It is Obvious

Chris Rick has got altogether too much to say

Archive for May, 2013

Memory of a goldfish

Posted by chrisrick13 on May 30, 2013

It is obvious: I’m a mammal

Goldfish have got a poor press.  They have good memory.  They have a poor attention span.  I think the goldfish have it right.
December 10 2011.  Do you remember the events around that day?

David Cameron vetoed the EU treaty changes to ‘fix’ the EU economic problems.  He forced the 19 eurozone countries to adopt a lesser device to ‘fix’ the problems in the Euro.

David Cameron came under huge pressure not to apply the veto.  Mr Sarkozy (remember him?) plotted to punish the UK for having the nerve to act in its own best interest.  Common Agricultural Policy anyone?  A policy that costs UK shoppers £20 a week on their food bills.

Still listening at the back?  Can you remember what the treaty changes to ‘fix’ the euro are?

1.  Automatic sanctions against any country that runs a deficit of more than 3% of GDP.

A strange rule that says if you spend too much we will take some more off you which you can’t afford as you are borrowing to meet your obligations anyway.

2.  Tight fiscal rules which include member states passing laws to limit structural deficits.

The fingers of one hand will be enough by a considerable margin to count which countries have done that.

3.  Private investors never again asked to take losses as in the case of Greece.

An easy one that as the current accounts of banks can simply be robbed instead as in Cyprus.
The list goes on, but I am moved to words today by yesterday’s announcement that 6 countries are to be let off following the rules for 2 years.  So for France it will ignore the new rules for the first 3 1/2 years of the treaty.  I wonder if there will be further ‘allowances’ when that time is up?  It is easy to sign a treaty that you never actually obey.  Maybe David Cameron should bear that in mind when the next treaty change comes up.

Just supposing that the treaty changes would ‘fix’ the euro we are now going to delay that fix.  Can’t see the logic in that one.  I can see the lunacy though.
So I conclude that the treaty changes were a ‘show’ to keep us from the truth of the state of the Euro.  It relied on everyone having memory worse than that of a goldfish.  It was a goldfish treaty.  There are a lot of them around.

It is obvious: I’m a mammal – should have been a fish

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Good idea 96,337

Posted by chrisrick13 on May 28, 2013

It is obvious:  I’m a heavy sleeper

My father knew a man who never left his house on the 13th of the month.  When that was a Friday he didn’t even get out of bed.  A good strategy I think.

State benefits are going to rise by 1% for the next few years.  Annuities that have already been bought are not going anywhere.  Public sector pay is being limited to 1% for a while.  Private sector pay is subject to market forces for those who have managed to hang on to their jobs.  For most people there is not much in the way of rises.

The BoE with a 2% inflation target implies that our spending power is going to be reduced by 1% a year.  That is easy.  Stay in bed for 4 days a year.  Keep the heating off.  Don’t eat anything.  Fasts are good for you.  Save energy for the environment.  Read a book and learn something to amuse you for that horizontal time and benefit you afterwards.  For the other 361 days you are in a better physical state and have just as much spending power as the previous year.

However the jokers at the BoE think inflation will peak at over 4% in the near term.  I wonder that they just don’t care what it does or maybe they recognise that they are both incompetent and impotent and can do little about it.  Apply Rick’s law and inflation will be 8%…as I am now reading as a serious possibility from my pessimistic fellow travellers.  Alas, that is 26 days in bed with no food to combat the effects of inflation.

What of next year?  Compound interest and the rule of 70 come into play.  All things staying on the same straight line (as pay certainly must) and the optimistic scenario will require 8 days in bed.  The other, call it realistic, scenario needs 52 days in bed.

Perhaps we should distribute the pain evenly.  I was born on the 29th of the month so I am only allowed out of bed on odd days of the month.  Same for people born on even numbered days.  I would get a seat on the train to work each morning.  The roads would be a lot less crowded so travel in general would be more efficient.  We could make amusing videos from our beds for You Tube.  As one of my friends said: we are too busy making money to stop and make real money.  Perhaps those 182 days in bed would inspire a lot of people to do…anything and make real money.

I have been asked about enforcement.  This is simple.  At birth we have ‘odd’ or ‘even’ tatooed on our foreheads.  Anyone caught out on the wrong day withpout some sort of permit is shot on sight.  There is a lot of other stuff can usefully be tattooed there as well.  Of course we would have to ban fringes.

I have thought about the 31sts of the month.  These of course are national holidays…everyone in the country has to stay in bed all day.

It is obvious:  I’m a heavy sleeper but I could become a lot lighter

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I have the answer

Posted by chrisrick13 on May 28, 2013

It is obvious: sell in May and go away

I bet it is obvious to the rest of the universe and has been for a long time.  I’m just a little slow.  Anything you might do in economics to create a certain effect generates an equal and opposite effect.  In short, you might analyse and understand what is going on economically but you cannot usefully affect those observations.  The key word is ‘usefully’.

It goes further though.  You can analyse and understand but you cannot predict.  You only have to look at the predictions of the BoE and the IMF for prime examples of this.  Were prediction possible to any useful degree then the multi-trillion dollar finance industry would not exist.

Is this helpful?  The Laffer curve is beautiful but there is no use in it other than to help politicians get in the right frame of mind to set tax rates.  Alas, they never do.  Lowering the tax rate for higher earners increases income for the government but it is something the Labour party cannot ever do.  There are plenty of examples off in the Conservative direction.

But I want certainty and stability.  Not a good time to search for that as the world moves to chaos.  Or does it?  I’m not sure that wild oscillations are necessarily chaos.  The economic meddling by those in power seek to smooth the curves yet only create wild oscillations.  If the period of the oscillation is long enough though it will look smooth to those subjected to it.  (Think of Gordon Brown’s “no more boom and bust”.)  It might look as though prediction is possible as well.  So it is that a lot of ‘clever’ people are fooled.

Then you might see that my predictions of a reset are a nonsense as well.  Indeed in a ‘not starting from here’ mode my predictions for property which were correct given the huge drops in property prices, are now turned around.  Property is a good way to preserve assets provided you can hang on to the property until we come out the other side…provided I am optimistic to predict that there will be another side…and I am.

So the predictors of the near-term economic future fall in to two groups.  There are the words of those in power and with influence.  They are doing very large things economically and continually saying it will be all right soon.  They have to.  Can you imagine the Governor of the BoE or the PM coming on tv and declaring that there is no hope for the UK economy?  The reset would be the next day…and no bad thing.  So we all know that they are constrained in what they say and the sage advice “don’t just do something – sit there” cannot be followed.

The other group of people, and I am one of them, are saying that there will be an economic reset.  They are uniformly pessimistic.  There is no element of prediction in this other than a recognition that the current situation is unsustainable.  At any moment Crafty Coyote is going to look down at his gyrating feet and realise that he long ago ran over the edge of the cliff.  The plane has run out of fuel so its flight time is certainly not going to be measured in hours no matter what the result might be.

I have recently read from both groups and one is much more credible than the other.  The pessimists have still been just as poor as the optimists in their predictions.  To a man (woman) they are all amazed that the reset has not occurred yet.  What I sense is more dramatic and frequent action from the optimists to smaller and smaller effect and a shortening of the time predictions of the pessimists.  There is a convergence.  I sense that the herd is peacefully grazing as the lions close in.  At any moment the lions will be spotted and the herd will be off.
It is obvious: sell in May and go away, but what do you do with the 1s and 0s sitting in a computer somewhere when you have done that?  I can’t eat an iPad or a bit.

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Listen to me!

Posted by chrisrick13 on May 23, 2013

It is obvious: I mean what I say

I had it easy.  Just get up every morning and go to work.  My wife had 10 years off when the children were young, then she went back to work…and ran the house.  I didn’t meet my family much during those days , up at 06:00 and back gone 19:00, so I would often ring at about five in the afternoon in the hope of a conversation with some of them.Frequently a son came on the line and conversation would be short.  I would often ask if they knew what was for dinner that night.  My wife would herd them all up in the morning get her stuff for work and load up the slow cooker for that evening before herding some more to the car for a mass exit.  I would hear the ‘ting’ of the lid on the slow cooker then the word would come back: ‘red slime’.  Sometimes it would be ‘brown slime’ and rather less often ‘green slime’.  Red was a bolognaise variant, brown was some sort of stew though could be chile…and my memory is erased on the ‘green’.

We still have our slow cooker but do not use it.  A friend told me over the weekend that he had been out and bought a slow cooker.  He was clearing a bit of space in the kitchen to store it and found…the slow cooker he had bought in 1987.  He knew that because he had left the receipt in the box.  He remembered using it a few times but that was all.  The old one had cost him £24.99 and the new one cost him…£24.99.  There is no telling it is the same thing.  The new one had a little basket on it that enabled vegetables to be steamed so technology had improved!

1987 is a good year because that is when the current RPI started and it has moved on to 269 so at today’s rates that first cooker costs £67.22.  Sounds like a lot of deflation in slow cooker prices to me.

I would like to compare it with CPI but I can only go back to 2008.  I notice that the attempted removal of RPI by the ONS was repulsed by the Royal Statistical Society because of its supposed imperfections.  forced to keep it they mention it hidden places and now are moving to CPIH which is CPI plus housing costs.  Same as RPI!  CPIH has the advantage that it is lower than CPI as an absolute number and stepped down more than CPI at the last measure.  Not sure that I understand how something that includes housing costs into CPI where houses are supposedly increasing in value should be lower than CPI as any expenditure on the house must, by definition, be at CPI.

Walking into work on this cold morning my wife noted that this was announced the coldest spring since 1979.  That sticks in her mind because our daughter was born in 1979 on 22nd May and she can remember walking out in the pram and the clothes she was dressing her in.  So there it is again.  We both thought that by being the ‘coldest spring’ in 34 years the measure was the average temperature over the months of spring.  Seems quite reasonable, but it could be the coldest spring as measured by the 07:00 temperature on May the 2nd.  A valid statement to make if not a lot of use to anyone.  If you omit your conditions it is still valid but misleading.

So it goes.  You have to ask the question or rely on someone to ask it for you.
It is obvious: I mean what I say to confuse you like most of the stuff you read

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How long have you got?

Posted by chrisrick13 on May 15, 2013

It is obvious: I’ve got a pension


Suppose I run in two parallel universes.  In one of them I save to a pension fund in the other I save the money myself.  This is a tricky comparison.

Assume that in the pension fund they earn 3% with 2% charges as in my earlier blog.  If I put in £100,000 at year 1 I will get a fund of £114,000 at year 20.  This gets me an annuity of about £6,000 a year for as long as I live.  Assume I am a rich b**tard and pay tax on my pension.  Lower rate, so I get in my sticky hand £4,800.  To keep the tears out of your eyes so you can read this, ignore inflation.

Assume that I save £100,000 in the other universe.  After tax this is £80,000.  Pessimistically after tax I can get 2% a year.  At year 20 I will have £119,000.  I could buy an annuity and be ahead of the pension fund.  But instead I’m going to plan to live another 20 years so I’ll draw out £7,000 a year.  At year 20 I will have £5,045 in the bank – time to die.  If I match the pension fund and take £4,800 a year I will have £60,000 left at year 20 and run out in year 36.  If I die early, and I plan to die late, I will leave money to my wife/kids.

These are tight calculations and the assumptions should be questioned.

If the pension fund in its lush offices paying 2% of my fund to its fund managers can beat me then the pension fund is the way to go.  But with that 2% penalty they are going to find it hard to beat me if I just use bank deposits.  Their big tax advantage up front should do wonders for the fund…but it seems they do not manage it.

I am locked in if I’m in the pension fund: give us lots of money for 20 years and we’ll give you lots back for ever after…honest guv.  I have some Equitable Life funds.

Suppose inflation trots off into double figures.  I am stuck in a pension fund getting £4,800 a year.  If I have the money to hand I can move it, perhaps, to something that is effective against inflation.  I can buy assets while they are cheap.

Back to my mantra.  Do not have debts.  Save for your old age but keep the money and do not be lured by tax incentives.  Invest in yourself.

It is obvious: I’ve got a pension and a lot of other people think they have to.

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I wanna be god

Posted by chrisrick13 on May 14, 2013

It is obvious: don’t get into debt


I don’t want to run things.  I keep seeing problems where I would not like to be the one to make the decision about what to do.  However I do want to question the person making the decision.  Trouble is that when it does happen in the media there is never a real answer.  “Why are you limiting immigration minister?”  “Because I don’t want my daughter marrying Johnny foreigner.”  Does not go down well.

My blog example on hospital funding is another one.  Don’t build a hospital until you have the money and condemn 500 strangers to die over the next 5 years or borrow and build saving those 500 but condemning thousands to die over the rest of time.

So it is with inflation,and I will talk RPI on the basis that my housing costs are an expense I have to bear.  I hadn’t noticed but the bank of Ireland doubled its mortgage tracker rate at the beginning of the month.  Suddenly 14,000 people had, on average, to find £160 a month or £1,900 a year.  Their RPI took a jump.  Note that their CPI was unmoved.

This is another disconnect from the Base Rate which used to be so important.  The UK ticked to the tock of the Base Rate in the past but not today.  With the base rate at 0.5% how come people are paying 4% for their mortgage borrowings?  A lot of people have deals that are low because they were set before the BoE cut base rate.  That group is diminishing as their deals expire.  For many there is the trap that they can’t get another mortgage as they do not own enough of their own house so they go onto the SVR (standard variable rate) of their current provider and are doubling their interest payments…or more.  Of course those that do own enough of their house and have smaller interest payments can move and get a good deal away from SVR.  As with all banking, the ones that don’t need a good deal can get one.

I take a much more measured view of housing prices now.  They are a good store of value provided you can bridge turbulent times and not become a distressed seller.  They have dropped more than 30% in real terms in recent times not considering the costs of keeping the building in good repair and connected to utilities.  You have to live somewhere and it is getting crowded under the arches at Charing Cross station.  However the price of a house has a small chance of going up, an even smaller chance of beating inflation and a very large possibility of going down in price.  Investing in a house is a poor decision today.  Having somewhere to live does not need a house purchase.

I will divert for a moment.  There are over a million empty houses in Spain.  Portugal has large numbers as well.  For less than £100 a month you can rent a flat in either country.  Go there in October and you don’t have any heating bills to worry about either.  For £1000 plus your food you can have 5 months in Spain over the winter.  All you need extra is an internet connection.  Pick up a new language.  Get a decent tan.  Even learn Portuguese so you can flip over to Brazil for the World Cup and then the Olympics.

Back to cold wet UK.  God has stepped forward.  As a young person, and that means under 40 if you add the adjective ‘houseless’, the government is going to encourage and help you to buy a house.  You are buying an asset that has little of your capital in it.  It is a very risky buy in terms of keeping its value.  You will be paying interest on it where the base rate is 0.5% (no matter how tenuous that link is to your interest rate).  The base rate is going to go up.  Easy prediction.  When?  Not so easy.  It will soon enough.  Then what will happen to your RPI?  At a time that you suddenly can’t afford your mortgage many others will not be able to afford theirs.  They will do the same as you and sell.  What happens to the price?  If they are in negative equity they will walk away to a life of poverty hounded by the banks for the missing money when they sell the house into that market at a huge loss.

So, Mr Osborne, you are putting the futures of a lot of young people at huge risk.  Why are you doing it?  Are their best interests being catered for?   Who is it who will benefit from a lot of first-time buyers coming into the market?

Of all the people who I might trust with the role of god, politicians are near the bottom of my list.
It is obvious: don’t get into debt – white-knuckle rides are cheaper at a theme park and have happier endings

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Have you got a pension?

Posted by chrisrick13 on May 11, 2013

It is obvious: I’ve got a pension

How well does your pension company do with your investments?  How much does it earn for you each year?  When you get your statement it is worth looking to see what they increased your fund by and then working out just how much they earn for you each year and for themselves.

When they do projections they have to use two numbers: a low estimate and a high one.  I prefer to think of them as an unrealistic optimism and a total flight of fantasy.

Suppose you stick £100 into your pension and the pension company earns 7% a year (sic).  After 20 years how much is in your fund?  Easy to work out, it is £387.  Seems like a good deal.  I haven’t taken the pension company fees out of that yet.  2% is about right, perhaps a little low.  How much in your fund now?  £258.  So the pension company has taken £129 from you.  More than you put into the fund in the first place.  Now assume that inflation over that period was 4%.  Again I am on your side – this is optimistic.  In your fund is £114 at the prices you put the money in.

To summarise: you give £100 to the pension people, they charge £129 to look after the money, you get £114 in today’s terms.

Alas, I haven’t done yet.  With that money you can buy an annuity.  At today’s rates the pension company will give you £6 a year back, or in today’s terms £2.60.  You only have to live 40 years after starting to draw your pension and you are ahead of the game.

Assume that the pension company can’t make 7% but does manage 3%.  This is much closer to reality.  After 20 years your fund could be worth £180 but there are fees to come out of that bringing it down to £120.  At least the reward for poor management is that they only got £60.  Hit it with inflation and you have £53 at today’s prices.

This makes a number of strategies better than saving for a pension.  Padding your mattress out to get a better night’s sleep is high on the list.  Spending it while you can enjoy it is another.  Investing in yourself and earning money all your life is another.  The exceptions are final salary pension schemes and situations where your employer matches your payments.  Make sure that the company does not invest its pension in itself.

In my thoughts for retirement are certain important points.  Get to retirement with no debts.  Own your own house by then.  Have a decent amount of cash to hand.  Have  assets you can trade in your possession.  Be ready for a different life style…a better one.

It is obvious: I’ve got a pension and a lot of other people think they have as well.

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I told them I wasn’t well

Posted by chrisrick13 on May 10, 2013

It is obvious: the NHS is good

When I was at junior school I could see the school play ground from my bedroom window.  It was at most 300 yards down my road, turn right and through the gates.  I often used to stay at home until I could hear the whistle in the playground summoning the children into the classes before I left home and sprinted there, so much did I hate it.  I was technically late time after time but seldom enough for anyone to notice.

Prior to that I was younger and had over a mile to walk to a different school in the Nottinghamshire countryside.  It seemed like it was the far side of the moon to me as a short pair of legs had a lot of effort to put in to get there.  I was never late because I always left in plenty of time.  Such is the psychology of these things.

From the same house I used to catch a number 11 into Nottingham a lot.  Turn left at the end of the road instead of right to school, a longer walk than going to the school and spend the time looking to see if the bus shot past the end of the road.  Sometimes it did.  Might as well go home and have a cup of tea.  Otherwise it would be a wait at the bus stop for…how long.  It seemed like eternity.  When you are ten years old 30 seconds at a bus stop is eternity plus a bit.  I hated it.

I catch buses in Croydon now after 25 years of not doing it.  Same deal.  I walk up to the top and watch for buses going past.  Often they do, but they are frequent, I don’t care.  When I get to the bus stop there is an electronic board.  If the next bus is 5 minutes away I walk to the next stop.  Passes the time and is healthy.  If it is 7 minutes away I know I can pace out and get two stops down the road.  I have information and am in control of my destiny.  I do not mind a wait because if it is long enough I don’t.  I have information.

I am on a bit of elastic to Kings Hospital.  The 20th anniversary of my starting out patients is in two months.  That means in excess of 60 appointments.  Never once have I been late.  Never have I been seen on time.  The longest wait stands at two and a half hours.

Two factors run.  They are terrified that a doctor/nurse might have two minutes of downtime when there is nobody there.  They allow 10 minutes for an appointment when 20 is usually needed.  The result is that doctors and nurses are overworked and outpatients wait a long time.  There is a third reason: the hospital does not care that outpatients have to wait.  Who has the arrogance to decide that their staff time is worth more than the millennia of wasted time of the people in outpatients?

I wrote about my last appointment in this blog.  They have put a board up and record the delay times.  This is a good way to manage people.  Unlike the bus-wait of yesteryear.  You know  how long you have to wait.  You can go and get coffee.  There is a finite time that you can deal with, not an open ended wait.  Except they were advertising 20 minute waits and after an hour I took action and started updating the board.  There was an ‘incident’.

Today I visited again.  They have taken the pen away.  I need to bring my own.  After 30 minutes the board said on time for all doctors and nurses.  I went and had words.  The manager was informed and a nurse was sent out to update the board.  She put a 10 minute delay for my thread.  I told her that as I was 40 minutes late she was wrong and she should change it to 40.  The board is purely for the benefit of patients  so why tell lies.  She just stared at me.  I was called to my appointment then at 40 minutes late.  When I came out the delay time on my thread on the board was still set at 10 minutes yet it was clearly 40+.

I had more words with the staff.  I came home.  Wrote a complaint.  Wrote to a governor.  Wrote to the CEO for an appointment.  I’ll let you know…

It is obvious: the NHS is good and so easily could it be a lot better.

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Posted by chrisrick13 on May 9, 2013

It is obvious: logic is a hard taskmaster

I mention often in the blog that I have a property in Dorset as part of my pension provisions.  I think I have the best of the deal as it has given me a lot of fun and pleasure.  I employ someone down there.  I always buy goods and services locally.  It is a business.  I compete with other cottages for guests.  Prices are keen and operate in a proper undistorted market.  Every time someone stays I have to make sure it is good for the next person unlike long-term lets.  Unlike other businesses I can no longer offset losses against tax.

It annoys me intensely that I am lumped in with BTL landlords.  It annoys me that the government have chosen, for the two businesses that I have started, to create tax laws that discriminate against me for no good reason other than I am worth hitting.

Today I read a blog that really hit the nail for one of the BoE policies that I do not like.  It is QE.  So far the BoE has bought £375bn of assets under the scheme.  Their response to what has happened is that had they not done it then things would be a lot worse.  I will agree with them.  If it is that good at £375bn why did they stop?  Why not do £750bn or double that?  How do they know that £375bn is the place to stop?  They have done something that either did not do what they wanted and can’t admit it or that did what they wanted…and can’t admit it.

Why not now try to reduce it and see what happens?  They can calibrate the effects of QE and produce a sharp and effective tool or they can continue to blunder.  As Shaun Richards has often said it is easy to enter QE but how do you get out?  It is very different to interest rates as a tool.  What went before stays as it is and a new set of conditions are entered with an interest rate change.  With QE when you poke a stick into a bucket of mud the level rises.  When you take it out it goes down again.  So with QE whatever good you do is at some time balanced by the bad when reverse out and sell the assets you bought.

It might not be though, as the price of the assets might suddenly drop as the BoE sells them.  Who suffers then?  If you have your cheque book handy I’ll be round later.

It is obvious: logic is a hard taskmaster you have to keep alert and keep applying it

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Bring out your dead

Posted by chrisrick13 on May 3, 2013

It is obvious: numbers never lie

I have been asked about my body count costing.  Here is an example.  The numbers are fictitious so the timeline is not realistic.  The result is not though.

Two health authorities or whatever they are called now want to build a hospital.  It costs £1,000,000.  When it is built it will save 100 lives a year.  This puts a cost of £10,000 invested by a health authority saves one life.

Authority A borrows £1,000,000 at 10% interest and builds it immediately.  Each year it can afford £200,000 to put into the hospital.  At the end of the first year it pays £100,000 off and pays £100,000 in interest.  Authority B always saves the money and buys when it has enough.  At the end of 10 years the hospital is worn out and pulled down.

Here are the numbers for both authorities:

Year In bank lives saved hospitals in bank lives saved hospitals
0 -1,000,000 0 0 0
1 -900,000 100 1 200,000 0 0
2 -790,000 200 1 420,000 0 0
3 -669,000 300 1 662,000 0 0
4 -536,000 400 1 866,000 0 0
5 -380,000 500 1 1,152,000 0 0
6 -218,000 600 1 467,000 100 1
7 -40,000 700 1 713,000 200 1
8 156,000 800 1 984,000 300 1
9 -644,000 1000 2 282,000 500 2
10 -508,000 1200 2 510,000 700 2
11 -358,000 1300 1 761,000 900 2
12 -193,000 1400 1 1,033,000 1100 2
13 -17,000 1500 1 336,000 1400 3
14 -798,000 1700 2 569,000 1700 3

You can see where this is going.  Authority B will never have less than 3 hospitals after year 11, authority A will only have 2 for short periods of time.  Next year authority B is the place to be from the perspective of total lives saved – it saves more lives.  However from year 6 it saves just as many as A each year and from year 11 it saves more each year.  It saves different lives.  It does not matter unless you are one of those lives.

So as the leader of the health authority you have the chance to play god.  Will I save some people today or will I save a lot more in the future?  Not a decision I would like to try and defend, but I would like to hear the question put to those that do make the decision.  My simple answer is save before you spend.  I might be one of those who dies in the first 5 years but my children and grandchildren will be a lot better off for health care.  This has a lot of similarities to the state pension scheme where my wife is being delayed in receiving her pension so that unknown people will benefit in the future.

Is the socialist ideal of borrow and spend to give benefit to people today a good one?  I think not.

It is obvious: numbers never lie it is up to you to understand them properly

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