Risk – We Know Zero

War Games

27. August 2025 · Write a comment · Categories: Climate Change, COVID-19, EIOPA, Media & Politics, Risk

I watched The War Game this week, as it had suddenly turned up on iPlayer and I had not seen it before. It was the infamous film from 1966 on the horrors of a nuclear war in the UK that was not televised until 1985. It has been much lauded as both necessarily horrifying and important over the years, but what struck me watching it was how much it looked back to the period of rationing (which had only ended in the UK 12 years earlier) and general war-time organisation from the Second World War. It would be a very different film if made now, probably drawing on our recent experiences of the pandemic (when of course we did dig huge pits for mass burials of the dead and set up vast Nightingale hospitals as potential field hospitals, before the vaccines emerged earlier than expected).

But what about the threat of nuclear war which still preoccupied us so much in the 1980s but which seems to have become much less of a focus more recently? With the New START treaty, which limits the number of strategic nuclear warheads that the United States and Russia can deploy, and the deployment of land and submarine-based missiles and bombers to deliver them, due to expire on 5 February 5, negotiations between Russia and the United States finally appear to be in progress. However China has today confirmed that it does not want to participate in these.

In Mark Lynas’ recent book Six Minutes to Winter, he points to the Barret, Baum and Hostetler paper from 2013 which estimated the probability of inadvertent nuclear war in any year to be around 1%. This is twice the probability of insolvency we think acceptable for our insurance companies under Solvency II and would mean, if accurate, that the probability of avoiding nuclear war by 2100 was 0.99 raised to the power of 75 (the number of years until 2100), or 47%, ie less than a fifty-fifty chance.

That doesn’t seem like good enough odds to me. As Lynas says:

We cannot continue to run the daily risk of nuclear war, because sooner or later one will happen. We expend enormous quantities of effort on climate change, a threat that can endanger human civilisation in decades, but ignore one that can already destroy the world in minutes. Either by accident or by intent, the day of Armageddon will surely dawn. It’s either us or them: our civilisation or the nukes. We cannot both survive indefinitely.

The Treaty on the Prohibition of Nuclear Weapons (TPNW) was adopted at the UN in 2017 and came into force in 2021. In Article 1 of the Treaty, each state party to it undertakes never to develop, test, produce, possess, transfer, use or threaten to use nuclear weapons under any circumstances. 94 countries have signed the TPNW to date, with 73 full parties to it.

The House of Commons library entry on TPNW poses a challenge:

It is the first multilateral, legally binding, instrument for nuclear disarmament to have been negotiated in 20 years. However, the nuclear weapon states have not signed and ratified the new treaty, and as such, are not legally bound by its provisions. The lack of engagement by the nuclear weapon states subsequently raises the question of what this treaty can realistically achieve.

It then goes on to state the position of the UK Government:

The British Government did not participate in the UN talks and will not sign and ratify the new treaty. It believes that the best way to achieve the goal of global nuclear disarmament is through gradual multilateral disarmament, negotiated using a step-by-step approach and within existing international frameworks, specifically the Nuclear Non-Proliferation Treaty. The Government has also made clear that it will not accept any argument that this treaty constitutes a development of customary international law binding on the UK or other non-parties.

There are 9 nuclear states in the world: China, France, India, North Korea, Pakistan, Russia, Israel, the UK and the United States. Israel recently conducted a 12 day war with Iran to stop it becoming the 10th. Many argue that Russia would never have invaded Ukraine had it kept its nuclear weapons (although it seems unlikely that they would have ever been able to use them as a deterrent for a number of reasons). So the claims of these nuclear states that they are essential to their security are real.

But is the risk that continued maintenance of a nuclear arsenal poses worth it for this additional security? For the security only operates at the deterrence level. Once the first bomb lands we are no more secure than anyone else.

Which makes it all the more concerning when Donald Trump starts saying things like this (in response to a veiled threat by the Russian Foreign Minister about their nuclear arsenal):

“I have ordered two Nuclear Submarines to be positioned in the appropriate regions, just in case these foolish and inflammatory statements are more than just that. Words are very important, and can often lead to unintended consequences, I hope this will not be one of those instances.”

But with a probability of avoiding “unintended consequences” less than fifty-fifty by 2100? That really doesn’t feel like good enough odds to me.

The Magnificent 7 and the AI Bubble

19. August 2025 · Write a comment · Categories: Risk

*The 1960s version of The Magnificent Seven (itself a remake of Kurosawa’s Seven Samurai) before most of them were shot dead*

In my last post, I suggested that there appeared to be a campaign to impugn the character of the younger generation as cover for reducing graduate recruitment, partly because of the desire to make AI systems of various sorts handle a wider and wider range of tasks. However there are other reasons why the value of AI needs to be promoted to the point where if your toaster or fridge is not using a chip they absolutely should be. It is all about the dependence of the US stock market on the so-called Magnificent 7 companies: Alphabet (Google), Apple, Meta (Facebook), Tesla, Amazon, Microsoft and Nvidia whose combined market capitalisation as at 22 July was 31% of the S&P500.

Nvidia? Who are they? They produce silicon chips. As Laura Bratton wrote in May:

As of Nvidia’s 2025 fiscal fourth quarter (the three months ending on Jan. 26 of this year), Bloomberg estimates that Microsoft spends roughly 47% of its capital expenditures directly on Nvidia’s chips and accounts for nearly 19% of Nvidia’s revenue on an annualized basis.

Meanwhile, 25% of Meta’s capital expenditures go to Nvidia and the company accounts for just over 9% of Nvidia’s annual revenue.

Amazon, Alphabet and Tesla are also big customers.

Nvidia is a growth stock, which means that it needs continued growth to support its share price. Once it ceases to be a growth stock then the kind of price earnings ratio it currently enjoys (nudging up to 60, by comparison the price earnings ratio of, say, HSBC is around 17.5) will no longer be acceptable to investors and a large correction in the share price will happen. So a growth slowdown in the Magnificent 7 is big news.

What would prevent a growth slowdown? Well a lot of processing-heavy sales for Facebook, Amazon, Apple and Google primarily. That is why there is now an AI overview of your Google search, why Rufus sits at the bottom of your Amazon search and everything appears to have a voice activated capability which can be accessed via Alexa or Siri these days.

Of course I am not arguing that there are not uses for large language models (LLMs) and other technologies currently wrapped up in the term AI. Seth Godin, usually a first mover in this space, has produced a set of cards with prompts for your LLM that you can tailor for various uses. Many people are seeing how AI applications can cut down the time they spend on everything from diary management to constructing PowerPoint presentations. There is no doubt that use of AI will have changed the way we do some things in a few years’ time. It will not, however, have replaced all of the jobs in Microsoft’s list, from mathematician to geographer to historian to writer. If you want a (much) fuller critique of what is misguided about the AI bubble, I refer you to The Hater’s Guide To The AI Bubble.

There is a lot of rough surrounding a few diamonds and the conditions for a bubble are all there. We know this because we have been here before. On 10 March 2000, the dotcom bubble burst. As Goldman Sachs puts it:

The Nasdaq index rose 86% in 1999 alone, and peaked on March 10, 2000, at 5,048 units. The mega-merger of AOL with TimeWarner seemed to validate investors’ expectations about the “new economy”. Then the bubble imploded. As the value of tech stocks plummeted, cash-strapped internet startups became worthless in months and collapsed. The market for new IPOs froze. On October 4, 2002, the Nasdaq index fell to 1,139.90 units, a fall of 77% from its peak.

Fortune are now claiming that the current AI boom is bigger than the dotcom bubble. And even leading figures in the AI industry admit that it is already a bubble.

This is where it gets interesting. The FT, in its reflection on these parallels, appears to be comforted by the big names involved this time:

To be sure, the parallels are not exact. They never are. While most of the dotcom companies were ephemeral newcomers, the Mag 7 include some of the world’s most profitable and impressive groups including Apple, Amazon and Microsoft, as well as the main supplier to the AI economy, Nvidia.

But of course this is the reason why it’s worse this time. We were able to manage without the “ephemeral newcomers”, although Amazon‘s share price fell by 90% over 2 years and Microsoft lost 60%, so the comparison is not quite true. However these companies were not the foundations of the economy then that they are now.

If Nvidia is the essential supply chain for all the other 6 of the Magnificent 7, then its own supply chain is equally precarious. As Ed Conway’s excellent Material World points out, Nvidia is “fabless” (ie without its own fabrication plant) and relies on Taiwan Semiconductor Manufacturing Company (TSMC) for the manufacture of its processors. They in turn are completely dependent on the company which makes the machines essential to their manufacturing units, ASML. As Conway says:

As of this moment, ASML is the only company in the world capable of making these machines, and TSMC is, alongside Samsung, the only company capable of putting such technology into mass production.

And then there are the raw materials required in these industries. Much has been made, by Diane Coyle and others, of the “weightless” nature of our global economy. Conway demolishes this fairly comprehensively:

In 2019, the latest year of data at the time of writing, we mined, dug and blasted more materials from the earth’s surface than the sum total of everything we extracted from the dawn of humanity all the way through to 1950.

There is a place in North Carolina called Spruce Pines where they mine the purest quartz in the world. As one person Conway interviewed said:

“If you flew over the two mines in Spruce Pine with a crop duster loaded with a very particular powder, you could end the world’s production of semiconductors and solar panels within six months.”

Whereas China controls the solar panel market it is reliant on imports for its semiconductors. In 2017 this cost China more than Saudi Arabia exported in oil or the entire global trade in aircraft.

Conway muses on whether China would invade Taiwan because of this and concludes probably not.

“Even if China invaded Taiwan and even if TSMC’s fabs survived the assault…that would not resolve its issue. Fab 18 [TSMC’s plant] might be where the world’s most advanced chips are made, but they are mostly designed elsewhere”.

However it would certainly be hugely disruptive if that were your goal. So even if the share prices of the Magnificent 7 don’t plummet of their own accord, they might be eviscerated by a crop duster or an assault on Taiwan.

There are so many needles poised to prick this particular bubble it would seem prudent to be cautious as a company in how dependent you should make yourselves to AI technology over the next few years.

The Economics of Laughter and Forgetting

27. March 2025 · Write a comment · Categories: Actuarial, COVID-19, Economics, Media & Politics, Prediction, Risk

https://parliament.assetbank-server.com/assetbank-parliament/images/assetbox/b26cd8f5-538e-4409-b033-f1f02aea6821/assetbox.html

Milan Kundera wrote his The Book of Laughter and Forgetting in 1979, a few years after moving to France and the same year he had his Czech citizenship revoked. His books had all been banned in Czechoslovakia in 1968, as most of them poked fun at the regime in one way or the other. The Book of Laughter and Forgetting was no exception, focusing, via seven stories, on what we choose to forget in history, politics and our own lives. One of the themes is a word which is difficult to translate into English: litost.

Litost seems to mean an emotional state of feeling of being on your own suddenly brought face to face with how obvious your own hopelessness is. Or something to that effect. Kundera explored several aspects of litost at length in the novel. However, for all the difficulties of describing it exactly, litost feels like a useful word for our times, our politics and our economics.

I want to focus on two specific examples of forgetting and the sudden incidents of litost which have brought them back into focus.

The first, although not chronologically, would be the pandemic. There are several articles around suddenly about the lessons we have not learnt from the pandemic, to mark the fifth anniversary of the first lockdown. Christina Pagel, backed up by module 1 of the Covid-19 Inquiry, reckons:

Preventing future lockdowns requires planning, preparation, investment in public health infrastructure, and investment in testing, virology and medical research…

She takes issue with some of the commentary as follows:

But the tenor of reporting and public opinion seems to be that “lockdowns were terrible and so we must not have lockdowns again”. This is the wrong lesson. Lockdowns are terrible but so are unchecked deadly pandemics. The question should be “lockdowns were terrible, so how can we prevent the spread of a new pandemic so we never need one again?”.

However the stampede to get back to “normal” has mitigated against investing in infrastructure and led to a massive reduction in testing and reporting, and the Covid-19 Inquiry has given the government cover (all questions can just be responded to by saying that the Covid Inquiry is still looking at what happened) to actively forget it as quickly as possible. Meanwhile the final module of the Covid-19 Inquiry is not due to conclude until early 2026, which one must hope is before the next pandemic hits. For which, as the former Chief Scientific Adviser and other leading experts have said, we are not remotely prepared, and certainly no better prepared than we were in 2020.

It is tempting to think that this is the first major recent instance involving the forgetting of a crisis to the extent that its repetition would be just as devastating the second time. Which is perhaps a sign of how complete our collective amnesia about 2008 has become.

Make no mistake, 2008 was a complete meltdown of the core of our financial system. People I know who were working in banks at the time described how even the most experienced people around them had no idea what to do. Alistair Darling, Chancellor of the Exchequer at the time, claimed we were hours away from a “breakdown in law and order”.

According to the Commons Library briefing note from October 2018, the Office for Budget Responsibility (OBR) estimates that, as at the end of January 2018, the interventions had cost the public £23 billion overall. The net balance is the result of a £27 billion loss on the RBS rescue, offset by some net gains on other schemes. Total support in cash and guarantees added up to almost £1.2 trillion, including the nationalisation of Northern Rock (purchased by Virgin Money, which has since been acquired by the Nationwide Building Society) and the Bradford & Bingley (sold to Santander) and major stakes in RBS (now NatWest) and Lloyds. Peak government ownership in these banks is shown below:

If you read the Bank of England wacky timeline 10 years on from 2018, you will see a lot about how prepared they are to fight the last war again. As a result of this, cover has been given to actively forget 2008 as quickly as possible.

Except now various people are arguing that the risks of the next financial crisis are increasing again. The FT reported in January on the IMF’s warnings (from their Global Financial Stability Report from April 2024) about the rise in private credit bringing systemic risks.

Meanwhile Steve Keen (one of the very few who actually predicted the 2008 crisis) in his latest work Money and Macroeconomics from First Principles, for Elon Musk and Other Engineers has a whole chapter devoted to triggering crises by reducing government debt, which makes the following point:

A serious crisis, triggered by a private debt bubble and crash, has followed every sustained attempt to reduce government debt. This can be seen by comparing data on government and private debt back to 1834.

(By the way, Steve Keen is running a webinar for the Institute and Faculty of Actuaries entitled Why actuaries need a new economics on Friday 4 April which I thoroughly recommend if you are interested)

Which brings us to the Spring Statement, which was about (yes, you’ve guessed it!) reducing government debt (or the new formulation of this “increasing OBR headroom”) and boosting GDP growth. Watching the Chief Secretary to the Treasury, Darren Jones, and Paul Johnson from the IFS nodding along together in the BBC interviews immediately afterwards, you realised how the idea of allowing the OBR to set policy has taken hold. Johnson’s only complaint seemed to be that they appeared to be targeting headroom to the decimal point over other considerations.

I have already written about the insanity of making OBR forecasts the source of your hard spending limits in government. The backdrop to this Statement was already bad enough. As Citizens Advice have said, people’s financial resilience has never been lower.

But aside from the callousness of it all, it does not even make sense economically. The OBR have rewarded the government for sticking to them so closely by halving their GDP growth projections and, in the absence of any new taxes, it seems as if disabled people are being expected to do a lot of the heavy lifting by 2029-30:

Part of this is predicated on throwing 400,000 people off Personal Independence Payments (PIPs) by 2029-30. According to the FT:

About 250,000 people, including 50,000 children, will be pushed into relative poverty by the cuts, according to a government impact assessment.

As Roy Lilley says:

We are left standing. Abandoned, to watch the idiocy of what’s lost… the security, human dignity and wellbeing of our fellow man, woman and their family… everything that matters.

As an exercise in fighting the last war, or, according to Steve Keen, the wars successive governments have been fighting since 1834, it takes some beating. It was litost on steroids for millions of people.

So what does the government think these people are going to fill the income gap with? It will be private debt of course. And for those in poverty, the terms are not good (eg New Horizons has a representative APR of 49% with rates between 9.3% APR and maximum 1,721% APR).

And for those who can currently afford a mortgage (from page 47 of the OBR report):

Average interest rates on the stock of mortgages are expected to rise from around 3.7 per cent in 2024 to a peak of 4.7 per cent in 2028, then stay around that level until the end of the forecast. The high proportion of fixed-rate mortgages (around 85 per cent) means increases in Bank Rate feed through slowly to the stock of mortgages. The Bank of England estimates around one-third of those on fixed rate mortgages have not refixed since rates started to rise in mid-2021, so the full impact of higher interest rates has not yet been passed on.

So, even before considering the future tax increases the FT appears to be expecting, the levels of private debt look like they will shoot up very quickly. And we all know (excluding the government it seems) where that leads…

The Future

20. March 2025 · Write a comment · Categories: Actuarial, Climate Change, Media & Politics, Prediction, Risk, Science Fiction

This is the 200th post from this blog, so I want to talk about The Future.

*The Planetary Solvency Dashboard https://global-tipping-points.org/risk-dashboard/*

No. Not that future. Scary though it is.

I want to talk about The Future by Naomi Alderman. I read it last year, after wandering around the Hay Festival bookshop moaning that they don’t do science fiction and then coming across Naomi’s book and realising I had just missed her being interviewed. Then I watched the interview and bought both The Future and The Power (which I will talk about at some future date, but which is equally terrific).

The book is about Lenk Sketlish, CEO of the Fantail social network, Zimri Nommik, CEO of the logistics and purchasing giant Anvil, Ellen Bywater, CEO of Medlar Technologies, the world’ most profitable personal computing company, and the people working for them, and the people linked with those people. Zimri, Ellen and Lenk are at least as monstrous as Jeff, Sundar, Elon, Tim and Mark. And they are all preparing for the end of the world.

(If you need to remind yourself what Elon, Jeff, Mark and Sundar all look like milling around, below is a link to Trump’s inauguration:

https://apnews.com/video/jeff-bezos-district-of-columbia-elon-musk-inaugurations-united-states-government-486ab2a989e94aaa8c9afec15bebeb51)

Anvil is set up with alerts for signs of the end of the world being reported anywhere: giant hailstones, plague of locusts, Mpox, rain of blood which turned out to be a protest for menstrual equity involving blood-soaked tampons being thrown at Lenk and co as they emerged from a courthouse in Washington. The information Zimri, Ellen and Lenk have on everybody else in the world makes them feel all seeing, all hearing, all knowing. Combined with riches unknown to anyone before in history it makes them feel invulnerable, even to the end of the world, even to each other. Which turns out, of course, to be their decisive vulnerability.

It takes in survivalism, religious cults and wraps it all up in a thriller plot which is absolutely the kind of science fiction you want to be reading now instead of listening out for the latest antics of the horse in the hospital. And it was all written over a year before Elon even started with DOGE. The Future by Naomi Alderman is a fantastic read, particularly if you would like to see someone like Musk get an appropriate end to his story. I obviously won’t spoil it by saying what that is, but I don’t think I would be giving anything away by saying rockets are involved!

Madame, si c’est possible, c’est fait; si cela ne l’est pas, cela se fera

05. March 2025 · Write a comment · Categories: Actuarial, Economics, Regulation, Risk

*Trump mentions in BBC News US & Canada top feed around 4.30pm today. Out of 12 stories, 8 mention Trump by name in the headline* https://www.bbc.co.uk/news/world/us_and_canada

You will have all seen the work mug staple: “The Difficult We Do Immediately. The Impossible Takes a Little Longer”. The original quotation in the title, originally attributed to Charles Alexandre de Calonne, the Finance Minister for Louis XVI, in response to a request for money from his Queen, Marie Antoinette, appeared in a collection from 1794, this was a year after Louis and Marie Antoinette (but not Charles, who survived another nine years) died on the guillotine and five since George Washington had been inaugurated as the first President of the United States. It seems as if the seemingly impossible may need to be attempted once again.

So let’s start by expanding on the problem which I brought up in my last post. The problem goes much wider than Donald Trump. He is assembling a court of loyalists around him, in the style of a mob boss, which as has been observed by others, has been the prelude to fascism in the past. As Jason Stanley, Professor of Philosophy at Yale and author of Erasing History: how fascists rewrite the past to control the future, puts it: “the United States is your enemy”. There is also considerable circumstantial evidence to suggest that Trump is considered an agent of influence by Putin’s regime in Russia.

The difficulty of what I am about to suggest is also the reason why it is so urgent: our relationship with the United States (the one we keep needing reassurance by successive US Presidents of its special nature) is positively symbiotic. George Monbiot lists some of our vulnerabilities here:

Through the “Five Eyes” partnership, the UK automatically shares signals intelligence, human intelligence and defence intelligence with the US government. The two governments, with other western nations, run a wide range of joint intelligence programmes, such as Prism, Echelon, Tempora and XKeyscore. The US National Security Agency (NSA) uses the UK agency GCHQ as a subcontractor.
Depending on whose definitions you accept, the US has either 11 or 13 military bases and listening stations in the UK. They include RAF Lakenheath in Suffolk, from which it deploys F-35 jets; RAF Menwith Hill in North Yorkshire, which carries out military espionage and operational support for the NSA in the US; RAF Croughton, part-operated by the CIA, which allegedly used the base to spy on Angela Merkel among many others; and RAF Fylingdales, part of the US Space Surveillance Network. If the US now sides with Russia against the UK and Europe, these could just as well be Russian bases and listening stations.
Then we come to our weapon systems… among the crucial components of our defence are F-35 stealth jets, designed and patented in the US.
Many of our weapons systems might be dependent on US CPUs and other digital technologies, or on US systems such as Starlink, owned by Musk, or GPS, owned by the US Space Force. Which of our weapons systems could achieve battle-readiness without US involvement and consent? Which could be remotely disabled by the US military?
Then there is our independent nuclear deterrent, which is “neither British nor independent” according to Professor Norman Dombey, Emeritus Professor of Physics and Astronomy at the University of Sussex.

Then there is the sheer cost of rearming with Europe to the extent necessary in the absence of the United States’ support, suggesting 3.5% rather than 2.5% of GDP is what will be required, suggesting the UK Government, with its WCAIWCDI approach described here, will need to find something in addition to the foreign aid budget to ransack. I will be talking more about defence spending in a future post.

It is small wonder that some commentators, such as Arthur Snell, former Assistant Director for Counter-Terrorism at the Foreign and Commonwealth Office, conclude that disentangling ourselves from the United States may be impossible. And that is just considering defence and security considerations.

On the economy the symbiosis is just as evident. First of all there is the sizeable proportion of our imports and exports of both goods and services which are with the United States. Only in June 2023, we were trying hard to develop these further with something called the Atlantic Declaration. Although, as a recent speech by Megan Greene of the Bank of England’s Monetary Policy Committee shows, our trade with the US as a proportion has remained remarkably stable since 2000 at least.

Source: ONS and Bank calculations. Trade weights for each trading partner are calculated as the sum of bilateral exports and imports as a share of total UK trade. Data is annual and in current prices. EU refers to the EU27. Latest data point is 2023

Culturally, the United States is embedded in our laptops and mobile phones, our television programmes and movies, and our social media. Its concerns have permeated our language and our politics. A reasonable proportion of our political and financial elite have been to their universities and theirs to ours. Many of our employers have US parents: just in the actuarial world, two of the three biggest consultancies (Aon and Willis Towers Watson) are described as British-American firms, with the other one (Mercer) headquartered in New York. It has Apple. It has Amazon. It has Google. It has Meta and, of course, X.

And perhaps the greatest entanglement of our two countries is political, to the extent that we routinely send our politicians to each other countries to support election campaigns and our media breathlessly report every in and out of the US Presidential elections. We are lucky if a French or German one is mentioned more than a couple of weeks before it takes place. Whether it is the language thing (we are still VERY resistant to learning other languages) or the post imperial thing (feeling like we have a special understanding of the problems the United States face as a self-appointed global police force) or the degree of financialisation of our economy or for some other reason, it is very hard to avoid a sense of being conjoined with the United States of America.

But it is precisely because our relationship is so close in so many important areas that we are particularly vulnerable to US pressure – the harder it will be to disentangle ourselves, the more urgent it is that we do.

As David Allen Green puts it this week, the US is currently undergoing a diplomatic revolution. Originally applied to France’s realignment of all of its alliances away from Prussia and towards Austria, which ultimately led to the work mug motto at the start of this piece, the US appears to be realigning itself towards Russia and away from the UK and the EU. As Green goes on to say:

Other countries would now be prudent to regulate their affairs so as to minimise or eliminate their dependency on the United States – it is no longer a question of waiting out until the next United States elections.

And other political systems would be wise to limit what can be done within their own constitutions by executive order, and to strengthen the roles of the legislature and the judiciary (and also of internal independent legal advice within government).

The last seems key to me. We cannot, particularly now we are outside the EU, afford for our main ally to be capable of being so capricious. This applies whether the US are allowed to and do elect a President in 2028 who is respectful of its institutions and constitution. We always felt Americans were very respectful of their constitution because they never stopped talking about it, but it turns out to have been a thin veneer with little meaning. Much like our discussion of sovereignty in the UK.

The first thing we need to do is to stop obsessing about what John Mulaney memorably referred to as a “horse in a hospital” in 2019. Despite the fact that was five years ago and we have now seen a horse in the hospital before, many have been turned off news coverage altogether by the anxiety caused as a result of the constant media narration of what Trump and Musk have done next each day. The dangers of treating the Trump and Musk chaos as a TV show are potentially existential in the US but grave for us in the UK too.

While we may have deep sympathy for the people in the US and other countries caught up in the chaos, our priority has to be to get our own house in order. Otherwise we won’t be any help to anyone.

My priorities would be the ones I set out in October 2022, only now with much greater urgency.

We can’t have parties with only 20% of the popular vote (34% of a 60% turnout) having an absolute majority of 174 seats. We need proportional representation, so that every vote counts equally and perhaps we might get somewhere near the turnout of Germany’s last election of 82.5%.
Reform media ownership and promote plurality in support of a more democratic and accountable media system. The Media Reform Coalition has produced a manifesto for a people’s media which I support: it includes proposals for an Independent Media Commons – with participatory newsrooms, community radio stations, digital innovators and cultural producers, supported by democratically-controlled public resources to tell the stories of all the UK’s communities. As we know, our social media is controlled by Meta (with Facebook, WhatsApp and Instagram), all of which have more than 2 billion active users and Google with YouTube, also with more than 2 billion active users. X still has over half a billion, despite what Musk has done with it. In newspapers, 90% of daily circulation is controlled by three firms: News UK, Daily Mail Group and Reach plc (which has most of the local titles you’ve ever heard of, including the Birmingham Mail and Birmingham Live, as well as The Daily Express and the Daily Star).
Reform election finance. Recommendations for doing this were provided in the July 2021 report by the Committee on Standards in Public Life. There was an eye-watering amount of money spent in the US Presidential Election this time: The Democrats spent $1.8 billion and the Republicans $1.4 billion, with $2.6 billion and $1.7 billion respectively being spent by the two parties on the Senate and House races. In the UK, paradoxically, the relatively small amount of money donated to parties mean that they are potentially more vulnerable to well organised lobbying operations. This is why the offer of $100 million by Musk to Reform led for calls to restrict foreign political donations to profits generated within the UK.

This way we would be more resilient to the many ways that the current chaotic United States establishment can reach into our own politics and governance, and start to develop policies with broad support which can reduce our dependency on the United States.

The Sopranos 17 years apart

01. March 2025 · Write a comment · Categories: Legal, Media & Politics, Risk

For reasons I won’t go into involving a green double decker bus, a holiday cottage in St Ives and some raw scallops, I started watching a box set of the Sopranos in September 2023, rather later than the rest of the world, which had finished with the mobsters from Brooklyn in June 2007. We finally reached the 21st episode of series 6 a few months before Christmas 2024. And reacted in much the same way as I now gather (having researched it primarily to check I hadn’t got an incomplete box set) the rest of the world did over 17 years ago.

There are many advantages to watching something so long after the media around it has moved on. You get left in peace to watch it at your own pace. No one is giving you spoilers in little teasers stuck between other programmes. The chat shows are not talking about it. You don’t have to hear what every minor celebrity thought about it. You aren’t being constantly encouraged to get excited about it. You can just watch it.

However, now I have read up on the reaction at the time and the increasingly irritated responses of the show’s creator David Chase to the line of questioning he was getting about it, I think there is something for us here in March 2025. In particular, I am thinking about the following comment Chase made soon after the last episode first aired:

[The ending] said much more than Tony facedown in a bowl of onion rings with a bullet in his head, or taking over the New York mob. Tony Soprano had been people’s alter ego. They gleefully watched him rob, kill, pillage, lie and cheat. They cheered him on. And then, all of a sudden, they wanted to see him punished for all that. They wanted “justice”. I thought that was disgusting, frankly.

Chase also made reference to the fact that the US was involved in war against the Taliban in Afghanistan at the time and the Al-Qaeda unexploded car bombs in London that month:

There was a war going on that week and attempted terror attacks in London. But these people were talking about onion rings.

Which brings me to Donald Trump. Chase was interviewed by, amongst others, The Irish Times in 2019, the 20th anniversary of the first episode, and Trump perhaps inevitably came up in response to a question about the influences The Sopranos has had:

The use of a deeply flawed hero and his problems. And when news shows talk about Trump, for example, they’ll say it’s like The Sopranos. People, including your own paper, use The Sopranos as an example of crookedness and culpability. I don’t watch a lot of series television. Unfortunately what I do is spend my time watching CNN, Fox and MSNBC. So I get good and depressed, and angry.

What struck me about The Sopranos was how chaos followed him everywhere he went. Any normal person who interacted with his people got exploited, corrupted if possible and often destroyed, whether it was an AA sponsor who gets drawn into gambling on a scale he can’t handle, or someone who wants to cooperate in a movie, or even the staff and other patients where Tony is recuperating from being shot. He appears to be behaving normally and then he will suddenly beat up his own bodyguard for no other reason than to show his people that he’s not over the hill. He is both ridiculously sentimental and utterly ruthless if he feels threatened. And yet you are still left rooting for him a lot of the time, which of course is what made it such a fascinating series and also explained the consternation when the screen went black.

Now this is all very well when we are talking about a fictional character heading up a mob operation in Brooklyn. However it becomes something else entirely when it is a real President of the United States. There are so many perils to dealing with Trump: those which are like The Sopranos, ie the danger of being exploited, corrupted and destroyed by him. We saw this in full operation yesterday in the extraordinary treatment of Volodymyr Zelenskyy by him and his chief henchman JD Vance.

The full Oval Office remarks of President Trump, Ukrainian President Zelenskyy and Vice President Vance that ended in a contentious exchange over continued support amid the ongoing war with Russia. For more context and news coverage, click here: https://www.nbcnews.com

But what seems more important to me is that we focus on the perils of dealing with Trump which are not like The Sopranos at all: the inclination to cheer him on because he appears to be playing by different rules to the ones which we feel imprison us on a daily basis. So when he misuses charitable funds for political purposes and gets fined $2 million by the New York State Attorney General, we should refrain from cheering.

When Trump is fined $450 million dollars for financial fraud and illegal conduct, we should not just regard it as the rough and tumble of politics.

And when he is found guilty of 34 counts of falsifying business records, making him a convicted felon, it is not, as he claims “a rigged trial by a conflicted judge who was corrupt”, to be laughed off as just another one of Trump’s scrapes from which he emerges victorious.

We need to get our heads up out of the onion rings. This is not TV entertainment, it is the immediate future of the United States, impacting all of us whose countries need to interact with them without being exploited, corrupted or destroyed. He poses a serious risk to all of us.

So the question is what to do about it? This is what I intend to address in my next post.

One must always try to be as radical as reality itself

04. February 2025 · Write a comment · Categories: Actuarial, Climate Change, COVID-19, EIOPA, Risk

The Charybdis is a swirling water feature in the temperate house at Savill Garden. It was designed by Giles Rayner in 2006. https://funandgames.org/web/wp-content/uploads/2020/09/The-Charybdis_Savill-Gardens_9257-2-scaled.jpg

This is a quote attributed to Lenin (courtsey of Branko Milanovic’s X account, where a gentle exchange about whether it was genuine ensued), which seems perfect for the moment we are in.

It was back in 1998 that George Monbiot first pointed out that no sector was as wedded to PFI deals as health. The famous example in Captive State of the Walsgrave hospital in Coventry, knocked down and replaced by a smaller hospital at much greater cost, was just one of many. It didn’t occur to me at the time, but the wider lesson from these early examples, borne out by everything we have seen since, is that privatisation, in whatever form (and, after all, what is PFI but the privatisation of a funding source), always solves a smaller problem than the one you have. The history of privatisation in the NHS has been a series of smaller easier problems dealt with in some cases very efficiently by the private sector (although the efficiency only ever seems to increase the profits of the private companies concerned rather than reduce their price). As it has been in transport (with rail franchises yo-yoing in and out of state control whenever the ask becomes too complex for the train operators taking them on), and utilities, mail services, etc etc.

And the size of the problems that the private sector can take on would appear to be getting smaller.

Take insurance. Ann Pettifor highlights this week what Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority, has to say about the future of the sector in the FT. Apparently he told them that governments and banks will struggle to cope with the soaring costs of natural catastrophes such as floods and wildfires. More households will be unable to insure their homes and the mounting losses from natural disasters could destabilise banks. Two things he said were particularly striking:

“I think it is the biggest risk facing society, frankly” and “Member states — they can’t cope with this.”

There is now talk of an “insurance death spiral“, where insurance premiums shoot up, those least likely to claim drop out, and insurers are left with exclusively “sub-prime” risks on their books (should sound familiar to anyone who has read about the causes of the 2008 crash). In the US, there are obviously problems in the Californian insurance industry which look like causing some degree of financial contagion, but also a particular focus on the health insurance industry as a result of the way Obamacare was implemented.

This contrast between public and private ownership of problems struck me while I was reading the excellent report from the Institute and Faculty of Actuaries and the University of Exeter on climate change: Planetary Solvency. By taking the approach that an insurance company would take in determining its risk appetite and then seeing if its risk exposure matched up to it, it occurred to me that the reason this had never been done before for global climate change was that any insurer would have left such a market years ago on the basis of a brief initial analysis of the problem. Something that a private insurer can always do with any problem.

What if, instead of the NHS being threatened by covert privatisation, the threat is that even the smaller problems private health is currently solving within the system get handed back to the NHS? Because that is the difference. During the pandemic, the threat was that the NHS might not be able to cope with the surge in very ill people and that many would die without care as a result. The reason large parts of NHS operations were repurposed and we were all urged to “flatten the curve” was because, ultimately, there is noone the NHS can hand the responsibility back to and their resources are measured in hours of the right people available to work for them rather than pounds spent and so have a hard physical limit. Although there were significant failures as the Covid Inquiry is currently exploring, the NHS as a whole did not fall over.

However, neither did the US system, because an insurer merely withdraws from a market which might cause it to. It has no responsibility to the system as a whole.

As one MIT researcher responded to being asked about the lessons for the US system of the pandemic:

“The pandemic has revealed the American health care system to be a non-system.”

So it seems to me that arguments about privatisation and nationalisation are a bit beside the point. We have big problems, getting bigger every day, which absolutely have to be solved and limited physical resources with which to do so. Unfortunately His Majesty’s Opposition are still trying to disentangle themselves from the wreckage of Tufton Street’s “thought leadership”, risking a Trumpian climate change denying, health service privatising Reform Party replacing them, and His Majesty’s Government appear to have no idea what they are doing.

So reality does feel pretty radical at the moment. We need to be equally radical in our response to it.

Going nowhere faster

29. January 2025 · Write a comment · Categories: Actuarial, Climate Change, Economics, Prediction, Risk

*Risk trajectory (black circle) shows the anticipated future state for the risk in 2050. Current risk position in grey. Source:* https://actuaries.org.uk/planetary-solvency

The excellent report from the Institute and Faculty of Actuaries and the University of Exeter Planetary Solvency – finding our balance with nature splits the risk trajectories into four sections: Climate, Nature, Society and Economy. I have focused on the Society one above as, in my view, this is the reason we are interested in all of the other ones. According to the Planetary Solvency report, we are on track for a society in 2050 described as follows:

Nature and climate risk trajectories will drive further biophysical constraints including stresses on water supply, further food supply impacts, heat stress, increased disease vectors, likely to drive migration and conflict. Possible to Likely risk of Severe to Decimation level societal impacts, with increasingly severe direct and indirect consequences of climate and nature risks driving socio-political fragmentation in exposed and vulnerable regions.

So what are we doing about it? Well the United States has just voted in Donald Trump as President. There was a flurry of executive orders issued in his first week (with the appropriate caveats about how many of these might actually be implemented), the climate-related ones of which are neatly summarised here by Bill McKibben:

The attacks on sensible energy policy have been swift and savage. We exited the Paris climate accords, paused IRA spending, halted wind and solar projects, gutted the effort to help us transition to electric vehicles, lifted the pause on new LNG export projects, canceled the Climate Corps just as it was getting off the ground, and closed the various government agencies dedicated to environmental justice. Oh, and we declared an “energy emergency” to make it easier to do all of the above.

Timothy Snyder has written about how to respond to tyranny in your own country. What is happening currently in the United States is threatening tyranny for many (as Robert Reich lists here):

The government now recognizes only two “immutable” genders, male and female. Migrants (now referred to as “aliens”) are being turned away at the border. Immigration agents are freed to target hospitals, schools, and churches in search of people to deport. Diversity efforts in the federal government have been dismantled and employees turned into snitches. Federal money will be barred from paying for many abortions.

The first thing you should do, according to Timothy Snyder, is to not obey in advance.

Most of the power of authoritarianism is freely given. In times like these, individuals think ahead about what a more repressive government will want, and then offer themselves without being asked. A citizen who adapts in this way is teaching power what it can do.

And how did we respond to all of this in the UK? Well Keir Starmer was keen to tell The Donald that we were deregulating to boost growth in their first phone call. His reward for this was the story that Trump thought he was doing a good job. Supposedly an endorsement from the “Drill Baby Drill” guy is the proper corrective from being told he should be locked up by the Nazi salute guy.

And then there were the actions on the environment. From the talking out of the Climate and Nature Bill which sought to meet new legally binding targets on climate change and protect nature. To a housing policy which will be both hugely environmentally destructive and fail to make houses more affordable. To announcing the intention to overhaul the planning rules, in the upcoming Planning and Infrastructure Bill, to reduce the power of people to object (and, as the Conservatives’ restrictions on protest have not been lifted, subsequently bang them up for years on end if we subsequently demonstrate about it) so that global firms would think that the UK was a “great place to invest” .

And then today we had Rachel Reeves’ big speech. Approval for developing the third runway at Heathrow, as had been extensively trailed, and the creation of “Europe’s Silicon Valley” between Oxford and Cambridge were the main announcements. There was quite a lot of talk about investment in sustainable aviation fuel (which means biofuels, the benefits of which have already been shown to be wiped out by rising demand).

And as for the Silicon Valley idea, I am not sure we want one. First there is the lack of real innovation despite the excellent game they talk. And second, is it going to be the authoritarian nightmare that the Californian one is turning into? The early signs are not good. Just last week Marcus Bokkerink, the Chair of the Competition and Markets Authority (CMA), was replaced by Doug Gurr, until recently Jeff Bezos’ head of Amazon UK. So not exactly standing up to Technofeudalism then.

According to Cory Doctorow:

Marcus Bokkerink, the outgoing head of the CMA, was amazing, and he had charge over the CMA’s Digital Markets Unit, the largest, best-staffed technical body of any competition regulator, anywhere in the world. The DMU uses its investigatory powers to dig deep into complex monopolistic businesses like Amazon, and just last year, the DMU was given new enforcement powers that would let it custom-craft regulations to address tech monopolization (again, like Amazon’s).

But it’s even worse. The CMA and DMU are the headwaters of a global system of super-effective Big Tech regulation. The CMA’s deeply investigated reports on tech monopolists are used as the basis for EU regulations and enforcement actions, and these actions are then re-run by other world governments, like South Korea and Japan.

When you see Trump flanked by Bezos and the other Tech Bros at his inauguration, it certainly feels like we are obeying in advance. Rachel Reeves’ speech had an enormous increase in energy demand implicit in pretty much every measure announced, which is expected because, GDP (the thing she is looking to boost) and energy consumption have been in lockstep forever. This is the implication of prioritising GDP growth over everything else.

What were missing were both a compensatory increase in renewable energy capacity and/or a reorganisation of our economy away from energy intensity. The problem for the government is that the latter would not increase GDP, so instead we get into the absurd position of the Business Secretary saying we “cannot afford to not build runways”.

However it seems that when the motivation is big enough (in this case to dispute the assertion that the Russian economy is doing well in wartime despite the official statistics, which the EU really needs to do in order to continue to make the case for sanctions) alternative ways to measure the economy can be found. In section 3.2 we find this:

The general assumption of connecting GDP growth to making people better off is not relevant in this situation, which should be included in any discussion of how the Russian economy is doing.

What is interesting about this analysis is that:

a. It is carried out by the kind of orthodox economists (the Stockholm Institute of Transition Economics) who believe GDP would be a good index to use in normal circumstances; and

b. They are saying this even if the GDP figures published by Russia are technically accurate. As they go on to say:

What this analysis suggests is that if we believe in official Russian statistics, then Russia has economic capacity to sustain current policies in the short run, a conclusion shared with many other observers. We also find, though, that beyond the GDP numbers, the redirection into a war economy is already putting pressure on all sectors not directly involved in the war, causing internal macroeconomic imbalances, increasing risks in the financial sector, and eroding export revenues and existing reserves. Short term growth is kept up by a massive fiscal stimulus, but the impact is mitigated by necessary monetary contraction to deal with inflationary pressures, and structural factors (demographics, weak property rights) limiting the possible economic response to the stimulus.

Some of which sound familiar closer to home – “necessary monetary contraction” (things we cannot afford) and “increasing risks in the financial sector” anyone?

We are currently facilitating a world where the only capacity we are increasing is to fly over the climate-ravaged areas of the globe and their fleeing populations. Fly Baby Fly is not going to get us anywhere we want to go.

Getting serious about politics

16. January 2025 · Write a comment · Categories: Actuarial, Climate Change, Economics, Regulation, Risk

When I started writing this blog in April 2013, one of its main purposes was to highlight how poor we are at forecasting things, and suggest that our decision-making would improve if we acknowledged this fact. The best example I could find at the time to illustrate this point were the Office of Budget Responsibility (OBR) Gross Domestic Product (GDP) growth forecasts over the previous 3 years. They do not appear to have improved much since then.

Fast forward to 2025 and apparently we have a crisis. Rachel Reeves has been forced to defend her budget following rises in 10 year gilt yields to levels not seen since the financial crisis and the Prime Minister has been forced to say that she will stay in post for the rest of Parliament. Everyone has piled in, from the former Deputy Governor of the Bank of England to the Institute for Fiscal Studies. So is there in fact a crisis? Well no, not really. As an opinion piece in the FT has pointed out, the drivers of the latest rate rise are not really UK-specific at all. Another piece in the FT puts the gilt yield “crisis” into yet further perspective. Finally, there is the comparison with the US gilt market, which moved above its 2008 level in 2022.

The reason for all of the hype of course is the totally self-constructed cul-de-sac that the Government has built around its economic policy options. Tiny movements in government debt or CPI or GDP or indeed gilt yields have been given heightened significance by being explicitly tied to how much the Government will allow itself to spend on its various programmes. As stated in the FT:

Only the OBR can accurately predict how much headroom the Treasury has against its fiscal rules, the Treasury insisted on Wednesday. “Anything else is pure speculation,” it added.

I refer back to the aforementioned forecast history of the OBR and ask how we ever got in a situation where their forecasts would determine how the UK government behaved. As the recent essay by Stefan Eich (on Adam Tooze’s Chartbook) points out, Keynes said:

“Our power of prediction is so slight, our knowledge of remote consequences so uncertain that it is seldom wise to sacrifice a present benefit for a doubtful advantage in the future.” It was consequently rarely right to sacrifice the well-being of the present generation for the sake of a supposed millennium in the remote future.

Meanwhile we are now doing precisely this on the basis of OBR forecasts. As Rachel Reeves set out at the start of her chancellorship in July, in a precise inversion of Keynes:

Because if we cannot afford it, we cannot do it.

Unfortunately for the government, while they spend all of their time trying to solve this imaginary problem they have created for themselves, there are actual real problems that do need to be addressed, and which are currently being drowned out by the noise of political commentators with too little of substance to talk about apparently.

So Sir Michael Marmot, author of the landmark Institute of Health Equity reports on health inequalities in 2010 and 2020 and the recent report on the role of the property sector in improving health, referred to the maintenance of the two child benefit cap as “almost a form of eugenics”.

The Trussell Trust reports that:

A record 9.3 million people face hunger and hardship across the UK. This includes 6.3 million adults and 3 million children. This represents one in seven (14.0%) people across the UK, and one in five (20.9%) children. Current levels are more than a third higher than they were 20 years ago, when 6.7 million people faced hunger and hardship.

And a group from the Institute and Faculty of Actuaries, in partnership with Prof Tim Lenton and his team from the University of Exeter, set out in a report today (Guardian summary here, Planet Critical discussion here) the dangers of the current massive underestimation of climate change risk. As Tim Lenton says:

The choice is simple: continue to be surprised by rapidly escalating and unexpected climate and nature-driven risks, or implement realistic Planetary Solvency risk assessments to build resilience and support ongoing prosperity. We urge policymakers to work with scientists and risk professionals to take this forward before we run the ship of human progress aground on the rocks of poor risk management.

The part which really stood out for me (in such contrast to the equally massively exaggerated risks ascribed to movements in bond markets this week) was on the inadequacy of global risk management practices:

Policymakers often prioritise the economy, with their information flows focused on this. But our dominant economic model doesn’t recognise a dependence on the Earth system, viewing climate and nature risks as externalities.
Climate change risk assessment methodologies understate economic impact, as they often exclude many of the most severe risks that are expected and do not recognise there is a risk of ruin. They are precisely wrong, rather than being roughly right.
The degradation of natural assets such as forests and soils, or the acidification and pollution of the ocean, act as a risk multiplier on the impacts of climate change and vice versa. Traditional risk management techniques typically focus on single risks in isolation, missing network effects and interconnections, underestimating cascading, compounding risks.
Current risk management approaches fall short of the RESILIENCE principles detailed in this report for realistic and effective risk management. Consequently, policymaker risk information is likely to significantly understate the potential impact of climate and nature risks, weakening the argument for urgent action.
These limitations mean that policymakers are likely to have accepted much higher levels of risk than is commonly realised.

If policymakers judged these risks on the same calibration scale as they current view the knockabout on financial markets I doubt we would ever hear about the intricacies of the 10 year gilt yield or the decimal places of CPI ever again. Similarly, if the societal impact of prolonged policies targeting the poor was included (perhaps in the form of meaningful measures of poverty based on the work of the Social Metrics Commission), rather than the level of the FTSE 100, we might start to make inroads into the current dire statistics.

We have hard problems to solve which require a serious government prepared to be bold, do big things and take the political risk of doing so (because the political risks are so tiny compared to the actual risks the population face), not one so focused and constrained by minutiae that it defeats itself.

Happy New Year!

03. January 2025 · Write a comment · Categories: Cartoons, Economics, Professions, Risk, Science Fiction

Happy new year to everyone who reads this blog! I am planning for there to be quite a lot more activity here in 2025, moving from an average of one article a month to at least weekly. There should be more cartoons too – Pinhead and Spikes even made it to our Christmas cake this year.

There is a lot I want to write about this year. Expect some or all of the following themes in the next few months (in no particular order):

Some examples using Steve Keen’s Ravel software to demonstrate how Government debt is not the constraint they think it is.
Extending Naomi Alderman’s argument in The Future that we could get rid of the Tech Bros and not miss them, effectively upending Ayn Rand’s ideas in Atlas Shrugged. They are not key workers.
Keynes’ argument that, with the future so uncertain, we should not sacrifice people in the present to our models of it.
Spiegelhalter on the four types of luck, which cuts away at the meritocracy argument for distributing wealth.
How the professions have become a way of solidifying and enabling the massively uneven distribution we see. Have they outgrown their usefulness in their current form, just like the guilds did?
How the choice for providing public goods appears to boil down to public ownership or private monopoly – with accompanying Technofeudalism replacing capitalism. Why are we so much more relaxed about private monopolies than we were 100 years ago, when it accelerates inequalities so much?
The relationship between worldbuilding in science fiction and people living in their own models in the policy making world. Great example of this just this morning in the FT.

So plenty to do. If this sounds interesting to you, please stick with the blog, which will not be going to Substack and will not be charging a subscription. If it sounds really interesting to you, tell a friend! Will be in touch again soon.

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