but which they can't be bothered to understand—hence the disastrous faith-based appeals to "more of the same", the posthumous rehabilitations of the Soviet Union (and, by the way, the official Soviet policy of the equality of the races and sexes bore a similar relation to reality as the 1936 "Stalin" constitution to the everyday practice of Soviet democracy), and of the 1970s ("when unions was king"), the starry-eyed adulation of General Chávez, because "anything but this".

And yet, even with its unconscionable level of inequality, and the relatively harsh restraints it places on all-round human development—chiefly, perhaps, by the length of the working day—this society now, here in the West, is the best, economically and politically, the richest and the freest, that there has ever been in the 6,000 years since someone put up a clock tower in Uruk and said to themselves, "I think I might stick around"; which only shows what a long way there is to go and that we are probably living in an early stage of human history.

Two faces are better than one. Finally, the leftist of the kind I am thinking of tends to shed crocodile tears over the small successes of fascist parties at home, while carrying out extensive PR campaigns for similar or much worse ones abroad—by playing up the crimes of the imperialists, and playing down or skating over the crimes of the resistance death squads in Iraq, for instance. Hence my suspicion that anti-imperialism itself, at least in its current manifestation, is perhaps one of the most serious barriers to the development of some kind of humane and productive socialism in the future.

Frankly, I'd be very afraid of any kind of socialism in which this left had too much of a hand, as it has appallingly low standards for what a society based on the free association of the producers might be like, and it is usually quite prepared to trade off a bit more bread for a bit less freedom, whereas it seems likely that more of one leads to more of the other, and vice-versa.

Measure for measure

"for with the same measure that ye mete withal, it shall be measured to you again"

Economic growth is defined as the rate of increase of output over a set period of time. In the EU at least, following the widespread adoption of the European System of Accounts (ESA 95)—which the UK did in 1998, for example—the standard measure of economic development is gross domestic product (GDP) at constant market prices.

GDP measures the value of final goods and services produced in the domestic economy in a given period of time, usually one year; it includes indirect taxes, net of any product subsidies (this explains the “market prices” bit).

By stripping out from the money value of current production—or nominal GDP—any changes in the average price level in the economy between one year and the next, we are able to derive real or volume data. One method for doing this is to value the output of a later year using the prices prevalent in the earlier or base year. By comparing the change in the level of real GDP between periods, we are able to calculate real rate of change of GDP per year (this explains the “constant” bit). Other measures of output, less common nowadays, include gross national product (GNP), which takes into account the net flow of resources into or out of the economy, and national income (net national product, NNP), which includes depreciation.

Typical conceptual criticisms of GDP as a measure of economic growth are that it fails to take into account what is not bought or sold—valuable non-market services such as housework, for example. It also fails to encompass the benefits or costs associated with the growth process: the positive or negative economic utility value of leisure or pollution, for instance. Consequently, measures such as net economic welfare (NEW) have been proposed to overcome some of these problems, but have not tended to catch on—so far, at least. Additionally, any attempt to measure growth is compromised by the fact that the permanent innovation (which is intimately linked with economic growth) makes comparisons of the value of products across time difficult or, if a new product allows an activity that could not previously be undertaken, impossible.

Mr Ricardo's political arithmetic

The question of why economies grow has been central to economics since its emergence from the Enlightenment as a discipline in its own right. On this, I shall take an approach that will allow me to look at the question from different angles, bit by bit. The best place to start, it seems to me, is with a little foray into the history of economic thought.

All the classical economic theories were theories of growth—that is, they were designed to show that freedom for economic actors and free trade were essential for improving the prospects for the growth of national wealth. Later, with the "marginalist revolution" of the 1870s, mainstream economists shifted their focus to the analysis of the static problem of resource allocation. In the 1950s they began to apply marginalist tools to the problem of the growth of whole economies over the long term. More recently, this approach to growth theory has itself come under fire.

Of the classical growth theories, that of David Ricardo is perhaps the easiest to expound in a small space. As is usual in classical economics, Ricardo looks at the growth process through supply-side glasses to explain the development of productive capacity; this he assumes will be the same as actual output because market mechanisms assure full utilisation.

Ricardo's model is of a mainly agricultural economy in which production is the outcome of the combination of three factors: land, labour and capital. At any point in time, land is fixed in quantity but variable in quality; the labour supply is fixed; and the stock of circulating capital, or wage fund, is also fixed (it is envisioned as a stock of corn).

In any one period of production, the owners of capital hire the owners of labour to work on the land. Capitalists deploy labour in such a way as to equalise the marginal product of labour. The wage rate of workers is determined by the size of the wage fund, divided by the number of workers (the labour force); capitalists will hire workers as long as the marginal rate of labour is higher than the wage rate, the difference between the two accruing to the capitalist as profit; the income of landowners, in the form of rent, is determined by the difference between the average and the marginal products of labour multiplied by the number of workers on a farm.

This is the static part of the model. The model is set in motion by the behaviour of the economic groups with regard to their income. Workers consume all their wages to reproduce themselves, so that they are fit for labour in the next production period. Capitalists tend to save their profits, adding it to the volume of circulating capital, the wage fund—which is the source of economic growth. Landlords spend all of their income on "unproductive consumption".

However, in Ricardo's model—and in contrast with the model of Adam Smith—growth is not without inherent limits. This depends crucially on the role played by the expansion of the population, which is stimulated as a growing wage fund boosts the wage rate, raising it above subsistence level. As production on existing farms intensifies and also moves outwards to less fertile land, rents increase, which is useless from the perspective of economic growth; worse, the marginal product of labour falls and, with it, profitability, eventually bringing the growth of the wage fund—and thus the growth of national income—to a halt. This is known as the stationary state.

Although Ricardo’s model retains a certain self-contained elegance, it cannot be reconciled to the growth process as it has subsequently happened. This is for three main reasons.

• Population growth has often been "exogenously" determined, and the envisaged close relationship between the income and population growth has not obtained.
• There has been steady progress in the development of agricultural technology, some of it induced by the pressures of population growth.
• The emphasis on the role in growth played by circulating capital ignores the contribution to growth from the employment of fixed capital—particularly in industry, but even in agriculture—through improvements in productivity.

Under the old regime

Looking through some of my old stuff, I thought that a useful approach might be to "recycle" material from the past, updating it where necessary. Of course, some material does not need updating, since the situation it refers to has passed away. However, the definitions and tools may be of continuing use.

Repressed inflation in STEs
The interlinked phenomena of inflation and shortage in Soviet-type economies (STEs) can be attributed to a number of causes. Inflation is the movement of the aggregate price level for goods and services across the economy as a whole, although, when looking at causes, it is sometimes helpful to distinguish between those that are "one-off" in nature, originating from "outside" the normal workings of the economic system (for example, from mistakes of economic policy, or exogenous shocks, such as a rise in energy prices or a bad harvest), and those that are systemic, when the conditions behind the rise in the aggregate price level are constantly reproduced from within.

Causes of inflationary pressure under state socialism
In the classical model of state socialism, the system-specific causes of inflationary pressure may be listed as follows.

• Persistent labour shortages put upward pressure on wages which, if reflected in actual wage increases for the economy as a whole, will tend to increase production costs.
• As producer-sellers, firms have some vested interest in raising prices.
• Operation of a passive monetary policy may lead to some uncontrolled growth in the money supply.
• There is persistent excess demand at a macro level.

The last of these, excess macroeconomic demand, exerts the strongest inflationary pressure. And although there are also variations in the degree of excess demand prevalent in different sectors of the economy, it is most powerful in the state inter-firm sphere.

From this perspective, perhaps the most important phenomenon to understand is the process of taut or overfull employment planning. This is when the output plan for the enterprise is deliberately set above the firm's production capacity. The aim is to "seek out" resources; for individual managers, increased physical output is also the criteria for promotion. The effects, however, are that firms try to cut corners—for example, by reducing product quality or raising costs. From the point of view of structural constraints on the firm, this presents few problems, since the question of exit of firms from production is not an economic decision but a bureaucratic-political one. The peculiarity of the state property form means that, while in theory it is owned by everyone, in practice, "no one has a true inner interest in ensuring caution in handling money".

Soft budgets, passive money
In effect, the regime of the output plan means that a firm's budget is not a strict restriction on its access to resources. If a transaction seems to be demanded by the plan, a cheque—even one in excess of the firm's budget—will be cleared. Herein lies the "soft" character of financial budgets at enterprise level, and also the "passive" character of money in the inter-firm sphere. "Money" in this sense exists only as an accounting unit and does not exert any buying power. The total monetary demand for firms follows the financing needs of the plan. This is the reason why the term "excess demand" is sometimes considered inappropriate, and we should use the term remembering that it is compromised by the non-market character of the transactions involved. For this reason monetary and fiscal policy has no effect on the level of output. The rationale for Kornai’s observation that the firm under the classical socialist model has no particular interest in limiting its demand for inputs is thus seen to flow from the imposition of “taut” planning.

What symptoms when prices are controlled?
In STEs the symptoms of inflationary pressure are revealed by means other than price rises. This leads us to the question of repressed inflation, which may be introduced by a method of contrast. For while inflationary pressure may lead to a rise in the aggregate price level (open inflation), or actual rises in the prices of goods and services may not find their way into the calculation of the inflation index (hidden inflation), repressed inflation is said to exist when upward pressure on the price level is resisted by administrative control. (It is also defined by Nuti as the rate of change of excess demand.)

In the consumer goods market, too?
First, the boundaries of the debate must be delimited by saying that while the existence of excess demand in the state inter-firm sector of STEs is rarely challenged, the question of the endemic nature of repressed inflation in the market for consumer goods has been hotly debated. Also, the credit expansion typically exhibited in the state inter-firm sector would not have inflationary effects in the consumption sphere unless the (usually strict) separation of the functions of money between the two began to break down—if, for example, enterprise credit was allowed to be used to pay for wage increases and it became someone's income (ie if it was “activised”).

How, then, are we to identify inflation if movements in the price level are ruled out? To those who argue that repressed inflation is endemic to the consumer goods market, the evidence seems obvious: the chronic existence of queues, of shortages and of black-markets. These phenomena seem to testify to real attempts to consume more than is officially being produced. This is the kind of thinking adopted by Kornai in his attempt to construct an "index or partial indicators" from, for example, the number of building orders refused, unfulfilled car orders, or the length of waiting lists for accommodation. Pindak takes an equally direct approach to an analysis of Czechoslovakia between 1972 and 1978 by tracking the decreasing proportions of goods in the market for foodstuffs and industrial products not experiencing supply problems.

Another approach is to look at trends in saving. The theory here is that if consumers cannot make their desired purchases, and the bureaucracy prevents a rise in retail prices that would choke off demand, it is likely to be reflected in the rapid and involuntary growth of savings in relation to income or sales. However, since it is difficult to detect a change in the savings rate which signifies the qualitative change from voluntary to involuntary saving, some observers have pointed to the growth of the money-income ratio in many STEs as evidence of involuntary saving (and hence repressed inflation) which, over time, develops into a monetary overhang: frustrated buying power accumulates over the economy in the form of liquid assets (cash and sight deposits).

Charemza and Gronicki take another approach, using the rational expectations hypothesis to estimate excess demand for consumption and labour both in absolute terms and relative to quantities transacted, the results of which show a U-shaped pattern for excess consumption demand in Poland between 1960 and 1980, bottoming out in 1970, steadily increasing to the mid-1970s at about 8% of total quantity of consumption sales. They also employ a static indicator—the difference between the estimated market-balancing price and the real price—to suggest the strong growth in the level of repressed inflation in Poland after 1970.

From this perspective, macroeconomic rationing—and therefore repressed inflation—is seen as a quintessential and permanent feature of STEs, even in the market for consumer goods. First, because excess purchasing power is often deliberately built into wage settlements by the planners, thus forcing the adjustment process onto consumers; and second, because it is seen as a basis of social discipline (and political power).

The initial criticism of this position must be that visible signs of shortage cannot, without further qualification, be taken as indicators of excess demand at the macroeconomic level. This is because the root causes of the observed phenomena may be microeconomic in character. They might, for example, be the result of inadequacies of distribution rather than production, or they may stem from the rigidities of pricing policy (that is, a problem of relative rather than aggregate prices). These observable indicators may be particularly misleading if we think of repressed inflation as the rate of change of excess demand.

Why do we need to know?
The question of the source of repressed inflation is an important one, as it will influence the choice of stabilisation policies pursued in the period of transition from socialist to capitalist economic systems.

Is aggregation appropriate in STEs?
Within the field, there has been a somewhat heated dispute over the theoretical justification for statistical aggregation, given the nature of Soviet-type economic systems. An example of the aggregative method is an econometric study of Portes and Winter. While arguing that the roots of the problem are microeconomic in character, they maintain the pertinence of a macro approach to an analysis of economic imbalance. They test and reject the hypothesis that excess macroeconomic demand is endemic to the consumer goods markets of STEs. On the contrary, they conclude that from the mid-1950s to the mid-1970s excess supply was the dominant regime in three out of the four countries analysed (Hungary, Poland the GDR and Czechoslovakia).

Kornai, in contrast, contends that in a shortage economy, the idea of excess macroeconomic demand is not an operational category. By this, I think he means that when the consumer is forced to substitute for their original buying intentions, or is deterred from following through the buying intention in any form, the netting out of shortages for some products against surpluses for others is inappropriate, since withdrawal from the market reduces the level of observable shortages; also, perhaps, that quantitative measures fail to take into account qualitative criteria. This may mean that Portes's rhetorical criticism of estimates of excess aggregate labour supply in Western countries because of the phenomenon of the "discouraged worker" may be inadvertently justified.

Holzman's indicator for repressed inflation—the ratio of free market (kolkhoz) prices to state prices for foodstuffs, weighted by share of output and expressed as an index—assumes that the level of repressed inflation in the state sector has a direct impact on the level of prices in the free market. The ratio indicates a decline in the level of repressed inflation in the USSR for the decade after 1955, followed by a period of stability that lasted until the mid-1970s, when a definite, though undramatic, increase occurred until 1979. (However, I couldn’t see from the data what the proportions of the repressed inflation were at the base date.)

It has also been argued that trends in the money-income ratio should be interpreted as a wealth-income ratio in STEs, since the underdevelopment of capital markets means that only a narrow range of assets is available. The trends taken to indicate the development of involuntary saving may therefore be better explained by factors that interpret them as increased rates of voluntary saving. Ofer suggests that two such factors are the need to build up levels of saving: first, to be able to purchase consumer durables when no consumer credit is available; and, second, to offset the deterioration of public services and real levels of social security pay. In addition, a significant rise in the wealth-income ratio is hardly surprising given the very low levels of the ratio that prevailed in many STEs at the beginning of the 1960s. Cotarelli and Blejer suggest that, applying the life cycle hypothesis to consumption behaviour in the USSR, the increase in the wealth-income ratio could be interpreted as resulting from the deceleration of disposable income growth in the period 1965-80.

Conclusions
The hypothesis of endemic repressed inflation in the market for consumer goods thus emerges battered from the criticisms of more nuanced, more plausible interpretations of data and of rigorous econometric analysis. Nuti seems to add to the weight of this criticism by pointing out that the acceleration in the growth of liquid assets could be explained by the higher market-clearing prices on secondary markets, or by the necessity of speculative holdings in conditions of erratic supply—both of which would invalidate the concept of involuntary holdings for the sector as a whole. This might go some way, he suggests, to reconciling the estimates of low overall excess demand in the consumer sphere with concern for market imbalance. However, he goes on to argue that the bulk of the stored up buying power would be pressing on the lower priced, quantity-constrained markets as a result of (I think) the lack of substitutability between (luxury and everyday) goods. Consequently, the level of excess demand could be increasing fast in the state consumption sector, while open inflation in the non-state consumption sector keeps the level of excess demand for the sector overall at a stable level.