Pakistan - Caught in the Debt Trap

Sultan Ali Allana in The Dawn

THE 22nd IMF programme, circular debt, G2G loans and an imminent 23rd programme lurking around the corner. It reminds one of Jaws the movie, where danger creeps unseen and dread is prevalent amongst all. ‘Borrow more to borrow even more’ versus ‘earn more to borrow less’. Two very different courses, yet interchangeably deployed, admittedly intermittently, in varying blends, over the past 40 to 50 years, have shackled the nation to the debt trap.

Omnipresent in this murky blend, not unlike other debt-laden markets, are what the West terms as ‘economic hitmen’, who pursue self-interests, ostensibly for the greater good. These interests are then propagated scientifically, justified, and then, with the clever manipulation of economic data, communicated to every handheld device.

While economists and financial experts take turns at solving what has now become a complex equation, perhaps it’s time to go back to the basics, which may be termed as Solution 101 — ‘earn more and borrow less’ — a solution which is admittedly easier to state than actualise. It is a course which may well require our urgent attention and, most importantly, political convergence that entails all major political parties, irrespective of their manifestos, unanimously agreeing to sign off on a ‘charter of economy’ that marks milestones at five-year intervals — starting with ‘earn more and borrow less’ to ‘earn more and not borrow at all’ to, ultimately, ‘earn more and build reserves’.

Simply put, this charter may be a 15-year plan for this nation’s way forward and a performance measure to determine the economic achievements of each successive government. Politics and the economy must at all costs be separated in the interest of the nation.

Pakistan’s debt story is interwoven with the country’s 75-year journey. We entered the first IMF programme in 1958 and, since then, it has been one programme after another, while institutional and G2G debts have continued to grow simultaneously. As of Dec 31, 2021, combined foreign currency loans are more than $90.5 billion. The story of Pakistan’s debt is incomplete without taking into account domestic debt, which by the end of December 2021 had crossed Rs26.7 trillion (roughly $151.5bn based on the Dec 31, 2021, closing rate), resulting in total debt in excess of $242bn or around 77 per cent of GDP. There is also the circular debt, which grew from Rs161bn in 2008 to over Rs2.46tr by March 2022. It continues to grow, putting, oil, gas and power supply at risk.

A consolidated picture of Pakistani debt on a per person basis depicts the debt journey. Each Pakistani, irrespective of age and gender, carries upon their shoulders a debt burden of nearly Rs190,000, while devaluation and interest adds to this figure by the day. Pakistan must borrow to pay back its borrowings and borrow to pay back the interest on its borrowings. Bluntly put, we are no longer borrowing for growth, but to service and repay borrowings.

The government may be able to service local currency debt by raising taxes, at the cost of stunting growth; however, foreign currency earnings will have to be significantly enhanced through exports, remittances, privatisation and foreign investments, and imports will have to be managed to make the equation work. Without a balancing act, the debt cycle will grow to untenable levels.

Tough decisions and belt-tightening are essential. The country’s policy framework, which has relied on imports, belies the requirements of a paradigm shift in thinking. The emphasis needs to shift to the development of a robust agro economy, making Pakistan not just self-sufficient in food, thus ensuring future food security, but also a country that can be a global supplier of food. If oil can be extracted (at a cost) and countries can rise to heights unthinkable in the 1960s, surely, agro extraction (at a cost, undoubtedly) can become a source for sustaining growth, which in due course can accelerate industrial growth for a balanced economic model.

The cycle of boom-and-bust can only be broken if there is a meaningful shift in the policy framework. Granting subsidies without assessing the long-term consequences, or imposing heavy taxation regimes, which impair growth, must be examined and thought through. To quote Winston Churchill: “I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up with the handles.” While building a strong SME and labour-intensive industrial base, with the aim of capitalising on the shifting industrial trend in China, is equally important, a focused approach, which entails start-to-finish government support — some call this the ‘ease of doing business’ — must be given top priority.

Competitive markets drive global agendas where Pakistan will have to situate itself and measure its competitiveness. What has not worked before will certainly not work going forward. It is imperative that we plan for future generations to provision for a fulfilling and debt-free life of progress, prosperity and security. We have heard the endless discussions of experts and also novices who have little understanding but who use economic jargon to impress with ‘solutions’. But why has nothing, or very little, worked? Framing policies, ensuring competency and challenging dogma require political consensus and hard work.

Freedom comes at a price and it’s a price we must pay someday. Climate change is upon us, where food security and water management will remain on top of the global agenda for decades to come. Gainful employment for our ever-growing and young population will be challenging. With over 366 million mouths to feed by 2050, surely this must be our primary concern. Debt and more debt are certainly not a solution. It is the problem!

Economists Stole our Money, Gave it to the Rich

 

The Covid crisis is doing what the 2008 crash didn’t: ending the old economic orthodoxies

Larry Elliott in The Guardian

A wealth tax to help pay for the cost of fighting the pandemic. An international agreement to prevent a race to the bottom on corporate tax. An insistence that recovery from the second severe crisis in just over a decade should be green and inclusive. A conviction that governments should spend whatever it takes to fend off the threat of mass unemployment, paying no heed to the size of budget deficit.

There’s nothing startlingly new about any of these ideas, which have been knocking around for years, if not decades. What is different is that these are no longer just proposals put forward by progressive thinktanks or marginalised Keynesians in academia, but form part of an agenda being pursued by the International Monetary Fund and the US Treasury under Joe Biden’s presidency.

This matters. From the 1980s onwards, the IMF and the US Treasury forged what became known as the Washington consensus: a set of beliefs that was foisted on any country that ran into economic difficulties and came looking for help. The one-size-fits-all approach involved cutting public spending and taxes, and privatisation, to create incentives for risk-taking entrepreneurs, and making inflation the overriding goal of economic policy. These policies inevitably caused pain, but it was thought the “tough love” approach was worth it.

It has been quite a different story in the buildup to the IMF’s spring meeting this week. Biden’s fast-tracking of a $1.9tn stimulus package through Congress, including direct payments to struggling American families, was significant in two ways. First, at about 10% of the annual output of the US economy, it was much bigger than the emergency support provided by Barack Obama after the global financial crisis of 2008. Second, and perhaps more importantly, it contained no promises of future deficit reduction. Austerity has no part in the thinking of the Biden administration, and nor does the idea that demand fuelled by borrowing inevitably leads to higher inflation.

The next phase in Biden’s plan is to spend a further $2tn on rebuilding America’s crumbling infrastructure. This will be funded by reversing some of Donald Trump’s cut to corporate tax rates, which will be opposed by Republicans in Congress but not by the IMF. When asked about the projected increase this week, the fund’s economic counsellor, Gita Gopinath, said Trump’s corporate tax cut had not done much to boost investment. Moreover, Gopinath was positively enthusiastic about the idea of a global minimum corporate tax rate, something the US has traditionally been wary of but which it now supports.

For the past year, the IMF has been trying to increase the financial firepower of its member countries through currency reserves known as special drawing rights. Trump’s concern that Iran would secure these rights meant there could be no progress while he was in the White House. Under Biden’s treasury secretary, Janet Yellen, the deadlock has been broken and a $650bn special drawing rights allocation has now been announced.

If the old Washington consensus believed in small states, low taxes and balanced budgets, the new Washington consensus believes in activist governments, inclusive growth and a green new deal. Until relatively recently, the only outpost of the multilateral system that supported such ideas was the UN’s trade and development arm in Geneva.

That is no longer the case. This week’s regular IMF update on the state of the global economy emphasises how the pandemic has made pre-existing inequalities worse. That’s true within countries, where the virus and its economic consequences have been toughest on the poor, the young, women and ethnic minorities. It is also true between countries, with the central banks and finance ministries in advanced nations having far more scope to mitigate the impact of lockdowns than those in poorer parts of the world.

Both the IMF and its sister organisation, the World Bank, are clear that there can be no final victory in the battle against Covid-19 until everybody is vaccinated. The problem is not simply that developing countries lack sufficient doses; it is that their health systems are underpowered and lack the trained staff to deliver treatments. Similarly, if the world is to make the transition to a zero-carbon future, developing countries need to be included. That means extra financial resources. All this at a time when fears of a new developing-country debt crisis are rife.

Make no mistake, the IMF is still no soft touch. The conditions imposed as the price for financial support are often draconian, and critics note the disconnect between the right-on rhetoric of the IMF’s managing director, Kristalina Georgieva, and the policies imposed by her organisation’s missions to struggling countries.

Meanwhile, pushback against what Biden has been doing has come from both left and right. Some of the president’s critics accuse him of not being nearly radical enough; others are convinced that all the money creation by the US Federal Reserve and the deficit spending by the US Treasury will inevitably mean much higher inflation. Conjuring up the ghost of economist Milton Friedman, they say it will all eventually end in tears.

For now, though, it is the Friedmanites who look marginalised, with the pandemic accelerating a shift in economic thinking that has been gestating over the past decade. Biden’s approach to running the economy – spending freely and taking a tough line with China – has more in common with that of his immediate predecessor than it does with Obama.

The shift in attitudes has partly been caused by a lack of results. Austerity did not lead to the surge in private investment and faster growth that was promised. Instead, the 2010s were a lost decade of stagnant living standards, which explains why Bidenomics is a big hit with American voters.

Crises also encourage experimentation. Furlough schemes to subsidise the wages of those unable to work are not the same as a basic income, but they are similar enough to get people used to the idea. Necessity rather than ideology explains why Rishi Sunak has spent more than £400bn in the past year on emergency support programmes in the UK, but a Labour chancellor would have done much the same.

There is a sense in which history is repeating itself. It took more than a decade after the end of the first world war for the realisation to dawn that the gold standard was finished. It was the second rather than the first oil shock that opened the door to the economics of the new right in the 1980s. Those who thought that the financial crisis would result in a challenge to the Washington consensus were not wrong. The old nostrums are indeed being questioned. It has just taken 10 years longer than they were expecting, that’s all.

Labour's spending plans aren't especially unusual – just look at Sweden

The US favours small government and low taxes, but many developed countries thrive on the opposite writes Larry Elliot in The Guardian 

 

The gap between the richest and poorest in Sweden is far smaller than in the US. Photograph: Kevincho_Photography/Getty Images/iStockphoto


Labour’s plans for Britain involve a big increase in the size of the state. Government spending as a share of national output would rise to 45%. And apart from brief spikes in the mid-1970s and during the more recent financial crash, it has not reached those levels since the second world war.

To which the mature response should be: so what? A glance around the world shows that there are rich developed countries where the state is relatively small and there are rich developed countries where the state is large. In democracies, voters get the right to choose between the competing models.

Take Sweden and the US as examples of the contrasting approaches. The Scandinavian country, population just over 10 million, has a state that spends 50% of gross domestic product. The United States, population 329 million, operates with a much smaller state that accounts for 38% of national output. 

The received wisdom, particularly among free-market economists, is that a small state means economic dynamism while a big state means the opposite: a sclerosis caused by governments burdening their populations with levels of taxation that stifle enterprise.

So how do the US and Sweden stack up against each other?

In terms of growth rates, there’s not been a lot to choose between the two in recent years, with both averaging around 2.5% a year in the half-decade up to 2018. If anything, Sweden’s growth rate was a tad higher.

The US has a slight edge when it comes to living standards. The average American had an income of $59,928 (£46,700) in 2017 while Sweden’s per capita income was $51,405. But the Swedes, as tends to be the way in Europe, are prepared to sacrifice income for leisure time. They work 1,621 hours a year on average compared to 1,781 hours for the average American.

What’s more, the focus on GDP per capita is a bit misleading since it says nothing about the way in which national income is divided up. In some countries, there is a wide gulf in incomes between those at the top and those at the bottom; in others there is a more even split. The US falls into the former category, Sweden into the latter.
One way of assessing income inequality is through the Gini coefficient. If income was distributed evenly in a country it would have a Gini coefficient of zero If, on the other hand, one person had all the income its coefficent would be 1. Obviously, every country is bunched around the middle of this range, but Sweden is closer to the bottom than the US. It has a Gini coefficient of 0.27 while the US’s is 0.41.

Big-state Sweden has a higher unemployment rate than the US – 6.3% against 3.9% – in 2018, but its employment rate is also higher. According to figures from the Paris-based Organisation for Economic Cooperation and Development dating back to 2016, 69.4% of Americans aged 15 to 64 are in work, compared to 76.2% of Swedes.

The two countries have very similar inflation rates of around 2%, but there is no evidence that high levels of public spending have impaired Sweden’s export performance. A current account surplus of 1.7% of GDP in 2018 was in contrast to the US’s 2.4% of GDP deficit.

The big economic numbers – income per head, unemployment, inflation and the current account – do not provide a complete picture of how successful a country is. Sweden has a much lower murder rate than the US – 1.1 per 100,000 inhabitants against 5.3 – and has a much lower incarceration rate – 59 per 100,000 people as opposed to 655 per 100,000 in the US. Swedes live more than four years longer than Americans on average.

When it comes to Nobel prize winners, the countries have similar records once their differing populations are taken into account – 383 for the US and 32 for Sweden. Here, though, the US has the edge. Only three of Sweden’s laureates have come since the turn of the millennium while 130 Americans have been awarded during the same period.

The comparison between these two quite different countries helps to illuminate the debate in the UK. Apparently, the size of the state has no bearing on whether a country is successful or not. At a guess, not many Swedes would want to see their country transformed into small-state America.

This is the right time to have just such a debate about the size of the state because there are factors in Britain that are systemically putting upward pressure on spending. Demographic changes mean all parties need to address the rising costs of an ageing population; the bills for the state pension, the NHS and social care are all going to increase. The climate emergency will require hefty state investment to make the transition to a zero-carbon economy.

But a word of warning. Sweden has evolved its model gradually whereas Labour’s plans involve abrupt change. The price for a big state is high levels of taxation – and it is a price the Swedes are prepared to pay. Overall, government revenues are 49.5% of GDP and taxes on the average Swedish citizen are substantially higher than they are in the UK. The Conservative party is going into the election promising both lower taxes and higher spending. The Labour party says a big state can be paid for by rich individuals and the corporate sector with everybody else tucking into a free lunch.

There are politicians who want Britain to be more like the US and some who favour the Swedish approach. Both are possible. What’s not possible is to have Swedish levels of public spending with American levels of tax.

Taxes and money - Modern Monetary Theory MMT

A Counter view - The Destructive Idiocy of Modern Monetary theory

Yes this really is the end of Tory austerity – because it was never about economics in the first place

Ben Chu in The Independent

“The crisis”, the economist Rudiger Dornbusch once noted, “takes a much longer time coming than you think. And then it happens much faster than you would have thought.” A similar dynamic describes the progress of Conservative austerity politics.

The stunning failure of Theresa May in last week’s general election signalled to Tory MPs that the public have had enough of spending cuts. Though the deficit still stands at £50bn and the national debt is £1,700bn (and rising), austerity is over, we’re now told.

Seven years of Tory lectures that eradicating the deficit for the good of future generations is paramount suddenly fall silent. Politicians who have tarred critics as criminally irresponsible for suggesting an increase in public borrowing have now, in an instant, changed their tune.

People who insisted that if we did not balance the budget at the earliest possible date Britain was destined to become an economic basket case, like Greece, apparently no longer fear such a gruesome outcome. The collapse of the citadel of austerity rhetoric is truly remarkable in its rapidity.

But it was a very long time coming. It became clear within a year of George Osborne’s 2010 “emergency budget”, which forced through huge cuts in capital budgets and an intense squeeze on Whitehall departments and welfare spending, that the austerity medicine was hurting, not helping.
The economy was flatlining, teetering on the verge of recession. Whether this was primarily due to the crisis in the neighbouring eurozone or because the negative knock-on impact of the government’s domestic spending cuts was bigger than initially thought is still debated by economists.

But it doesn’t really matter. Even the conservative estimates of the Office for Budget Responsibility suggest that GDP growth would have been around one per cent higher in both 2010-2011 and 2011-2012, if the Coalition government hadn’t slashed domestic spending on the scale and pace it did.

With interest rates as low as they could go and the Bank of England struggling to support demand through money printing, this was a time for the Government to ramp up capital investment spending to offset the general slowdown – something numerous distinguished academic economists, and even the IMF eventually, urged. It would have made us all better off, putting idle resources to use.

But despite such a capital spending stimulus being permitted under his own fiscal rules, the former Chancellor George Osborne refused to do it. He told us that the international bond markets would lose confidence in the UK’s creditworthiness if we deviated from his original plan – a risible claim given that UK borrowing costs were plumbing new depths as investors around the world ploughed money into government bonds.

The reality was that Mr Osborne didn’t want to do it because it would have meant losing face. He would have had to admit that his previous pigheaded insistence that he didn’t need a fiscal “plan B” was wrong. The credibility risk was not to the UK’s borrowing status but his own political stock.

With the help of a cynically conceived and distorting subsidy to the housing market, the Conservatives managed to eke out a surprise victory in the 2015 general election. Drawing the lesson that austerity had become an electoral asset and useful stick with which to beat Labour, the Chancellor doubled down. He tightened his fiscal rules in a way that virtually the entire economics profession regarded as economically illiterate, making no distinction whatsoever between day-to-day government spending and productive capital spending, and also unveiled a round of large welfare cuts for the working poor.

Hubris set in. And nemesis soon followed. Unexpected parliamentary resistance mounted to Osborne’s welfare cuts, prompting a humiliating reversal on tax credits. At the same time the impact of extensive cuts to policing, schools, social care and the NHS finally became apparent in the form of deteriorating services. It took longer than expected, but it finally arrived.
Yet when Theresa May replaced David Cameron as Prime Minister and Philip Hammond replaced George Osborne as Chancellor last year, they didn’t reverse any of the inherited departmental spending or welfare cuts. And they went into the 2017 election with the same old scare stories about Labour’s reasonable capital investment plans, the same old specious lines like “no magic money tree”. Only now has the dam of Conservative denial crumbled.

Reducing the UK’s deficit, which had ballooned to 10 per cent of GDP in 2010 due to the financial crisis, was a necessity. Cutting it without regard for the state of the overall economy and the feedback effects on aggregate demand was unscientific stupidity and wanton vandalism. Austerity, as practiced by the Conservatives, was a policy driven not by economics, but by politics and ideology. The politics was baiting Labour. And the ideology was the desire to reduce the size of the state.

Who was to blame? The prime culprits were George Osborne and David Cameron of course. But Treasury civil servants were also enthusiastic supporters. It was enabled by two senior Coalition Liberal Democrats, Nick Clegg and Danny Alexander. It was endorsed by economists in the City of London and cheered on by Tory-supporting newspapers. It was abetted by ostensibly neutral political journalists, who unthinkingly succumbed to the fatally misleading idea that a government’s finances can be compared to a household’s budget.
They say victory has a thousand fathers whereas defeat is an orphan. But if we look carefully it’s clear the austerity failure of the past seven years has a sprawling parentage.

George Osborne: history will not be kind to a man whose flaws led to Brexit

Larry Elliott in The Guardian

Had things turned out differently, George Osborne would now be counting down the days to becoming prime minister. His close friend David Cameron had pledged to stand down before the next general election and a smooth transition was planned. As the architect of Cameron’s unexpected overall majority at the 2015 election, Osborne appeared to have the keys to 10 Downing Street there for the taking.

Instead, he is living proof of Enoch Powell’s dictum that all political careers end in failure unless they are cut off in midstream at an opportune moment. Osborne will be remembered as the austerity chancellor who got the Brexit referendum campaign spectacularly wrong and was then brutally sacked by Theresa May.

His personal responsibility for last June’s referendum needs to be put into perspective. He was against the decision to hold a plebiscite and told Cameron he was taking an unnecessary risk. Once the decision had been taken, however, he took control of the campaign and opted for the same strategy that had proved successful in the Scottish referendum of 2014 and the general election the following year: a warning that a vote for change would have severe economic costs.

This time it didn’t work. In part, that was because the EU referendum was an opportunity to protest about low pay, welfare cuts and stagnant living standards. In part, it was because the Conservative-supporting papers – who had backed Osborne when he was taking on Alex Salmond and Ed Miliband – came out strongly against what they called Project Fear. In part, it was due to overkill.

When it became clear that many voters were impervious to the warnings, Osborne doubled down. He warned that the economy would plunge into an immediate recession in the event of a vote for Brexit. He said he would be forced to bring in an emergency budget that would raise taxes and cut spending by £30bn. But there was no last-minute swing to remain and when Cameron stepped down as prime minister on the morning after the referendum, Osborne’s days were numbered. A political career that saw him become an MP before his 30th birthday, shadow chancellor before he was 35 and chancellor before turning 40 was effectively over at the age of 45.

Osborne’s rise was smoothed by the financial crisis of 2007 and the deep recession that followed. As shadow chancellor, he had two main lines of attack: Labour had failed to regulate the City properly and had borrowed too much. 

The first charge was justified, and Osborne responded by giving far more power to the Bank of England to ensure there was no repeat of the reckless lending seen before 2007. The global nature of the crisis meant the second charge was specious, but Osborne showed himself to be a master of the political dark arts by making it stick.

As Labour turned in on itself during the leadership contest that followed the 2010 election, Osborne said he had no choice but to impose a tough austerity package because Labour had “failed to mend the roof while the sun was shining”. The new chancellor said voters should blame Gordon Brown for the spending cuts and the tax increases he had been forced to impose. Voters believed Osborne in 2010 and carried on believing him right up until the 2015 election.

Unfortunately, Osborne’s economic strategy proved less successful than his political strategy. The economy had been on the mend by the time of the 2010 election, but too much austerity too soon resulted in growth slowing down. Plans to tackle the deficit in one parliament proved wildly optimistic.

By halfway through the 2010-15 parliament, Osborne was in a spot. He had claimed – correctly – that the UK economy had been too dependent on debt in the years before the crisis, but now found that the economy was flatlining.

His solution was to get a moribund housing market moving by giving banks and building societies money to lend. A growing economy allowed Osborne to claim that his critics were wrong and that austerity had worked. Collapsing oil prices led to falling inflation and a surge in living standards that peaked around the time of the 2015 election. It was little more than a sugar rush, but Osborne was seen as a political wizard.

He capitalised on victory in 2015 by announcing a fresh assault on the deficit. There would be fresh cuts in spending by government departments and £12bn of additional welfare cuts in order to put the public finances back in the black by the end of the parliament. Osborne softened the blow by announcing a souped-up national minimum wage and outlining plans to create a “northern powerhouse”. At the Conservative party conference in October 2015, he made a clear leadership pitch with his “we are the builders” speech. It was the moment his career peaked.

Whatever his tenure as editor of the Evening Standard has in store, history is unlikely to be kind to Osborne, and not just because the referendum campaign went so badly wrong. He marketed himself as a one-nation Conservative, yet targeted the poor for spending cuts. He made deficit reduction the acid test of his chancellorship, yet austerity will continue deep into a third parliament. He said he would sort out Britain’s structural problems, but will leave parliament with the economy as dependent on debt and low-skill, low-productivity jobs as it has ever been. Those failures helped create the conditions for Brexit – and for his political demise.

Europe and the Austerity Fallacy

Yanis Varoufakis

My year of no spending is over – here's how I got through it

Michelle McGagh in The Guardian


Just over 12 months ago I gave myself a challenge: give up spending on all but the essentials for a whole year. I started on Friday 27 November, just as many other people were hitting the shops. It hasn’t always been easy, but a year on I am wealthier and wiser. Embarrassingly, I have also realised just how much money I’ve squandered down the pub, in restaurants and through mindless shopping.

The challenge

As a personal finance journalist people assumed I was good with money but while I wrote a lot about the merits of saving, I wasn’t practising what I preached. I figured that because I earned a good wage, didn’t have any credit card debt and my bank account was in the black, I didn’t need to worry about how much money was leaving my account.

I was spending without thinking, lured in by advertising and the promise that I could spend my way to happiness. I was stuck in a cycle of consumerism – earning money to buy stuff I didn’t really need, which wasn’t making me happy.

Giving up spending for a year was an extreme approach, but the aim was to embrace extreme frugality, shake up my spending habits and overpay my mortgage instead of shopping. I could continue to pay my bills, including mortgages, utilities, broadband, phone bill, charity donations, life insurances, money to help my family and basic groceries.

I’ve learned to shop for food in a better way than I did before – I have planned meals, batch-cooked and improved my dire cooking skills slightly. My husband agreed to do the grocery part of the challenge with me this year and we reduced our weekly shop (which covered three meals each a day, toiletries and house cleaning products) to £31.60 a week.

 

Michelle McGagh’s cycle became her best friend.



Finding a new way to live

There were two instances in the last year when I had to put my hand in my pocket. The first was on a cycling holiday when I spent £1.95 on a bag of chips because there was nothing to eat in the only local shop except for pork pies. The second was when my next door neighbour – who didn’t know I was on a no-spending challenge – had given a roofer the OK to fix a missing tile between our terrace house and his. The work had already been done and the roofer paid. It cost £100 and we owed him £50 so I paid up. I’m not too upset by the fact I’ve paid out £51.95 all year.

I’m not going to pretend it was easy, especially in the first few months when I tried to live my old life without money and found it wasn’t working. There were plenty of times I wanted to abandon it and indulge in some retail therapy, buy a pint in the pub, or even just purchase a bus ticket instead of getting on my bike for another journey.

But I realised I just had to find new ways to have fun that didn’t include putting my hand in my pocket and defaulting to the pub. Using sites such as Eventbrite I have been to film screenings, wine tasting evenings and theatre productions for free. I’ve also used SRO Audiences to see comedy shows and TV programmes being filmed, and none of it cost me anything.

Living in London I have a wealth of free cultural activities on my doorstep and I’ve been to more art exhibitions this year than ever before – my favourite being First Thursdays, where 150 galleries in east London open late and hold private views and talks.

I even managed a free holiday, cycling the Suffolk and Norfolk coast and camping on beaches. It’s something I’d never done before and probably wouldn’t have, were it not for the challenge – and now I can’t wait to go again next year.

I would like thank those who engaged with me on social media to say they were enforcing their own spending bans

There were lows, such as when I missed gigs and blockbuster films. And I’ve not been able to join friends when they have gone out for a nice meal. There have also been some awkward moments when I’ve turned up to a friend’s house for dinner empty-handed because I couldn’t buy a bottle of wine as a thank you. I did a lot of washing up at my friends’ houses this year as a way of saying thanks for feeding me.

The savings

After my expenses were met, I started overpaying my mortgage. We also took in a lodger, and my savings and their rent have helped us pay off an extra 10% of our loan.

Paying off a large chunk of the mortgage has made me realise that I don’t have to stay indebted to the bank for another 25 years like it wants me to and that I have an option to pay it off earlier. By getting rid of my mortgage faster I not only cut the amount of time I spend paying it off but also the interest I pay to the bank.

I’m grateful to have disposable income to save and feel I should make the most of it – I hope I have encouraged other people to reconsider their spending patterns too. I would like to say thank you to those who engaged with me on social media to say they were enforcing their own spending bans whether on clothes or a month-long ban – they all helped me keep my resolve.

That’s not to say that everyone was happy about my experiment, with some accusing me of poverty tourism, but there is a big difference between poverty and frugality. This experiment was not about living in poverty because poverty isn’t a choice. I could still pay my mortgage, bills and food. The last year has been an experiment in extreme frugality and choosing not to buy, rather than not having a choice.

 

Michelle McGagh’s jeans have seen better days

Despite the awkward moments and missing out, this year has been the shove I needed to try new things. The best thing about the challenge is that I’ve been willing to say ‘yes’ more and that I’ve become more adventurous.Having the choice to spend, or not, is a privilege and I have become far more aware of why we buy. I have come to realise that consumerism keeps us chained to our desks, working to earn money to spend on stuff we think will make our lives better. And when the stuff doesn’t make us happy, we go back to work to earn more money to buy something else. The last 12 months have allowed me to step outside this cycle and I can honestly say I’m happier now. I’ve gained confidence and skills, done things I would never have done and met lovely people I wouldn’t have otherwise met.

Many people have said to me, “I bet you can’t wait to get down the shops and have a splurge”, but in all honesty, I’m not interested in hitting the shops. There are a few practical items I need to replace, such as jeans and trainers, and my bike could do with a decent service but that’s about it. I have one more day of no spending to get through and after that there are just two things I will be buying this weekend: a round of drinks for my friends and family to say thanks for their support, followed by a flight to see my grandad in Ireland.

A year of no spending has taught me what things I really need, and it really isn’t that much.

Five things I really missed


There were lots of big events and nights out I expected to miss out on, but there were some small, more everyday items that I hadn’t expected to miss quite so much.
Decent curry: I’m not the best cook and my home-made curries just can’t compete with my local takeaway.

Fresh flowers: I realised how much I’d missed flowers at home when I was sent a bunch for my birthday – they brightened my home and my mood.

Moisturiser: this didn’t make it on to the “essentials” list, which was probably a mistake judging by my wind-whipped face.

Perfume: my Lidl deodorant stood up to the test of cycling everywhere but a spritz of perfume may have helped me feel a bit more human and less of a sweaty mess.

The bus: while I love cycling, not being able to get on the bus in the cold and rain could be trying; taking the bus, especially to meetings where I had to look smart, would have been a big plus.

Moaning about bad returns on your savings? Stop complaining – it's your fault that interest rates are so low

Ben Chu in The Independent

“Neither a borrower nor a lender be”, warned Polonius. But should he have added “saver” to that list?

The Bank of England’s latest cut in its base rate has piled even more downward pressure on returns offered by banks on cash balances. Santander this week halved the interest rate on its “123” account, one of the few remaining products on the market that had offered a decent return on savings. And there is talk of another Bank rate cut later this year, perhaps down to just 0.1 per cent. Will it be long before furious savers march on the Bank’s Threadneedle Street headquarters with pitchforks and burning torches in their hands?

They should put the pitchforks down.

------Also read

Ever-lower interest rates have failed. It’s time to raise them

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There are a number of serious misconceptions regarding the plight of savers that have gone uncorrected for too long. The first is that “saving” only takes the form of cash held on deposit in current accounts (or slightly longer-term savings accounts) at the bank or building society. The truth is that far more of the nation’s wealth is held in company shares, bonds, pensions and property, than on cash deposit.

Shares and pension pots have been greatly boosted by the Bank’s low interest rates and monetary stimulus since 2009. House prices have also done well, also helped by low rates. Savers complain about low returns on cash, yet fail to appreciate the benefit to the rest of their savings portfolios from monetary stimulus.

There’s no denying that annuity rates (products offered by insurance companies that turn your pension pot into an annual cash flow) are at historic low thanks to rock bottom interest rates. Yet, since last year, savers also have the freedom not to buy an annuity upon retirement thanks to former Chancellor George Osborne’s regulatory liberalisation. People can now keep their savings invested in the stock market, liquidating shares when necessary to fund their outgoings.

There has been talk of the latest cut in Bank base rate pushing up accounting deficits in defined benefit retirement schemes to record levels, clobbering pensioners. But this is another misunderstanding.

Yes, some of these schemes, run by weak employers, could fail and need to be bailed out by the Pension Protection Fund. And this could entail reductions in pension pay outs. Yet the larger negative impact of rising pension deficits is likely to be felt by young people in work, rather than pensioners or imminent retirees.

Firms facing spiralling scheme deficits and regulatory calls to inject in more spare cash to reduce them, might well respond by keeping downward pressure on wages or by reducing hiring. In other words, the bill is likely to be picked up by those workers who are not benefiting, and were never going to benefit, from these (now closed) generous retirement schemes.

Perhaps the biggest misconception about savings is that low returns on cash deposits are somehow all the fault of the Bank of England. This shows a glaring ignorance of the bigger economic picture.

Excess savings in the global economy – in particular from China, Japan, Germany and the Gulf states – have been exerting massive downward on long-term interest rates in western countries for almost two decades. To put it simply, the world has more savings than it is able to digest. It is this global 'savings glut’ that has driven down long-term interest rates, making baseline returns so low everywhere.

It’s legitimate to wonder whether further cuts in short-term rates by the Bank of England will have much positive affect on the UK economy. But the savings lobby seems to believe that it’s the duty of the Bank to raise short-term rates, regardless of the bigger picture, in order to give people a better return on their cash savings today. This would be madness.

Yes, the Bank of England could jack up short-term rates – but the most likely outcome of this would be to deepen the downturn. And for what? It would mean a higher income for cash savers, but survey research suggests most would simply bank the cash gain rather than spending it, delivering no aggregate stimulus to growth.

Share and other asset prices would also most likely take a beating, undermining the rest of savers’ wealth portfolios. Do savers really believe a 10 per cent fall in the value of their house is a price worth paying for a couple of extra percentage points of interest on their current accounts?

Moreover, the Bank of England’s responsibility is to set interest rates for the good of the whole economy, not for one interest group within it. As Andy Haldane, the Bank’s chief economist pointed out at the weekend, keeping rates on hold (never mind increasing them) would considerably increase unemployment. And the people who would suffer in those circumstances would probably be those who have not even had a chance to build up any savings.

No sensible policymaker or economist wants low interest rates for their own sake. They are a means to an end: to help the economy return to its potential growth rate. When growth has hit that target it will, in time, necessitate higher short-term rates to keep inflation in check.

So for short-term rates to rise, the economy needs to pick up speed. That’s what the Bank of England has been trying to achieve since 2009. Yes, the process has been frustratingly protracted, like jumpstarting an old banger with a flat battery, but the situation would have been worse without Threadneedle Street’s efforts.

If savers are frustrated with low deposit returns they should focus their anger on the global savings glut and the failure (and refusal) of governments in Asia and Europe to rebalance their domestic economies. Other legitimate targets are excessive domestic austerity here in Britain, from the coalition and current governments since 2010, which have delivered a feeble recovery since the Great Recession, and also the Brexit vote which has forced the Bank of England into hosing the economy down with yet more emergency monetary support this month.

And if they voted for the latter two – austerity and Brexit – then savers might care to look in the mirror if they want to see one of the true causes of their frustration.

Forget austerity – what we need is a stronger state and more taxation

The income tax system needs reshaping. This is not easy. But nor is reducing the state to its smallest level for 80 years

• 
• • Will Hutton
  • The Observer, Sunday 7 December 2014

The March of the Unemployed from the Thames Embankment to County Hall, Westminster, during the Great Depression. Photograph: Hulton-Deutsch Collection/Corbis

If the Conservative party forms the next government, by 2020 the state will probably be the smallest it has been – in relation to GDP – for 80 years. So declared the Office for Budget Responsibility last Wednesday, in the wake of the autumn statement. By 2020, spending per head of population will have fallen by around a third in 10 years. In some areas – in our cities and our criminal justice system – the reductions will be even more draconian. This is the most dramatic change in state capability that any British government has ever engineered.

The chancellor may complain about the “hyperbolic” tone of some BBC reporting. But surely only in a one-party state would this dramatic plan not be discussed in appropriately dramatic terms. Britain is to become the site of a massive experiment in economic and social libertarianism whose authors have never fessed up to the sheer audacity and scale of what they are doing. They have just dumbly insisted there is no alternative. The autumn statement was the moment the implications became clear.

A financial crisis has been allowed to morph into a crisis of public provision because the government of the day will not lift a finger to compensate for the haemorrhaging of the UK tax base. What the state does is not the subject of a collective decision with concerned weighing of options. Instead, it’s an afterthought, with the greater priorities a reduction in public borrowing and freezing or lowering tax rates.

All the state can spend is what is left after those two greater priorities are met, and if it has to shrink to pre-modern levels then so be it. The market will provide: charity will alleviate suffering; people will get by; the roof will not fall in. Lifting taxation can never be considered to close the gap. It is, it is alleged, both economically self-defeating and immoral.

A cool £54bn has gone missing since 2010. Then the government projected that in 2014/15 its total tax revenues would be £700bn. In fact, they will be £646bn, according to the OBR. Public spending, on the other hand, has behaved almost exactly as forecast. In 2010, the government projected that its spending would be £738bn in this financial year. The Treasury is to be congratulated on its capacities as national book-keeper in chief. The actual figure is £737bn, an accuracy I doubt many private companies could reproduce – or even individual readers of the Observer. It is not runaway public spending that is causing borrowing to stay stubbornly high, thus triggering the extreme shrinkage of the state: it is the hollowing out of the tax base.

There are three principal causes. The first is that the structure of the economic recovery is delivering a reduced tax yield. There are too many low-paying jobs and pay on average is stagnating, so that aggregate income tax revenues are growing much less rapidly than in previous recoveries. We are drinking and smoking less, so there is less revenue from alcohol and tobacco duties. Altogether this accounts for around a third of the shortfall.

Another third is a result of the chancellor wanting to show his tax-cutting credentials as a true Thatcherite man: he has cut corporate tax rates, frozen the business rate, not adjusted council tax bands upwards, not increased petrol duties, lowered the top rate of tax and increased personal allowances. The last element is down to our living with an epidemic of tax avoidance and evasion, as the last G20 summit recognised – and which even Osborne says he deplores. Too many companies and rich individuals are gaming the system.

Put all this together and Britain has lost that £54bn. But matters are made worse by the interaction of Britain’s highly centralised Treasury and a chancellor with Osborne’s instincts. Giles Wilkes, former adviser to Vince Cable, and Stian Westlake, research director at Nesta, write in an important paper, The End of the Treasury, that the Treasury inverts the way that spending and taxing decisions should be made. It starts with a target for borrowing, not differentiating great capital projects such as London’s Crossrail from spending on the NHS. Then it projects tax revenues assuming no changes, and sets aside money for fixed obligations, such as pensions.

Finally, departments fight over the left-overs on a year by year basis, with the Treasury policing spending with a ferocious rigidity. The benefit is that it can control spending to the last billion. The cost is that there is never a weighing up of the benefits of raising taxes against a particular use for public spending, nor any strategic long-term programme of investment.

This is bad enough in ordinary times, but when a chancellor refuses to consider raising taxes as the tax base collapses it is a recipe for disaster. It results in a minimal state, with implications for prisons, schools, courts, policing, legal aid, care, security and defence that are profound. Some of this could be avoided if, as both Labour and the LibDems propose, capital investment was not lumped in with current spending so that virtuous borrowing could be separated out. The country may also get lucky: wages stop stagnating and income tax receipts rise.

But the bigger truth is that if Britain wants the scale of public activity congruent with a civilised society, it has to be paid for. The reaction will be hysterical, but lifting taxes by 3% of GDP to 38.5% to find the missing £54bn will still leave Britain below the crucial 40% benchmark, thus undertaxed by comparison with most advanced countries. The whole system of property taxation needs overhauling. The VAT base can be broadened. Environmental taxes can be extended. Osborne’s proposals to ensure companies pay tax on UK revenues need to be tougher and introduced earlier. The income tax system needs reshaping.

None of this is easy. But neither is reducing the state to its smallest level for 80 years. Reducing spending on schools further is surely short changing our children. How much smaller should the army, navy and air force become? Is the welfare system to return to a system of discretionary poor relief? Do we share the libertarian view that the state is worthless – and there is no co-dependency between public and private? What role do we want the state to have in our civilisation? The right would have it that none of these questions can be asked because all involve an increase in taxation: our only future is a 1930s scale state.

There is a different future, and our politicians of the centre and left have to argue for it, but they must accept it has to be paid for. This has become an existential divide. Politics and political argument have never mattered more.

Think welfare spending is spiralling out of control? You're wrong

Britain's welfare spending is actually about average, while claims that it is wasteful should be seriously challenged

• 
• • Ha-Joon Chang
  • The Guardian, Friday 28 March 2014

Labour support for the welfare bill lies in the fact it 'exempts “cyclical” spending, such as unemployment benefit'. Photograph: Matt Cardy/Getty Images

With Labour voting for the government's bill to cap welfare spending, the debate on the welfare state has taken a decisively wrong turn. The issue is not the cap itself, its level, or even its design. The problem lies in the very way in which the welfare state is understood.

Even if one accepts the need for the cap, there are many problems with the way in which it is designed. Many people have rightly pointed out that the capping scheme is not as "recession proof" as it is portrayed. One defence of the bill offered by the government – and accepted by Labour as the key justification for its support – is that it exempts "cyclical" spending, such as unemployment benefit (now given the Orwellian name jobseekers' allowance). But there are other elements of welfare spending that increase in economic downturns that won't be exempt. For example, recessions may increase the need for disability benefit because more people are incapacitated due to the psychological and physical impact of unemployment, poor diet, and lack of heating.

The need for disability benefit can also be increased by an ageing population, which is one of the structural factors that are not recognised by the bill and drive up the costs of certain elements of welfare spending. It has also been pointed out that capping could be a false economy because it may increase the demands for other public services, such as education and social services, that are not covered by the bill.

Important though these criticisms are, the biggest issue is the very way in which the "problem" of the British welfare state has been defined and understood. The cap is based on the view that the UK needs "to prevent welfare costs spiralling out of control", given the wasteful nature of such spending. This is not backed up by the evidence.

The British, having supposedly invented the modern welfare state (a debatable proposition), have the mistaken notion that they have an exceptionally generous welfare state, as evidenced by the widespread worries about "welfare scrounging" and "welfare tourism". However, measured by public social spending (eg income support, pensions, health) as a proportion of GDP, Britain's is not much bigger than the OECD average; 24.1% against 22.1% as of 2009. And the OECD includes among its 34 members a dozen or so relatively poor economies – Mexico, Chile, Turkey, Estonia and Slovakia, for example – where the welfare state is much smaller for various reasons (eg younger population, weaker parties of the left).

Even when it comes to income support for the working-age population – the element targeted by the new bill – the UK is not a particularly generous place. In 2007 it spent 4.5% of GDP for the purpose. This was only slightly above the OECD average (3.9%) and way below other rich European economies: the figures were 7.2% for Belgium, 7% for Denmark, 6% for Finland and 5.6% for Sweden.

And it is not even as if the need for social spending goes away if you reduce the welfare state. For many British supporters of a smaller welfare state the role model is the US, which has a very small welfare state (considering its level of income), accounting for only 19.2% of GDP as of 2009. However, it has a huge level of private spending on social expenditure, especially medical insurance and private pensions, which is equivalent to 10.2% of GDP. This means that, at 29.4%, the US has total social spending that is almost as high as that of Finland, which spends 30.7% of GDP on it (29.4% public and 1.3% private). Moreover, if the cost is "spiralling out of control" anywhere, it is in the largely private US healthcare system, thanks to over-treatment of patients, rising insurance premiums and soaring legal costs.

Most importantly, the view that social spending is wasteful needs to be seriously challenged. The frequently used argument against the welfare state is that it reduces economic growth by making the poor workshy and the rich reduce their wealth creation, given the tax burden involved.

However, there is no general correlation between the size of the welfare state and the growth performance of an economy. To cite a rather striking example, despite having a welfare state that is 50% bigger than that of the US (29.4% of GDP as against 19.2% of GDP in the US, in 2009), Finland has grown much faster. Between 1960 and 2010 Finland's average annual per capita income growth rate was 2.7%, against 2% for the US. This means that during this period US income rose 2.7 times while Finland's rose by 3.8 times.

The point is that the welfare state – if well designed and coordinated with labour market policies to re-train people and get them back into work – can encourage people to be more accepting of change, thereby promoting growth. Firms in countries such as Finland and Sweden can introduce new technologies faster than their US competitors because, knowing that unemployment need not mean penury and long-term joblessness, their workers do not resist these changes strongly.

Most American workforces are not organised and thus incapable of resisting technological changes that create unemployment – but the minority that are organised, such as the automobile workers, resist them tooth and nail because they know that if they lose their jobs, they will not even be able to afford to go to hospital, and will find it extremely difficult to get back into the labour market at the same level.

The British debate on the welfare state needs to be recast. The false premise that the country has a particularly generous welfare state whose cost is spiralling out of control needs to be abandoned. The structural factors driving up welfare costs, such as ageing, should be accepted – rather than denied and so putting undue pressure on other elements of social services.

Above all, the debate should be redirected into reforming the welfare state in a way that promotes structural change and economic growth.

USA - Congress's manufactured non-solution to its manufactured fiscal cliff crisis

This fiscal cliff deal doesn't stop tax hikes, doesn't reduce the deficit, doesn't avoid spending cuts … and it's not even a deal

• 
• • Heidi Moore
  • guardian.co.uk, Tuesday 1 January 2013 15.38 GMT

The Capitol as the US went over the 'fiscal cliff' in Washington, DC. Photograph: Jim Lo Scalzo/EPA

It is a habit of the United States Congress never to congratulate itself until it has utterly failed to accomplish what it set out to do. Needless to say, the Congress is particularly delighted with its work in leaping over the fiscal cliff last night.

Of course, it will never be put that way. Amid the usual Washington smoke and mirrors, lawmakers will talk about the benefits of the deal: it will cut taxes; it has come in time to avoid the real fiscal cliff; it will reduce the US budget deficit; it will represent a bipartisan agreement to fix America's debt problems.

It does precisely none of those things.

The much-praised deal is as thoughtless and hasty as you would expect from anything cobbled together at the last minute. Lawmakers should regard it not with self-congratulatory glee, but with suitable shame at their failure to think through major issues that impact the American economy. As the humorist Andy Borowitz concisely put it on Twitter this morning:

Andy Borowitz

• ✔

@BorowitzReport

Praising Congress for the fiscal cliff deal is like giving an arsonist an award for putting out his own fire.

1 Jan 13

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Taken point by point, the deal looks even less worthy of praise.

Tax cuts – and hikes

While the Senate agreement was designed to protect the middle class by allowing the Bush era tax cuts to rise for people making $450,000 and above, don't believe anyone who tells you that it's a tax cut. In fact, all Americans are going to be paying higher taxes through their paychecks, starting today 1 January, because Congress has allowed the payroll tax cut to lapse. President Obama cut the payroll tax to 4.2% from 6.2% in 2010; now, those taxes are going back up.

The cost is noticeable. It will amount to $1,000 a year out of the pocket of Americans making $50,000pa. That could be a mortgage payment, or nearly a year's cellphone bills, or a vacation.
In addition, the middle-class Bush era tax cuts will be extended for only five more years, so expect more dithering in 2018 about the value of the middle class to the US economy. Luckily, that will only be a year for midterm elections that affect Congress, not another presidential election.

Spending cuts: sequester postponed

Nor does the deal avoid the uncertainty and economic disaster avoided with the fiscal cliff. In fact, it creates an even bigger cliff – really, a fiscal mountain – in March. The Senate refused to come to an agreement on the actual "cliff" part of the fiscal cliff: sweeping government spending cuts that were designed in 2011 to be so stupidly punitive that they would never be passed. Instead of sitting down and thoughtfully coming up with a new set of spending cuts, the Senate has pushed the issue off for two months. That deadline coincides with the moment that the US will hit its debt limit.

The result: the new fiscal cliff will have even higher stakes, as the US could spend the next two months wrestling with even greater potential economic disaster, and a more dire impact on the markets. Now, it's not just some spending cuts that are on the table; it's the full faith and credit of the US government. That was already proven in 2011 to be an ill-judged candidate for congressional toying, but the addiction of the drama and adrenaline appears to be too much to resist for those in Congress.

The deficit and debt: revenues reduced

As for the deficit, that will actually grow under this deal, partly because the tax cuts now don't apply to many of the rich. When the president aimed for $250,000 in income and above for tax hikes, that encompassed about 2% of American taxpayers. But the new $450,000 threshold covers less than 1% of Americans. That means less money to cut the deficit, and more coming in spending cuts – very likely, to important government programs.

A deal far from done

And lastly, the bipartisan nature of the deal is something that is unlikely to last after the House meets to talk about it this New Year's Day. Whatever joy the Senate has with its 89-8 landslide agreement achieved at the ungodly hour of 2.07am, news channels featured an endless stream of Republican lawmakers in the House of Representatives talking about their unlikeliness to vote for the deal. One of them compared his plan to vote against the deal to dying in honor on a battlefield.

The deal is not a complete disaster, although most of what it does well is completely and obviously necessary. The best thing that it does is extend unemployment benefits for millions of Americans – at least, for another year – and revoke an ill-judged $900m automatic pay hike for members of Congress. It also extends tax breaks for research and development and interest on student loans: this is important as student loan debt now exceeds credit card debt in the United States.

So, after a day, and week, and year filled with manufactured drama, the US Senate not only failed its only goal – reducing the US deficit – but also built a mountain range out of the molehill of budget talks. But tell that to lawmakers patting themselves on the back.

"For the first time in years, we will have a major issue settled with a bipartisan vote," Senator Dianne Feinstein crowed. Vice-President Biden, asked what was his selling point to Senate Democrats, modestly declared, "Me." He expanded later on how he did it – not with reasoned arguments about the duty of the Congress and the American economy, but with this folksy negotiation tactic: "I said, 'this is Joe Biden and I'm your buddy.'" Harry Reid graded his fellow failing congressional students on a curve: "It's disappointing that we didn't get the grand bargain … but we tried."

Well, at least they tried, right? Except that won't be good enough for the millions of Americans who have their pensions invested in the stock market and the bond market. We already know that the markets don't care a fig about tax policy; but when it comes to the debt limit, they react disastrously.
Columbia Professor Emanuel Derman depended on a classic quote when he tweeted his reaction to the Senate's last-minute deal for the fiscal cliff:

Joseph Weisenthal @TheStalwart

1 Jan 13

RT @mikememoli: Dem caucus well into its second hour now as @VP sells #fiscalcliff deal

Emanuel Derman @EmanuelDerman

@TheStalwart @mikememoli @VP This is all theater. Tale told by idiot, full of sound and fury, signifying nothing.#fiscalcliff

1 Jan 13

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The worst part, Derman might have added, is that we are only, after all this, at the first act.