Richard Stallman in Cambridge

Oops, this remained unpublished for a while...

Richard Stallman, notable of the Free Software Foundation, was in Cambridge in April speaking at the Computer Lab's Wednesday Seminar. Stallman is one of computing's true eccentrics.  I bumped into him, only very briefly, a couple of times when visiting MIT as a PhD student, but even those short meetings gave me no doubt that he is a quite an unusual character – the last time I'd seen him, he was ever so pleased that by passing some wire over his neck and tying it to the sides of his laptop, he'd been able to arrange it so he could type standing up, a bit like a cinema ice cream salesman – the only tiny hitch being that the plastic coated wire he'd used kept unknotting itself, and the laptop kept nearly crashing to the floor!

But I have to say he's a very witty speaker, and someone it's well worth hearing speak if you get the chance – even if you disagree with everything he says, you will probably enjoy the talk.  In this talk, he had grand plans to change the world of copyright by categorising every book in the world as being a personal account, a work of art, or having practical value as a work of instruction (eg, a recipe book), and then giving everything but the artistic books away free.  There was a slight lack of realism to his vision – Gordon Ramsay agreeing his recipes are artless? Harold Pinter agreeing his "purely artistic" work has no instructive value?  And anyone agreeing to this regime in the first place?  But Stallman's humour worked in a way that seemed somehow reminiscent of Jimmy Carr, and the audience was entertained both by the content and his manner.

There were a few odd moments of course.  He was particularly irked by the projectionist wanting to dim the house lights for the talk ("do you want me to go to sleep?", he objected).  And at the end of the talk he insisted people should queue for the microphone rather than waiting for it to be passed to them, because it's so much more efficient.  Normally this might work, but with the very long benches and tight seats of the Computer Lab lecture theatre it meant audience members were having to climb over each other or ask half a dozen other people to stand up so they could squeeze past each other to reach the aisle.  Half the room was shuffling itself around and uttering "excuse me" like a regular chant, and Stallman was blissfully oblivious to it and happy with his efficient solution.  But, as I say, these turn out to be very humorous moments to watch rather than awkward.

Credit cycle

George Osborne made a speech at Harvard about changing the way we control the economy.  For the last decade or two, the UK and US have tried to control the boom-bust cycle by using one lever (interest rates) to try to control one variable (retail inflation).  When retail inflation goes up, the governments raise interest rates to bring it back down again.  But, Osborne says, there has been a second, hitherto ignored cycle: house prices ("asset inflation") and credit.  House prices and consumer debt has risen while inflation has remained low, and now the credit crunch is in a sense a credit-led-bust rather than an inflation-led-bust.  Osborne suggests trying to control this new credit cycle by controlling how much money banks are allowed to lend as a ratio of their assets.

Osborne seems to have missed a more general point: the credit cycle is partly an artificial problem.  It is precisely because the government (actually the Monetary Policy Committee) frequently changes interest rates that we get credit booms and busts.  The mortgages that are in trouble in the UK got into trouble because of six consecutive interest rate rises.  And the rush for credit was caused by so many interest rate reductions in the years beforehand.  If interest rates were generally constant, it would take a lot of the speculation out of the property market, and house prices would have a chance to settle at a level and growth rate that is determined much more by supply and demand.  Constant interest rates would remove the "fear of missing the boat" that when interest rates are lowered and house prices skyrocket, a house that is nearly affordable today will be far too expensive tomorrow.  And they'd remove the terror of negative equity from house price crashes when rates rise.  It is those sentiments that drive the booms and crashes in the property market.

It also strikes me that for controlling retail demand (in order to control retail inflation), interest rates are a very inefficient and inequitable lever to pull.  They disproportionately affect the people with the biggest mortgage-to-salary ratios (ie, first time buyers), and have fairly little effect on almost everybody else.  Renters don't see rent rises until six months to a year later, and those who have had mortgages for a long time have a much bigger cushion because inflation and career growth have raised their salaries compared to their repayments.

Surely rather than having a massive effect on just a few people, the lever to pull to control retail demand would be one that effects every consumer, not just homeowners with large mortgages?  Perhaps sales tax (VAT) or by varying part of income tax (which could be reflected in the PAYE system very quickly allowing short-term changes)?

Just a thought