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Thursday, 22 June 2017

Rates of Interest

The media employ thousands of Economists, whose principal roles are to unravel the impenetrable prose and the ludicrous dogmas that permeate their subject, and to explain economic policy to the victims on whom it is inflicted. These Economists have been allowed more air-time and column inches in the past few days to explain how the US Federal Reserve Board can raise the controlling rate of interest in the US economy, while the Monetary Policy Committee of the Bank of England has done nothing since it foolishly lowered the bank rate after the Brexit vote last year. This arid discussion is slightly enlivened by the fact that the Governor of the Bank of England and the Bank's Chief Economist have very recently made public statements which appear to be conflicted. The Governor says the time is not yet ripe to raise the rate, the Chief Economist seems to think that it is just the right time.

Interest rates in all the major western economies [though not in some well-run states, like Canada] were lowered to historically absurd levels in 2008, as governments and central banks strove to shore up the world's banking industry as the monumental extent of their past reckless gambling became clear. The supply of money to the banking system was expanded beyond all historic precedent, and interest rates were reduced to a fraction of one per cent. In effect, monetary policy was abandoned in face of the perceived need to avoid an economic collapse that would make the slump of the nineteen-thirties seem like a trivial glitch in the long process of growth in the global economy.

A whole generation of adults has grown up in a world where there has been no regime of interest rates. The lack of interest in Economic History on the part of most university teachers of Economics has compounded this issue. So here is just a brief reference to the 'real' world that existed before 2007. That world was epitomised in the British economy between 1819 and 1914.

After paying for the wars against revolutionary France and reactionary Napoleon by high taxation and high inflation, the British government decided to stabilise the monetary system. This was achieved through the implementation of a new Bank Charter Act. The Act specified that the Bank of England could issue a limited amount of paper currency, under the condition that the notes would be exchangeable, on demand, at the Bank for fine gold at a specified rate. Thus banknotes were as 'good as gold' and the amount of them could only be increased as the Bank's reserve of gold increased. The Bank could also lend notes, at a standard rate of interest that was known as the Bank Rate. If the Bank increased the Bank Rate, that signaled that money was only available to borrow on stiffer terms, and investors were thus discouraging from taking higher risks. When the Bank rate was reduced, credit was relaxed and business relatively boomed. While most private borrowing and lending was undertaken by agencies other than the Bank of England, at higher rates of interest than the Bank Rate, rates on private loans rose and fell in response to the changes in the Bank Rate. Thus control of the system was established by the Bank: and that has effectively been abrogated since 2008.

More on this topic to follow, but the above dollop is enough for one day.

Wednesday, 21 June 2017

Theresa May: Competence and Comprehension

It is increasingly a matter of speculation, as to how competent a person the Prime Minister is. Despite the great achievements of people like Professor Ron Johnston, the general perception of geographers among the intellectual hierarchy is pretty low. Mrs May read geography at Oxford, which may rank higher than media studies at Mid-Montgomeryshire but it is not regarded as a particularly powerful component of the university overall. She has had a steady political career, indicating that she is content to take orders and vote at the call of her party whips; most of the time. When in the safe-hands role of party chairman she voiced the popular view that the post-Thatcher Tories were regarded as the 'nasty party' she spoke no less that the truth: and the import of her message to the party was that 'we have to invest more in improving our image', rather than telling the Buffton-Tufftons to change their personalities. Her mention of the'nasty party' was frequently cited over the ensuing years, almost as her defining achievement; it certainly got her name nationally known, which ultimately helped to get her the leadership.

In six years as Home Secretary she 'failed' to get net annual immigration reduced below 100,000: by a margin of several hundred per cent. Now, as Prime Minister, she declares herself determined to try again, harder. The reduction of immigration is at the heart of her determination not to retain the EU obligation of free movement of people in the European Economic Area: it virtually sets the tone and terms of how she sees 'Brexit'.

She appears to be incapable of understanding that she had to 'fail'. If intending immigrants had simply been turned away from the ports and airports of a fortress Britain, the economy would have been undermined catastrophically. Market gardening would have collapsed, at least until the firms in the industry moved their capital to countries where they could find labour. Many of the rising 'knowledge industries' would likewise have emigrated. The City of London would have imploded as a global financial centre. British users would have had to pay foreign firms inflated prices for the goods and services that had ceased to be made or grown in Britain; with a disastrous detriment to standards of living.

Meanwhile many thousands of non-EU immigrants would still have got into the UK under threat of  appeals to the human rights industry on the ground that 'family reunion' is a human right: so there would have been more non-English-speakers appealing to the benefits system and using the NHS in the face of a collapse of the state's revenues. The 'racial' dimension to the anti-immigrant mood would not have been exorcised; though fewer ethnic  groups would be scapegoated.

Mrs May still seems to want all those bad things to happen. She is deaf to appeals from industry and commerce. Unless she can clarify quickly that she has not meant these things, her government must fall quickly.

Tuesday, 20 June 2017

Politics and Classification

It is reported this morning that 'angry worshipers' at Finsbury Park Mosque have been 'demanding' that journalists should classify the man who drove a truck into some of their number on the previous evening should be classified as a "terrorist". The Metropolitan Police have already indicated that they will attempt to use the terrorist legislation to charge and prosecute him; and the Prime Minister, goaded into precipitate comment in view of her ineptitude over the recent fire, has made remarks indicating that she would prefer to be able to use such a classification. Presumably the officials who have adopted this language think that by suggesting that the Muslim 'community' is under threat of 'terrorism' they are in the same position as the multi-national group of individuals who were struck down in Borough Market.

It may be politically helpful for establishment politicians to us such language, but that does not make it true. It does not help the forensic process that is under way; and it does little for social cohesion.

It is more likely, in my mind, that the occurrence of this incident [almost] on the anniversary of Jo Cox's murder by a lone nutter points to the more likely circumstances of the recent attack. It is equally inexcusable with all the other episodes that are glibly described as 'hate crimes'. That classification, too, seems to me to be profoundly unhelpful: 'hate' is a powerful word, but it does not describe the range of emotions and social pressures that cause some people to commit outrageous acts.

This set of circumstances causes one to look at classifications that have been used in past eras. Between the two world wars, "the unemployed" had a very powerful meaning: it covered the tens of millions of people in the then-advanced countries who were reduced to destitution by the great depression. The memory of that episode was evoked to justify the action by central banks and governments in 2007-8, which avoided a repetition of the 'thirties horror but which did dislocate the entire economic system in a way which is now haunting British politics and society. The USA and most of continental Europe have recovered much better from the trauma that followed the financial crash than has the UK: the worst is yet to come for the UK. If the government intensifies Osborne's austerity, even by a small amount, it could cause the tipping-point at which social acceptance of the effect of the cuts [to the police, to the NHS, to schools, to welfare and social care] cease to be tolerated.

An increasing proportion of the population have no significant assets, insecure and irregular earnings, and - as the last resort - low levels of benefit if they pass stringent tests as to their 'need'. These people are paupers - the 'poor' - such as have existed throughout history. There have been many attempts to abolish poverty. The whole endeavour of the post-1945 Welfare State was to eradicate poverty and ignorance and unattended illness: and it has slowly been dismantled over the past forty years. Society is coming very closely to an existential crisis: and divisions within society - including that between Muslims and those whom the militants among them call 'crusaders' - could horribly exacerbate a very bad  period of future history.               

Monday, 19 June 2017

How Thick are the Tory Brexiteers?

I admit that I voted for 'Brexit' under the impression that the 'Remainers' were likely to win; but sure that even if the 'Leave' vote gained a majority the government's policy would be to remain in the European Economic Area, probably within the structure of EFTA. My opposition to 'Europe' was entirely to the political Union, especially the drift towards integration of the military and the threat to NATO.

I now read that there are some sixty Tory MPs who want to sever all institutional links with Europe, and shove Britain off into the wide world with no context for trade other that the World Trade Organisation. It is also widely believed that Mrs May, a lukewarm remainer in the referendum, has swallowed the sixty headbangers' line. It seems that the Maastricht ghost that destroyed the Major era is gathering strength to destroy what is left of Mrs May's residual authority in the Conservative party.

That party has a centuries-long tradition of disposing of dangerous and embarrassing leaders. Let them get on with it: even if it means another election, another hung parliament and a consensual coalition.

Meanwhile the Brexit Secretary has begun the pantomime in Brussels. It is all so sad, that I have no more words for today.

Normal service will be resumed tomorrow....

Sunday, 18 June 2017

Political Credibility

M Macron is due to win today's election to the French National Assembly by a landslide. A party that did not exist - was not even publicly predicted - two years ago is expected to win a massive majority in the legislature. Its leaders then propose to go head-to-head with the trade unions in order to 'modernise' [i.e. Thatcherise] the economy. Their plan is to make hiring and firing of employees easier, to challenge the shortness of the standard working week; and generally to break the power of the unions over strategic decision-making by French firms.

M Macron is presented as having virtually 'appeared from nowhere' to create his 'France on the March' movement which would take the presidency and capture the Assembly; but in fact he is the epitome of the French establishment. Napoleon developed the old monarchy's technique of finding people of modest origins and developing them for high public office - by way of selective higher education, where appropriate - and then rewarding them with lands and titles if they succeeded. Macron stands firmly in that tradition. The child of teachers in a solid provincial middle class, white town he was selected for the highest level of 'administrative' education. Then he served in a series of government posts before moving smoothly into banking where he perfected his English while gaining an insider's knowledge of the 'Anglo-Saxon' dominated transatlantic banking system.

Then he was considered ready to be given middle-ranking ministerial office in the floundering Socialist government, from which he moved smoothly to the destiny of revamping the failing party system and achieving a populist following. Although the older-established parties ran candidates and campaigns against him, the field was effectively surrendered to him in circumstances where the rest of the established political class was becoming genuinely afraid that the National Front might otherwise win power.

Even his highly unusual matrimonial arrangements marked him out as special and memorable, without being open to censure.

The whole plan has worked all-too-smoothly to this point. Now the President can dust off his outdated Econocratic textbooks and set about trying to implement his mission. I am not a betting man, but if the bookies were to offer odds I may well be tempted to punt a few pounds against him.

Saturday, 17 June 2017

British Bananas

The media have made fewer references to 'banana republics' in recent years than they used to do, and I wonder whether this is because Britain itself is taking on more of the character of such a state as the imperial past fades from memory.

Popular reaction to Mrs May since the fire in Kensington justly reflects the anger and incomprehension that her deadpan, delayed response to the incident has stimulated. It is notable that the 'victims' of the incident are almost all immigrants: I have just seen reports of two white British occupants of the Grenfell Tower, both elderly people of the sort who are left behind when the rest of the originally-indigenous population remove themselves as a block or a district becomes a focus for migrant settlement. To put it simply [albeit crudely] less-potent, mostly alien people were dumped in that building; and treated accordingly. The building was cladded to improve its appearance in proximity to multi-million-pound properties; but at the risk that was summarised in this blog yesterday. Mrs May is learning - all-too-slowly - that a sop of £5 million is received as an insult.

It is tragic that the mostly-immigrant people who have lost everything in the fire simply do not understand - and now they will not accept - that it takes many months to identify charred fragments of bones as people rather than dogs or cats, and then to attempt DNA analysis of the human remains. Of course, most of the dead who are yet to be found will be identified within a few weeks, from their location in the building and because their bodies will have been less completely consumed in the flames that the extreme cases mentioned in the previous sentence. In the vacuum, a head of steam is being stimulated: by genuine grief and anger, and by agitators who are gathering from the whole of the home counties. The government is so gloriously inept in its responses, in the face of glib repetition of carefully adapted Marxist slogans by Messers McDonnell and Corbyn, that control of the situation is moving away from them.

At the very least, there needs to be an immediate national programme to remove all flammable panels from tall buildings, which will leave a massive mess of ugly exteriors which will need to be patched to make them temporarily weatherproof. Simultaneously, sprinklers must be installed; at first in circulation areas: and the doors of supposedly-compartmentalised flats need to be validated as fire resistant, or replaced. Such a programme needs to be effected in a very tight time frame: not more than two years; after which the residual eyesores will have to be refurbished properly and safely. That will be a ten-year programme, and its cost will necessarily override Osbornian austerity. Thus it will make necessary a massive release of funding, both by the government and within the private sector, to drive forward the real economic growth that is required to make such schemes affordable from future national income. The many dozens of references in this blog to the need for productiveness to enhance productivity show the only way towards achieving this.

Hundreds of thousands of people have been put at increased risk as a consequence of cheapened cosmetic processes undertaken by cash-strapped local authorities and spun-off housing management companies who have been constrained by capped council tax revenues and diminished government grants. The whole direction of policy since the fake 'prosperity' promoted b the Thatcher regime must be reversed: though not down the dark alley to which Corbyn and McDonnell are pointing us.

Friday, 16 June 2017

Fire, Tragedy and Prevention

The national news media have overplayed the awful tragedy that happened this week in Kensington. Both the BBC and ITV News have overconcentrated on this item, at the national level; and consequently even the catastrophic failure of the Prime Minister to cope with the election result from the previous week has been grossly under-reported. I am not advocating that that fire and its consequences should be ignored or trivialised; but [as a Lancastrian] I am sure that if the fire had happened in Glasgow or Liverpool it would have taken up less of the national news: though the local media would have performed the wonderful community service that has been available in London.

The greatest honour in my life is that I have twice been able to serve as Master of the Worshipful Company of Firefighters, and I have also been a Trustee of the Firefighters Memorial at the south side of St Paul's cathedral for a quarter of a century. Thus I have had the privilege of knowing many firefighting professionals, as well as my fellow-insurers and others who have an interest in fire prevention, fire protection and mitigating the consequences of fire. The response of the London Fire Brigade to the Kensington disaster was absolutely exemplary.

It is far too early to make any definite statement on the reasons why the fire spread so rapidly through the Grenfell Tower: but it was obvious that it spread outside the main structure, as well as within the building. People living in such blocks all over the country urgently need reassurance; and reference to the history and traditions of the fire service and the insurance industry can help a lot here.

Coincidentally, yesterday's piece by the Master of Economic Commentators, Anthony Hilton of the Evening Standard, dealt with a paper from the  recent conference of the Association of Risk and Insurance Managers in Industry and Commerce in which the authors argue that the insurance companies are missing the key fact of the modern economy. This is that around 80% of the recognisable risks that face modern firms are not the traditionally insurable risks of fire, flood and other sources of material damage. He is right to draw attention to that area, and I will refer to it soon: but today I just want to say a very little about the fire tragedy, which is [or should be] absolutely centrally in the insured tradition.

There is a massive history of factory fires in Britain, which have tended especially to occur in times of recession. Hence the early insurance companies insisted on making their own inspections of premises before they would insure them: and making regular sport-check inspections thereafter. The two essential aspects that the inspectors looked for were that the type of structure was entirely suitable for the activities that were to take place within it, and that fire precautions - specifically including sprinklers - were installed and functional.

Whether or not they were traditionally insured, the high-rise blocks of the post-war years had rigorous fire protection measures. The flats within the buildings were each constructed to contain a fire for at least half an hour, before it could spread to other units [known as 'compartmentalisation'] and the external structure had to be absolutely free of flammable materials. it was also imperative that fire escapes were equally free of flammable components.

It was tragically obvious that the cladding of the Grenfell Tower did flare up spectacularly; and that there were no sprinklers in the building.

Regardless of the aesthetic impact, all potentially-flammable materials should be removed from the exterior of high-rise buildings; and sprinklers should be installed - in the first instance, in circulation areas - immediately. Osbornian austerity is [no doubt] partly responsible for the enhanced fire risk in some buildings; and Osbornian austerity must be abandoned to ensure the funding for the necessary works now.