Monday, 30 April 2012

Ministers... they're always so rash

The first thing that strikes any observer about the Jeremy Hunt (above) imbroglio at the moment - so little commented on by the press - is just how rash and reckless our governors must be.

The Prime Minister appointed him to make a judgement on a matter the new Secretary of State's opinions were crystal clear about. He was allowed to walk into a so-called quasi-judicial role that was always going to cause him and the Government a whole heap of trouble. Then - at the very, very least - he was completely ignorant as his Special Adviser sent a stream of deeply embarrassing and deeply compromising emails to the very people he was supposed to be sitting in judgement on.

Crazy stuff. And it might well still bring him down, despite David Cameron's furious, red-faced and rather swivel-eyed defence of his Minister today in the Commons.

But is this unusual, strange or new? Not a bit of it. What about Hugh Dalton, who told a journalist the key to his Budget while he was walking to deliver it in 1947? What about John Profumo, who lied to both the Prime Minister and the House of Commons when it became dreadfully clear that he had been pursuing an affair with a prostitute who was also sleeping with the Russian Naval Attache in London? What about David Willetts (now a Minister again, of course), who placed indelicate pressure on a supposedly-neutral Parliamentary Committee? Or Peter Mandelson, borrowing money for a mortgage from a fellow Minister and 'omitting' to tell his Permanent Secretary (or his mortage company) about the loan?

I fear that even the internet couldn't contain all the words I could spew if I went on. And on.

Jeremy Hunt, reckless? You bet. Is there anything new in this? Sorry, no.

Thursday, 26 April 2012

Double dip recession: don't say economic historians didn't warn you

Well, well, well. Well, well, well, well. So it's a double dip recession after all. There's been virtually no growth in the UK economy now for two years. It's flatlining. It's in deep trouble - as is a government that is starting to lurch from crisis to crisis in a manner strongly reminiscent of the hapless Major administration of the 1990s.

There's a sense that European demand has been stagnating, and that certainly hasn't helped. And the present difficulties are to some extent a natural unwinding of the near-fatal heart attack the developed world's economy had in 2007-2008. That's especially affected a banking-and-services heavy UK economy.

But the major component of the present crisis is a fall in domestic construction and domestic demand - both baked-at-home crises that the Chancellor's rhetoric and tax rises, if not yet his direct spending cuts, have helped to heat up. Both roadblocks that anyone familiar with the economic crises of 1964-67 and 1973-76 would have seen coming a mile off. And remember: we are only just at the start of the fiscal contraction that the public spending squeeze will effect. Up to now government cash has been adding to growth. Want to imagine what will happen when that stops next year? No, me neither.

It was always risky to set out on this radical course at a time when there were very few engines of growth left in the West. And you know what? Economic historians warned you. We wrote policy papers. We blogged for thinktanks. We pontificated in the newspapers. We wrote to the newspapers en bloc. We raged in our own blogs.

To no avail.

Next time, perhaps Chancellors should listen to economic historians... and not to the outdated nostrums of the banks.

Tuesday, 24 April 2012

The banks still just don't get it

If you really want a (relatively) quick, eye-opening and really quite shocking guide to just how little the banks have learned from the Great Recession of the last five years, you could do worse than download this PDF, a report on 'the Great Repression' and government debt by HSBC. I know, I know... But give it a go. It's worth it in the end. The key passage runs thus:

Financial repression results from policies which allow governments to fund their borrowing through imposing costs on others. Financial regulations can be used to force financial institutions to lend more to government and, hence, less to others – domestically and abroad – through, say, higher liquidity requirements. Quantitative easing allows government to escape the disciplines associated with market forces by pushing bond yields down to low levels even when fiscal policy is out of control. Real interest rates end up too low – even negative – and savers are penalised.

So, let's get this straight... Interest rate falls are the fault of high-spending governments. They want to go on spending, so they force central banks to print cash and basically rob savers. Hmm. Well. There's a lot of truth to this second point - and as the report rightly says, without growth we're going to face quite a few years of very, very acute pain.

But the document is very thin elsewhere, especially on the narrative of what's just happened to us. HSBC weren't one of those banks that imploded, taking many billions of your money with it - so we'll give them something of a bye on that front. But to say so little about the roots of the crisis - basically, faulty regulation and over-lending - is to both airbrush history and to misunderstand the real reasons for those low interest rates. Savers are not being expropriated (and they are) because governments went on a huge spending spree: they are suffering because banks did, backed by governments while they posed as a cross between a one-way bet and a cash machine. Get that wrong, and nothing else you say about anything will ever be taken seriously again.

And even though we're letting HSBC (above) off the hook marked 'it's your fault anyway', economic theories mobilised in the rest of the paper are pre-Keynesian and basically sub-BA level prejudices. Even Harold Macmillan would have said, as he once did while Prime Minister: 'this is a very bad paper. Indeed, a disgraceful paper. It might have been written by Mr Neville Chamberlain's ghost'. They're all here - all the misconceptions. 'Crowding out', whereby government borrowing is supposed to throttle private borrowing - even though central bank lending, so excoriated elsewhere in the paper, gives the lie to that assertion. The need for 'market mechanisms' in the credit market to impose 'discipline' on governments - as if failing to give a political and a social lead, ignoring the views of voters, and allowing Spain (for instance) to lapse back into recession will really improve confidence. The importance of savers - when what we really need are spenders, indeed a crazy spending spree like we've never seen before... Especially in moribund old Europe. I could go on. But I won't. Because little actual academic economists say is listened to inside pin-striped heads anyway.

And yet such people still dominate our public discourse about debt, default, currency management and growth. For how much longer are we going to tolerate such illiterates leading the debate?

Monday, 23 April 2012

Might the Lib Dems cease to exist?

With the news last week that the Liberal Democrats had briefly fallen behind the UK Independence Party in the polls, one was set thinking: might the party just cease to exist? Rapid and near-fatal electoral decline has happened before of course, between the First World War and the consequent 1918 election, and the party's rout in the 1924 contest.

Well, it's possible. It's unlikely, actually, as the Liberal Democrats are doing better in council seat by-elections than the polls suggest. Lib Dems do better in areas where the party has MPs, perhaps a straw in the wind as to how they'll do 'on the defense', as Americans say, in 2015. Other politicians - notably Margaret Thatcher in 1990 - have declared the party to be 'dead', only to be bitten by the same beak they have satirised in the past (above).

Even so, the party does face losing many seats due to the seat distribution that will hurt them most of all - especially if they're relying on just such incumbency effects to protect them from the chill winds of coalition. And with the Conservatives still the likeliest in my view to be the biggest party in a smaller Commons, they might thereafter be faced with the doleful prospect of soldiering on in a loveless marriage that they care for less and less, an adjunct to a government that's long since passed their own Lib Dem sell-by date. It'll be hard to avoid a party split in such circumstances.

Their best solution? To pull out in 2014, force the Conservatives to govern for a year or so on their own without the ability to call a snap poll, and mount some fierce opposition to a minority Conservative government. Otherwise, they're in real, real trouble.

Friday, 20 April 2012

Welcome to amazing 'conferenceworld'...

Well, we've been silent here for a few days... It's because I've been living in what we might call 'amazing "conferenceworld"'.

David Lodge actually predicted and satirised this world in his hilarious 1984 book, Small World, laughing at a band of academics constantly flying around the world, chased by their own photocopied papers (and bar bills). But it's real. I've been bashed from pillar to post in the last couple of weeks, taking in - for instance - the superb Stress of Life conference in Exeter, focusing on well... the history of stress.

And I spoke at the deeply, richly fascinating The Navy is the Nation, at Portsmouth Historic Dockyard (above), a conference addressed by the First Sea Lord... Not your everyday occurrence to us workaday academics.

They were great events. But they were marked by me furiously pounding the keyboard at the back, with a wifi connection up, trying to keep up with my emails. While listening, listening, listening - more tiring than it sounds. Especially when you're on near the end (at both events). And on at least one occasion, I fell asleep and awoke unable to remember where I was. Such is life - the 'stress of life', indeed.

This isn't a moan at all - I met some great people and I enjoyed myself immensely.

But one does sometimes wonder, contemplating a new hotel room, a new sub-set of experts and a new topic: where will it all end? Our hard-writing Stakhanovite tendencies are pouring out more and more incredibly detailed testimony and analysis, but it's getting tiring - and like the Soviet economy itself, might eventually collapse under the weight of its contradictions.

The mist of meetings is beginning to clear a little, though. Normal service next week!

Thursday, 12 April 2012

History shows that the Euro crisis isn't going to go away

So now it's Spain that's on the rack. As predicted here many, many times, the Euro crisis just keeps rolling on (and on). The bad news just won't give up - despite a period of eerie calm that actually made a bit less sense than the arm-waving, sell-everything panic. Italian growth has also been revised down, and Portuguese banks' debt upwards. With even bankers calling for less austerity, Europe's crazy obsession with cuts and balanced budgets continues to steamroller social services, standards of living - and even take despairing citizens' lives.

Spain's painful descent into economic crisis is just another example of what the German government's insistence on a so-called Fiscal Union (and the strength of a tiny minority of austerity economists) really means. Essentially, it's this: Germany is highly efficient, very well trained, good at manufacturing and an export success. Everyone else has to be as well - despite long-standing differences in culture, economic structure and differential productivity that will take many decades to smooth out (if that feat is even possible, which I doubt). Those decades will see southern Europeans forced to fit into ever-tighter corsets that will cause pain - but little gain. In a situation where these countries have little credit to invest, or to splurge on any short- to medium-term relief, hundreds of millions of Europeans are going to find that they are a lot poorer over the next ten years.

It'll be a slow motion crisis, then. A long-running wound, which occasionally seems like it's healing, and then bursts out and flares up again. Rather like this week, actually.

And we shouldn't be surprised. The US didn't fully recover from the Wall Street Crash and the Great Depression until at least the Second World War. Britain's own interminable sterling crises went on for thirty years - bursting out in 1947, 1949, 1956, 1961, 1964-68 (over and over again), 1972-73 and 1976. The South American and African debt crises rumbled all the way through from the 1970s to the 2000s - and the echoes continue to reverberate.

I'd get used to headlines about 'crisis' if I were you.

Wednesday, 11 April 2012

Mr Osborne and the wisdom of Sir Samuel Brittan

So it was off to the Financial Times last night for the launch of Professor Roger Middleton's edited version of Sir Samuel Brittan's Diaries from his time as a civil service 'special adviser' (before that term was even coined) in the 1960s (above). I know - what a glamorous life we historians lead.

But before I go too la-di-da on you, it was actually Sir Samuel's wisdom in the discussions that followed his opening remarks brought me up short. I hadn't quite traced out or realised just how radical this apparently and previously 'Thatcherite' and neo-liberal commentator has become. His excoriating comments as to the Coalition's ridiculous fiscal austerity - and the 'totem' of a balanced budget ('whatever that means', he said) could have taken the paint off the walls. Were they not great sheets of glass looking out onto St Paul's the river.

And it's Mr Osborne's foolish budgets that are doing it - turning a financial journalist who once lauded Hayek and attacked inflationary British governments into a symbol of socialist economic resistance among many on the Left. How times change! In any case, I thought I'd let you into some of Sir Samuel's more pungent sayings from a published 2010 lecture on just this subject, the text of which you can download here.

On the absurdity of choosing between 'left wing' and 'right wing' economics: 'Enormous confusion has been caused by the misleading identification of Keynesian economics with high public spending. There is no reason why Small State Conservatives or Liberals should object to demand stimuli at the appropriate time... As Keynes himself said near the end of The General Theory: if effective demand can be managed, the virtues of competitive capitalist markets make themselves felt once more'.

On the agreements, not the disagreements, between Keynes' ideas and neo-liberal Hayekian views: 'This counterrevolutionary doctrine [Hayek's] did not say that demand could be left to itself, whatever some of its adherents may have supposed. Nor did it deny any of the Keynesian propositions with which I started. But it did suggest switching from the Old Keynesian emphasis on real demand to demand management in nominal terms'.

On the real reasons for the 'Great Recession' (i.e. Asian savings and low demand): 'The proximate cause was the credit crunch which led to an investment led recession of the classic pre-World War Two type. There were other forces behind the credit boom and bust emanating from world wide trends in savings and investment, above all the Asian savings surplus which we can discuss later if you like. Whatever the trigger, there was a worldwide reining in of bank credit and consequent fall in spending of all kinds which threatened a new depression. Unprecedented monetary and fiscal stimuli averted that threat, but world activity is still well below a sustainable level of capacity operation and will be so whether or not we have a so-called double dip recession'.

And lastly, I like this one on the need to act now, and ourselves, rather than wait for others: 'the world as a whole is a closed economy. Each country on its own faces a collective action problem. If we wait for world government to solve it, we will all go to hell and high water'.

There we go - the truth according to someone who's been there, and done that, many times over. You don't have to trust what I say after all.

Thursday, 5 April 2012

A fevered and a vulnerable society

One of the most notable things about the last couple of weeks in politics is just how vulnerable, and just how fevered, our developed society can be.

The whole edifice depends on tiny threads and thin margins: the haulage industry, the long-distance movement of food and drink, and the 'just in time' provision of fuel and power. Destroy or threaten any one single element, and the whole structure threatens to topple or crumble. Any provincial city could be reduced to very thin rations indeed, in just a few days, by cutting it off from the Motorway and A-Road network. Only a few feet of asphalt that make all the difference. Block or destroy the M4 and M5, and Bristol, for instance, would be in big trouble very, very quickly.

That's why citizens rush to the pumps, and start to hoard petrol, at the slightest hint of a panic-ridden gaffe on the part of Ministers. It's also why governments can become very unpopular, very quickly - witness the chaos inside the Brown administration in the autumn of 2007, and the very swift decline in government popularity over the last couple of weeks. Taxes on pasties? Not-such-generous tax breaks for pensioners? Ill-considered remarks about a possible petrol stike? Why then, Britain must be in crisis!

This rhetoric of crisis is in fact a very notable element of post-war British life in what Michael Shanks once famously called the a 'Janus-faced society', enjoying 'a prosperity it could not quite make itself believe in'. It's been going on for decades. And it's all down to the thin ice of prosperity and modernity - literally fuelled by very vulnerable supply chains and arteries - that we know we're skating on. Bombing nightmares in the 1930s? Fears of genetic transplantation and mutant farming in The Day of the Triffids? Night terrors about pandemics and viral infection, so obvious in Terry Nation (above) and his post-apocalyptic BBC series Survivors in the 1970s? Check, check and check again.

The rhetoric of 'chaos' and 'crisis' isn't new at all. But it's got more acute, because the risk of cascading economic and social reverses has got worse. In terms of fuel, for instance, there are fewer garages and fewer haulage firms.

Next time there's a crush in front of baked bean stands and anti-viral handwash at the supermarket, consider: are the dangers really more than yesterday? The answer will almost always be 'no'. That doesn't mean they're not out there, though... We just don't know what they are.

Tuesday, 3 April 2012

Back to the not-so-attractive future with Michael Gove

So Education Secretary Michael Gove (above) wants universities to play a key role in setting A-Levels. Alongside all his other wear-a-blazer-and-learn-Latin blasts from the past, this is one of the most nonsensical.

It's not necessarily all that bad idea to involve dons in setting A-Levels. They know where their disciplines are going. They have fresh ideas, and do new work. They might ginger things up. They know what they want to see in their prospective students - and A-Levels are to some extent a gateway to higher study.

Not all A-Level students will be applying to university. They certainly won't all go to the 'elite' (and self-appointed) Russell Group universities that Mr Gove wants to be at the forefront of this new process. Their input won't always be the most appropriate.

And it's not as if universities are not busy. With all the research and all the undergraduate teaching they've had to do to 'deepen' and 'widen' their appeal (despite being one of the most successful part of the economy, and running surpluses most of the time), they're frantically over-driven and time-poor places at the moment. Ask most lecturers what they think of this new plan, and they'll say: 'and just when am I supposed to do this? In my sleep?'

Most important of all, we've been here before. Oxford, Cambridge and London used to have lots of input into A-Levels. They don't now, because it was thought important to professionalise the process, involve people who actually know about teaching pupils in schools, and experts in pedagogy who understand how teaching and assessment fit together. Universities do understand this, but not necessarily for younger people at a much more formative stage of their development.

In the end, the idea will get a big raspberry from everyone concerned - yet another untested, untrialled big bang from the same coalition government that gave you the Higher Education funding system and the NHS 'reforms' that are proving so popular and so successful.

Good luck with this one, Secretary of State. You'll need it.

Sunday, 1 April 2012

George Galloway's victory is not actually all that surprising

Right, then. George Galloway (above). George. Galloway. George GALLOWAY. Galloway. George. Excuse me while I go and push my eyes out with a spoon. It'll be less painful than contemplating the idea that such a man is a Member of Parliament again.

Returning to my desk to have a think about this 'remarkable turnaround' (for such it is), having howled at the moon, shaken my fists and clawed the air in horror for a day or so, I see it like this.

Knee-jerk reactions won't do. Seeing this as just a paroxysm of rage at our 'out of touch elites' (whatever that means), an attack on Labour and its 'failure' to oppose the Coalition, or a plague-on-all-your-houses fit of anti-politics... Well, that's all just a bit one-dimensional, isn't it? No-one saw this coming - even bookmakers. Now commentators are scrambling, far too fast, to put a load of unlikely spins on a single result.

All our politicians are, to be sure, not exactly flavour of the month right now. Even the Prime Minister, a man who's built a career on smooth popularity and its maintenance, has always had much worse numbers than his image would suggest. At the moment, the combined party leadership score of the three main parties is a shocking minus 121. You can't get much more disillusionment or detachment than that.

But consider. Lots of by-elections shocks have been delivered since the 1940s. From the wartime Common Wealth party taking seats during the Churchill Coalition's electoral truce, to The Liberals taking Orpington in 1962, through to Dick Taverne's 1970s upset at Lincoln, and then on to the SDP's apparent breakthrough at Crosby in 1981, history is littered with such moments. Common Wealth? The Liberals (rather than their successor Liberal Democrats)? Taverne's Democratic Labour? The SDP? All blasts from the past, but no more - and all phenomena that we don't just lazily explain away by saying that other politicians weren't much liked.

Sorry, guys, but you're going to have to do better than just pointing to politicians' unpopularity. Politicians have often been unpopular. Mr Heath and Mr Wilson, at their nadirs, were ridiculed by a majority of the population, despite winning General Elections. Something else must be going on - located in poverty-stricken post-industrial towns, sited within Galloway's Respect Party and its cunning play on legitimate grievances, and due to the very divided and fractured country - in terms of both geography and income - that we have become.

What is it? I'm not sure. But I know where we need to search for answers. Something that many over-hasty writers do not.