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Monday, 31 October 2011

Jobs and Wages

There is a great deal of talk - and much less action - from government about the need to create jobs in the economy to produce growth. There is also a recognition that any sustainable increase in jobs should focus on 'manufacturing': a series of sectors that have been continually in decline and in default throughout the careers of most working retail bankers, setting up institutional and psychological barriers to lending for any such development. There is also a very emphatic policy from the Department of Work and Pensions to push benefit recipients into employment.

Most bar-room conversationalists, through the length and breadth of the Kingdom, take it as axiomatic that that there are 'no jobs' that have any attraction for many of the British unemployed. There is huge resentment about the plain fact that there is still a torrent of immigration into unfilled existing jobs as well as of benefit-hunting immigrants. In the high-earning employment categories, British graduate doctors, scientists and engineers migrate to North America and Australasia; and their places in the UK are filled in the NHS by Europeans, Asians and Africans, and in science and technology by Europeans and Asians. Thousands of British engineers, physicists and mathematicians are also lost to the 'real ecnomy' when they take employment in casino banking. In middle remunerated ranks, plumbers and builders from East Europe have supplanted much British recruitment. In hourly-paid jobs with some 'unsocial hours' working Brits are conspicuously less abundant among applicants than are migrants.

If the country is to avoid Islamisation by mass immigration, British people have to fill the jobs that are available in Britain: but the second-and third-generation non-employed population show no inclination to work. Hitherto they have been able to show how much benefit they would loose if they took jobs: they could surrender 38 or 40 hours a week of their time to the discipline of the workplace and receive only a few pounds a week in higher nominal income. So the glib answer is to say that their benefits must be reduced. This supposedly would provide a stick and a carrot: the individual would have a lower standard of living if they did not work, and would have the opportunity - perhaps - to buy more if they did get work.

But if such people have children, an ages-old problem arises. It appeared first in its contemporary form in the eighteen-seventies when Poor Law Guardians began to put up workhouse orphans for fostering by working families. Tables were drawn up of the clothing, food and other necessities that each such child would need: and it was immediately evident that the sum of money required to deliver that subsistence each year was very much more than any lower-paid working family had for each of their children. The same arithmetic applies today: the cost of keeping a child in care or in state-sponsored fostering is far more than the portion of millions of parental earnings that they can make available for each child. This recognition is carried forward in the 'tax credits' that governments give to families. If wages are reduced in real terms the 'needs' of children will have to be provided for in increased credits. This is axiomatic, because it is pretty well universally accepted that nobody can expect seriously deprived children to grow into good citizens. So if tax credits [or their successors] are to keep pace with prices, any incentives or penalties on parents to 'make them work' will largely be rendered nugatory.

Of course parents are only raising children for part of their lives: but many, many people think in terms of short-term living rather than of lifetime earnings, or career progression [when many jobs offer no prospect of promotion]. So the conundrum of 'childrens' needs' set against rates of parental remuneration will not go away. Hence much of the government's talk about employment, pay rates and benefits, is nonsense. Deeper thinking in this, as in other crucial issues, is urgently needed.

Sunday, 30 October 2011


One: Saint Paul's

There is little doubt that there was an initial failure of policing, which allowed a demonstration directed at the Stock Exchange to fetch up at Saint Paul's Cathedral. As with the summer riots, the failure was in the initial assessment of the situation: and here the police are placed in real difficulty. Precipitate action taken before there was a full assessment of the situation would bring massive criticism onto the police, not just from legal racketeers smelling money but from genuine libertarians. The entirely well-intended intervention of the Canon Chancellor then assured that the moment became frozen into ugly stalemate. It gave the 'protesters' an ample opportunity to demonstrate that they had no positive ideas, and permitted others who have various ideas and intentions  - including the desire merely to seize an anarchistic opportunity - to arrange their appearance in the camp en route to attracting the attention of the media.

Today the Bishop of London, who is possessed of one of the best minds in the Church, joined the Dean in asking them to leave, and urging them to make their case in discussion both in a formal 'debate' and through the Saint Paul's Institute. We are told that this Institute has been exploring the sort of issue that some 'protestors' purport to complain about, for many years. One must assume that that assertion is true: and note that the Institute has been remarkable successful in keeping its proceedings secret. Insiders will almost certainly assert that they have offered their findings and opinions to the public; without having let the public know much about it. It was then rumoured that a critical report on banking was due for publication when the  camp-in began: but the Chapter had decided to suppress it, at least temporarily. Oh dear: error compounding ineptitude!


Vital evidence about the character of the alleged killer was kept from the Jury in the Joanna Yeats murder trial, which ended last week with a conviction. This is a typical example of the failure of the judiciary to prevent the defence from withholding relevant evidence. My own experience as a juror in relatively minor cases disclosed that there is extensive use of out-of-court agreements between the barristers to keep evidence hidden. A jury of which I was a member repeatedly returned to the point that all the members shared the view that the defendant was most probably guilty, but that evidence had apparently been withheld; with the effect that it was unsafe to convict. Within the present state of the Law, we had to return a 'Not Guilty' verdict. I believe that this is an instance of the triumph of the Law of Lawyers' Earnings over the concepts of Truth and Justice.

The Courts fail to deliver Justice on a day-to-day basis.


The week's news contains massive evidence of a fundamental failure of Economics, of Politics and of Society. This failure puts noise into the empty vessels of the Saint Paul's 'protesters' and enables reasonable people to 'see their point'. The ludicrous overpayment of business directors and senior executives - not just in banking -is managed by the heads of other companies sitting on each others' Remuneration Committees. Corporate governance has failed.

Then came the news that modest wages have either been frozen for the past year, or reduced by only 1% to 3%, while prices have risen by a notional average of 5%: which masks the experience of all housekeepers that the prices of many essential household items and services have increased by very much more than 5%.

Throughout society there is awareness of a failure of social and economic justice. Behind this lies a simple paradox. Since Ronald Reagan gained the US Presidency and Mrs Thatcher gained office as Prime Minister, aggressive capitalism has been exalted. While that mood persisted, communism collapsed in Europe. In  China communism was transmogrified most successfully into a mix of state capitalism with licensed private capitalism. In what used to be the Cold-War West, socialism has lost both adherents and intellectual attraction. The lesson that has been ignored is simple: capitalism fails at distribution, while socialism fails in organising production.

Both capitalism and socialism are intellectually-specified forms of social and economic organisation, which politics has too often [and for too long] treated as mutually exclusive bases for social and economic organisation. They are not.

Proponents of the Post-World-War-Two idea of a 'mixed economy' were halfway towards the truth. Society is fairest, and politics can be most effective and freest, if capitalist production is married with socially-aware, fair distribution. The human world is in a very dangerous place. Population growth, drought, climate change and other global issues must be addressed by increased innovation and investment which only capitalism can provide. Consensual social cohesion cannot be built by force, but only by co-operation and consent. Bringing capitalism and socialism into a marriage seems difficult because mindsets have been set against the idea. China is well on the way to indicating one model for such a productive partnership. Europe and North America, South America and India can produce their own models - quickly, if they get down to it. If they don't, doomsters will have their day: and the established failure of Politics will triumph over humanity and decency.

.....and a Tale for the Times.

Now that the wonder Westfield is open, Stratford town centre is almost ready to receive the Olympic crowds.The traditional market nearby has been preserved; but the stallholders have been told that the market will be closed for the duration of the Games. Given the opportunity to meet Lord Coe in a question-and-answer session, he responded to the traders' concern that they would loose a month's income by saying: 'Grin and bear it!' The arrogant dismissal of serious concerns by ordinary hard-working people was a typical reaction from the sort of MP that Coe was, a class that the population despises increasingly. That kind of failure of humanity is a commonplace that is working powerfully to destroy the dregs of cohesion that still remain in British society.

Saturday, 29 October 2011

Credibility in Markets


Italy's situation has not notably been improved by the supposed resolution of the Eurozone problem; as interest rates on Italian state debt have continued to rise. The Prime Minister who is regarded outside Italy as a buffoon remains a formidable operator within  the country: he has said that he is willing to stand down later in the year, but most observers are sceptical. Parliamentarians descended to fisticuffs while Berlusconi was in Brussels delivering a long and explicit letter to his Eurozone peers in which none of them placed complete credence.

If the politicians cannot even pretend that the Italian state is credible, how can anyone expect the herd of analysts and traders in international debt to have any faith in it? 'The markets' are just a network of websites: the avatars who inhabit them that reflect the decisions of company representatives who do not have the sort of freedom to take risks that they did in the years 2002 to 2008. Now the boards of their employing companies consciously set the parameters within which the traders can operate, and the terms in which analysts can summarise the data that they select as a basis for comment. As long as Italy is perceived as a public scandal and a rather obsecene private joke, the herd will take its cue from that assessment. Any investor who is contemplating putting money into the 're-engineered' Euro bail-out funds is advised to assess what 'the markets' indicate: and the declining valuation of Greek and Italian debt is a huge inhibiltion on the credibility of the financial engineering that was bodged in Brussels last week, The stock markets had a minor boost from the apparent solution of the problem: because companies based in Germany, France and Finland are trusted and their shares are more widely held than are industrial and bank shares in Italy and Greece, or Spain and Portugal. So over the coming weeks there will almost certainly be a bifurcation between 'northern' shares and 'southern' state stocks. The de facto division of the EU will be consolidated.


Italy will probably eclipse Greece in the analysts' comments and in reports of the markets' behaviour for a few weeks: until the desperate state of Greek politics again demands the prime attention. The Greek people have been so misled by the the state's corruption in ignoring tax obligations, and by its reckless borrowing to pay them pensions and benefits that no economy on earth has ever been able to support from its earnings, that millions of them cannot believe that the austerity package that has been imposed by the Eurozone is either necessary or desirable. They have been told by the media that foreign banks have been induced to write-off half the value of the Greek state securities that they own: so why should not all the state's creditors do the same? And why not 99%, rather than just 50%? What can foreigners do to them, if they simply tell the Eurozone to forget the past and leave their future to them? The failure of CDSs on Greek debt [see Three below] will reinforce the opinion that 'the markets' don't really matter at all.


There has been a lot of comment on the recent collapse of 'value' in CDSs on Greek debt. The media have glibly described them as 'insurance policies' - which is precisely what they are not: that misrepresentation is wildly misleading. Credit Default Swaps [CDSs] are gambling contracts, of a special type that was invented in US wholesale banks in the nineteen nineties.

The concept was massively oversold by an ill-supervised wholesale-market branch of the greatest US insurance company, AIG, based in London [well away from scrutiny by the Head Office]. This small clique of people earned huge bonuses - and big notional profits for the firm - by selling these bets to banks, who wanted to be able to dress-up their balance sheets with an 'asset' that offset the perceived risk in owning bonds issued by institutions - mostly banks and governments - whose long-term credit worthiness could become questionable. In the credit crunch of 2007-8 holders of CDSs that offset assets that lost their 'value' came for their money, in such numbers that the small funds held by AIG's London office were instantly exhausted. There was a good chance that all the real insurance policies that had been underwritten by AIG would be voided if the company failed, due to the fact that its obligations under CDSs would massively exceed its reserves. One important consideration was that AIG - American International Group - was a huge player in the emergent markets in Asia, If the company failed the reputation of the USA would massively be diminished, especially in China, which had been the main target of the company's long-term Chief Executive 'Hank' Greenberg who had received massive political backing from the US government. Welching on China was considered unthinkable; so the US Administration and Congress agreed to support AIG with as many billion dollars as was needed to settle non-insurance obligations. The AIG case, however, gave credibility to the idiotic misdescription of CDSs as 'insurance policies'.

The really bad story about CDSs began after the bail-out of AIG. Despite that disaster, the players in the wholesale financial markets saw CDSs, alongside 'derivatives', as 'products' that they could sell in massive volume as ephemeral electronic contracts out there in cyberspace. Insurers as such had never been involved in the market: it was ab initio a bankers' creation and so it remained.  Banks bought CDSs - from each other - and reported them as 'assets' that could offset the risk that might exist in holding Greek or Italian government bonds as part of their reported capital reserves. Then they started selling each other CDSs as pure gambling slips, only notionally related to 'real' obligations: and in some cases multiple CDSs were raised in a series of separate contracts which notionally covered the same perceived risks. An increasing proportion of the purported risk-cover held by banks was in this form.

Then came the Irish crisis: where the government saved the situation by accepting all the banks' debts itself, and so the CDSs held against that possible default were not activated. As the Greek crisis approached its first peak even bankers saw it coming, so they mostly sold off the CDSs that they held against Greek debt [at heavily discounted prices] on the crude assumption that it was better to have a tiny asset rather than an undeliverable promise. This made it possible for the club of banks known as the international derivatives association, which was accepted by all the member banks as having authority to say when CDSs should be activated by declaring a 'default' by the issuer of the underlying assets - in this case, Greek government debt - to declare that the 50% write-down of Greek debt was not a default, so the remaining CDSs against Greek debt could not be activated and the balance sheets of the issuers of the CDSs were unimpaired. In the immediate event, the issuing banks were protected: but the longer-term credibility of CDSs as a cover for potential losses was challenged, possibly beyond repair.

There are still trillions of dollarsworth of CDSs in existence: they are still held as balance-sheet cover for the banks' perceived risks; and they may well be useless. Casino Banking has been storming ahead even while the bankers have supposedly been in the pillory and under close examination: so much for regulation, so much for the competency of government.

The more one knows, the less one can believe.

Even if one is irritated by the inarticulate clods who are wasting their time outside Saint Paul's Cathedral, it has to be conceeded that they have a point: if only they understood it.

Friday, 28 October 2011

Straws in the Wind

The situation in the Eurozone is no different from last week, but the mood has become much lighter following the latest agreement on support for the weaker countries.

Now a Eurozone official is in China, asking for a contribution to the support fund. The Chinese government will agree, with published conditions and a hidden agenda. China has a highly intelligent population, with a huge output of graduates in science and technology; but China remains keen to buy western intellectual property - especially when this can be done at knock-down prices. So we can expect the covert agreement to include the concession that European governments will be less resistant to Chinese takeovers of old brands and new technologies. How this pans out will be a wonderful indicator of China's  plans for the introduction of a wider range of consumer goods in their home market.

Dim politicians talk of Britain's need for more 'manufacturing' and more exports of manufactures; but in reality - as the Chinese well know - it is not the process of manufacturing that adds 'value' to the raw materials but the amount that can be added to the material cost of production as the premium that is charged for access to the brand and the patented technology that is embedded in it. Prices for branded, patented goods and services in very many cases owe far more to the intellectual property than to the the quality of the components and the process by which they are assembled.

 China will quickly recover more than they risk from this deal with Europe, in the form of intellectual property ownership that they will be enabled to acquire. Since the appointment of Thatcher as Prime Minister, Britain has sold off intellectual property to foreign firms on a massive scale to make a small contribution to the current balance of payments of the year. That immeasurable loss can only be compensated by hard work over many years, and by austerity in living standards to make the necessary funds available for investment in the new technologies that Britain has continued to invent: and has largely sold off in its infant stages over the past thirty years.

And it is going to be very hard to compel people to accept austerity when they hear that employeees' average salary rise in the past year was 2.5%, while Chief Executives' 'compensation' has increased by 45% [on million-pound-plus packages]. Any simple sense of fairness must be repelled by such data.

 If they were capable of profound thought and clear communication skills, the Saint Paul's 'protesters' would have pointed to the inequality of incomes across the whole of society rather than keeping to the well-worn attacks on bankers and the stock exchange. But they clearly have no such capabilities. They should be moved on pronto.

Thursday, 27 October 2011


Today's news contains much good, and many items where it is clear that risk is being accepted by governments on behalf of populations who have little understanding of what is at stake. We will take three instances.

27 October 2012 is the twenty-fifth anniversary of the 'Big Bang' in the City of London and the wider British financial market. A tightly managed group of self-regulated professions whose members largely bore personal financial responsibility for their actions [and set their own ethical standards] was replaced by an open marketplace. Foreign firms bought the stockbrokers and jobbing firms and began to use them as bases for gambling on an ever-expanding scale on their own account, abandoning the former focus on customer relations. Their leaders spoke about accepting and managing 'risk'; until 2007 when their frozen gambling debts were so great that governments had to bail them out to prevent systemic collapse of the economy. Because they paid a huge amount of tax on their reckless transactions the financial markets became the great favourite of British governments [especially the Brown-Balls Labour lot]; and it remains conventional wisdom that their 'markets' are essential components of the British economy. So there is yet more risk eventually to be absorbed by a debilitated economy; and little evidence that the politicians have a better understanding of this situation than did their predecessors in 1987 [except Ken Clarke, who is still there and may have learned a lot].

The Eurozone leaders have gone home to bed after a very late night session, content that they have shored up the system for an indeterminate period during which they will move slowly towards some sort of fiscal union. The longer the negotiations go on, the more risky situations will arise and the more scared the less-well-managed economies will periodically become, and the more the Germans will have their way in determining the shape and structure of the final deal.

Like it or not, there is now a 'two-tier' European Union. The in-crowd of the Eurozone have huge benefits and massive risks in their refreshed situation. Their banks have been bullied into surrendering 50% of the cash that the Greek state notionally owes them: and the whole Eurozone will now try to compel the Greek government to stay in the Euro and eventually pay up their remaining debts in Euros rather than in a putative devalued Drachma.

The outer circle is composed of the willing Euro-abstainers like Britain, the Czech Republic and Sweden and of the reluctant who have simply not passed the economic tests that Greece should never have been allowed to self-certify - especially Poland. There is little probability that the outer ten will have the slightest wish to seek the sort of coherence that is essential among the insiders. Some of them will still seek admission to the Eurozone. Some may form informal alliances, such as the former members of EFTA who joined the EEC together in 1973 [Sweden, Denmark and Britain] and may forge a new relationship with the other ex-EFTA members Norway and Switzerland who are in the European Economic Area but outside the European Union. If this step were taken it could prove an attractive alternative option for Poland but may not be attractive to the Czechs or Hungarians. There is all to play for: no option is risk-free, but there are now clear options.

The British Office for National Statistics has announced that Britain can expect the population to exceed seventy million by 2030. This is perceived to be 'good news', in that millions of immigrants and their children will be of working age, offsetting a steep forecast risk that there will be a doubling of the number of people over ninety years of age who will impose heavy costs on health and social services. This assumption entails huge risks; not least the fact that there is already a growing anti-immigrant sentiment. That politicians have either ignored the hardening of the popular mood, or stigmatised it as 'racist', is a major risk for the coherence of the country. There are real worries about Muslim colonisation of the country [and, indeed, of the Continent], which will not be assuaged by bland political reassurances. Demography is becoming dicey!

Wednesday, 26 October 2011

Back to the Mighty Markets

The Morning Posting
Though the media are still saying that the European Union and the Eurozone are under all sorts of threats from 'the Markets', the immediacy and seriousness of the threat is being downgraded. Back in prehistory Harold Wilson said  that "a week's is a long time in politics": and time seems to be moving more quickly in this century. Commentators have not stopped mentioning the fact that 'markets' are a major source of pressure on the politicians and their advisers as they forgather again in Brussels; but they have been forced to respond to the demand of their readers and listeners for the nature of the threat to be specified. The press and broadcast commentators have begun to admit that the risk is not from 'markets' as such, but from individual users of and traders in financial instruments who tend to pursue a form of herd behaviour.

Throughout economic history there has been a series of 'bubbles' when far more investors have offered far more money than has seemed sensible after the event, for 'assets' that suddenly seem so attractive that almost every investor wants a slice of them. Nineteenth and Twentieth-century History regarded as absurd the boom in shares of ownership of black tulip genetics in seventeenth-century Holland: but it seems slightly less absurd today when it can be viewed as a 'false dawn' of the modern capabilities of genetic engineering. No doubt, there will be future bubbles in shares in businesses that make breakthroughs in the application of genetic science. Early in the eighteenth century, even though Scotland had already experienced a boom and a horrible bust of shares in a company for colonisation in Central America, the whole of the now-United Kingdom experienced a huge bubble in the value of shares in the South Sea Company. People who bought the shares early and then sold while the market was still rising made fortunes. Then far more people found their family nest-egg of gold or silver coins, or sold assets to get cash, which they became desperate to spend on shares: so there appeared people willing to create companies in which they sold shares - even including a company 'whose purposes will duly be disclosed'. Suddenly someone recognised that most of these companies had no real assets: some had paid dividends out of the money shareholders had given them, but there was no evidence that they would yield dividends even for a couple of years. The most percipient few investors were able to sell the shares for at least as much as they paid for them, but then more and more people tumbled to the truth and sought to sell: a sales panic ensued and most of the new companies vanished. The South Sea Company survived, in a much diminished state; then over the decades the lesson was shelved. The nineteenth century saw a succession of 'railway booms'  as that technology spread around the world; Brazil had a 'rubber boom' [ended when Brits stole rubber genetics and installed plantations in Malaysia and Ceylon]; and the twentieth century had alarming stock-market booms and crashes. The dawn of a new millennium brought the dot-com bubble, and then followed uncontrolled expansion of a huge range of financial instruments which inevitably led to the greatest crash of all.

In every case the markets in which assets have been sold were simply media: the booms and busts were caused by the human psyche. Economists and journalists have written extensively about 'sentiment' and 'animal spirits', which was wholly appropriate: they also wrote about 'market sentiment' which was absurd.A major complicating factor is the fact that investors' optimism or pessimism is influenced strongly by cheerleaders: media commentators, 'analysts', rating agencies, Central Banks' statements and actions, government policy, opposition warnings and the lucubrations of Warren Buffet and other 'sages' or 'gurus'.

Market participants' behaviour could become so irrational that they sold Euros or Italian Government Bonds regardless of how much of the purchase-price they had lost, ignoring the fact that Europe is more than rich enough broadly to maintain the exchange rate of the Euro against the US Dollar and the Yen; and Italy is rich enough to unwind any perceived excess of government debt over a period of years. Any such asset-sellers would hurt the funds for which they are responsible, perhaps irreparably. Thus it is in their interests to preserve the medium-term 'value' of their holdings. As long as the Eurozone governments can show that they have the capability of maintaining medium-term assets-in-being [having dumped Greece, which is an unsustainable basket-case] they do not need to assemble trillions of dollars-worth of cash-on-the-table today. So they won't pile the cash up pointlessly: they don't need to. Markets have nothing to do with it. Market participants need strong nerves and common sense, and if fund managers should begin to behave destructively their employers should get rid of them - without any bonus or severance packages beyond the statutory minimum.
Evening Posting
After this afternoon's  European Union 'summit' meeting no mighty new bail-out fund has been created, no immediate step has been taken towards 'fiscal union' of the Eurozone, and Italy has been forced into a humiliating promise to retrench further than had been intended by the busted Berlusconi government. The crunch on Greece is still being prepared; and there may yet  be weeks of chatter before the banks are softened-up sufficiently to take the write-down of Greek state debt that will be necessary whether or not some means are found to keep Greece in the Euro The German Parliament has accepted a minimalist proposal from the Chancellor, who is far more concerned about German public opinion than she is about relations with France [though her speech this morning bizarrely referred to a threat that there could be a return to the era of wars in Europe if the EU should collapse].
After this evening's non-news had broken the immediate reaction of participants in 'the markets' was to raise stock prices a little. The politicians have made it clear that they are concerned to preserve the Eurozone: but are nowhere near panicking: they would not be stampeded into the sort of measures that US politicians [in particular] have been demanding from them. The eurorats' favoured technique of proceeding at snails'-pace towards consolidation of all power and wealth in their own hands has worked again.

Tuesday, 25 October 2011

What Living Standards?

Yesterday David Cameron displayed his lack of political nous by demanding that all Tory MPs should vote against a motion calling for a popular Referendum on the future of Britain's role in Britain; and some eighty of them ignored the request. If he had allowed a free vote, there would have been a fun day with no significant aftermath: instead he was perceived to have suffered serious reputational damage. After the votes were counted the Leader of the House of Commons expressed the view that there had to be one outburst in favour of the public mood during this five-year Parliament; and that everybody should now knuckle-down and accept whatever was demanded of the UK by the European Union. Some hope!
The Daily Telegraph, for generations the authentic voice of Conservatism, suggested that the incident had demonstrated serious inadequacies in David Cameron's leadership; and it was widely suggested that this diminution in his authority [albeit self-inflicted] will be damaging in the future.

The Government has to hope to carry a consensus in the country through a series of years of dramatically falling living standards. Prices are going up much faster than earned incomes or benefits will increase, and individuals' chance of borrowing money to maintain.a high standard of living will diminish for almost everybody. Only public-sector jobs are strongly unionised; and if the civil service and Fire Brigades and Teachers' unions go on strike to preserve their pay, pensions and benefits they will increase the sense of depression and betrayal among the unionionised majority who will suffer from closed schools, unpaid benefits, accident damage - including human body-parts - left at the scene of the incident, and greater risks from fire and terrorism. The majority of the population support the Firefighters, are cynical about the pay of tube drivers, are increasingly open to the view that schools fail because of bad teaching and discipline, and hostile to the idea of petty bureaucrats being compensated to meet inflation that is crushing ordinary folk. As the public mood sours with the ongoing slide in living standards, some mitigation could possibly be achieved by Churchillian or Roosevelt-like leadership: instead there is a clique of career politicians with exiguous experience of 'real life' and who lack any hint of charisma.

This is why Cameron's failure is so serious. The absence of credible alternatives to Cameron and Clegg within the conventional political system is equally alarming. The government's policy will not lead to recovery: at best it seeks to mitigate the downward spiral in living standards by fostering 'growth' largely in 'manufacturing'. They have had eighteen months to implement policies that should be producing evidence of success, at least on a small scale. It is not visible. There is no reason to believe that mass living standards can be protected in the foreseeable future; and that is likely to spawn more profound political radicalism that has been seen in Britain since 1848.

Monday, 24 October 2011

Council and Congress

One of the most important aspects of the present economic crisis, though it has had little media coverage, is that the most-troubled countries are 'parliamentary democracies'. The resolution of the crisis will   be as important in terms of politics as it will be in the economy: and it will be harder to resolve in some countries because the workings of their democracies may generate stalemate that will be extremely difficult to dissolve.

The German Chancellor has become much more constrained by Bundestag reluctance to opening the coffers to the rest of Europe than she would have been in the first half of this year. The obvious fury of many millions of Germans at the mere idea of keeping the Greeks on their fantasy feather-bed will surely be reflected in the voting in the elections early next-year, so deputies seeking re-election have clamped down on the government. German democracy has limited the options for a resolution of the Euro crisis.

In Britain a more complex situation is being illustrated today by a parliamentary vote on the question as to whether or not there should be a Referendum on Britain's future membership of the European Union. The politics of this matter are clear: a Sunday Times opinion poll published on 23 October showed that about two-thirds of the electors in the sample would have favoured the Referendum, which was called for by a Petition of more than 100,000 people. If Britain were a 'real' democracy the way forward would be clear. But Britain is not such a democracy. Britain is governed by the Privy Council, of which most voters have no knowledge at all. After each General Election the Sovereign invites the party leader who is most likely to command a majority of votes in the House of Commons to become Prime Minister: and a member of the Privy Council if he or she is not a member already [which would be most unlikely as it has not happened since the improbable emergence of Labour as the leading party in the Commons in the early 1920s]. The Prime Minister then invites colleagues to become members of his/her Cabinet, which is a Committee of Privy Councillors: so any chosen members who are not sworn of the Council are quickly admitted. Any Cabinet is bound by all the decisions and commitments of its predecessors, however far apart the political stance of successive Cabinets may be.

For reasons that are not disclosed to the electorate at large, the Council is determined to suppress any real debate on Britain's membership of the EU. It may be the consequence of a major pledge to the USA: it is clearly not driven by the Monarch herself, whose preference for Commonwealth links has been unequivocal for the whole of her reign. Whatever the cause of the ban, it is very firm. Privy Councillors Clegg and Milliband {Ed] have joined Councillor Cameron in insisting that their Members of Parliament must ignore the manifest preference of the electorate and vote against the idea of a Referendum. Cameron has even descended to the old rogue's argument of 'unripe time' to escape the fact that he has made his career by indicating a general Euroscepticism. Other conspicuous issues are also placed beyond democratic resolution: 'human rights' legislation, immigration, energy policy and capital punishment are prominent among them. This pattern of suppression has seemed to be the constitutional norm for so long that the dominance of the Privy Council seems unshakable: but an economic collapse could suddenly precipitate the end of the charade. Councillor Cameron could just have allowed a minority of Tory MPs quietly to enjoy their day, with no urgent threat to membership of the EU: foolhardily, he has drawn attention to the sham of democracy.

In the USA, where the Constitution reigns supreme, the division of powers between the Executive, Legislative and Judicial wings of the Federation is seen as essential to the functioning of their democracy. Such a system requires effective articulation between the Congress and the White House, and between the two Houses of the Congress. That is now failing, and may freeze into rigid incompatibility. As unemployment remains stubbornly high, and massive state spending.appears not to be stimulating the economy sufficiently to change the situation, the basic economic policy pursued by the Obama Administration is increasingly incredible. The hugely expensive but functionally questionable Medical Care system that the Democrats have introduced is increasing costs on employers and on taxes. The level of vituperation between increasingly-radical tendencies in both Democrat and Republican parties is reaching historically exceptional levels. The Democrats face a huge dilemma as to whether or not to support Obama for a second term, or look for a candidate who might better achieve a national consensus. The risk of loosing the black vote may well secure Obama's selection: but however much money Obama might raise for his campaign his overall failure to galvanise the country must count against him. The Republicans' problem in finding any satisfactory candidate has been painfully obvious: but that does not affect the fact that around half the electorate is open to persuasion that the Republicans cannot be as disastrous as Obama has proved over the past four years. There is all to play for in the 2012 General Election: in that sense, democracy will triumph. But in the important area of achieving functionality of Government in concert with Congress, there is no clear indication that either of the eventually-selected candidates will be able to succeed sufficiently to create a new economic environment in the USA.

It is too soon to pronounce the end of democracy: but the threat of dissolution is palpable.

Sunday, 23 October 2011

Governments in Terror of the Markets

The media are at one with European Finance Ministers in asserting that 'the markets' threaten mayhem in the world economy unless the eurozone solves the 'Greek crisis' expeditiously. The deadline for a solution that was to be agreed between the German and French governments has slipped from Saturday to Wednesday, raising the sense of urgency.

In the mean time another 800million Euros have been given to the Greek government to meet immediate obligations [largely owing to west European banks and investing institutions], and a further eight billion have been earmarked for the Greek bailout subject to evidence that the blatantly unco-operative Greek population are actually enforcing the necessary austerity and tax-paying measures that are minimally necessary to meet the government's assurances to their partners in the Eurozone. There is no credible evidence that Greece can go far enough to appear plausibly to bring living standards within the earnings of the economy, year on year. If the Greek state and the Greek banks stop paying interest on their debts, and declare themselves unable to pay in full where debts have to be repaid, then it is asserted that 'the markets' will create problems for the banks that are not being paid what they were owed by the Greeks.

Banks in almost every trading country have lent money to Greeks to fund businesses and to grant mortgages  to households. If they are not being repaid in full, holes will appear in the balance sheets of those lenders. It is taken for granted that 'the markets' will instantly start selling shares of those threatened banks, and withdrawing deposits that were placed with them, as soon as there is clear evidence of an impending Greek default. The argument goes that there will then be a risk of a 'run' on the threatened banks: and conventional wisdom has it that the governments of the banks' home countries will have to take whatever measures are necessary to reassure investors and depositors in the banks that their money is safe. President Sarkozi wants to be able to draw on Germany's assets to give French banks the assurance of unconditional support: and within the eurozone what is available to one country must be available to all. So Germany came once more  under pressure to lead the bail-out of anybody else: otherwise it is asserted that 'the markets' will force a domino-effect collapse of one eurozone economy after another.

It would be much easier - and cheaper - to allow Greece to default on its debts and then to ensure the security of the other Eurozone countries: and that will probably be how the whole issue is ultimately resolved, however much bravado is displayed in the mean time about levying the rest of the zone to continue to prop up Greek corruption and indulgence.

In the received wisdom 'the markets' will require a convincing resolution of the eurozone crisis to be concluded, at the latest by the closure of the forthcoming G20 Meeting, if it cannot be sealed-off by the European leaders on Wednesday. And what can the markets do if they do not consider the solution to be workable or sufficient? On investigation, it immediately becomes apparent that the markets as such never 'do' anything. Actions taken by participants in markets can be supportive or disruptive of government and of EU policies: but it is equally apparent that the full-time market players are ultimately and abjectly dependant on governments. No significant bank or investment house in Europe or the United States of America would be in existence now if they had not been supported by their government and Central Bank in 2008-9. How then could the same firms undermine governments and Central Banks in 2011-12? The conventional responding assumption is that the banks would demand repayment of advances that they had made to banks in the supposedly at-risk countries - Portugal, Spain and Italy are the favoured candidates for this role - and they would sell government bonds from the most-threatened country at ever-declining prices; while they would refuse to buy any new issues of bonds by those governments].

Governments need not roll over in shock at such actions by financial institutions. Governments [or Central Banks acting on their behalf] can freeze or  'demonetise' the cash that institutions get by selling 'distressed' government bonds of named states, and the money they collect from recalling deposits made in their banks, so they cannot make any use of the funds, which would remain inaccessible until governments release them in stabilised circumstances. Governments can react to the threat of sovereign credit being downgraded by the rating agencies by banning any publication of ratings in any context within their territories. They  can suspend banks' licences if their actions threaten to be disruptive of state policy. Governments have a massive range of powers - some of them not yet imagined - which they can use to cajole and if necessary compel institutions to conform with urgently-necessary policy requirements. Econmists will screech that such policies would undermine 'the market': so what value do Economists bring to the debate? They have not helped hitherto.

Governments should ignore threats from market operatives, or market forecasters, or market trends, or market analysts. The government can always freeze transactions across a market or in any part of it; or they can freeze any cache of cash or credit within the system.  Markets and their participants are the government's creatures. They just need the guts to act decisively. Of course there will be an aftermath: but that is in the future and sufficient unto the time is the evil thereof.

Saturday, 22 October 2011

Capital, Capitalism and Humanity

No economy can function without capital: buildings, utilities, transport facilities, machinery and the cash float that is necessary for any household or firm to operate. This fact was recognised early in human history, and by 1800 it had become part of a systematic theory of Political Economy as one of the 'Factors of Production': Land, Labour and Capital.

The young Doctor Karl Marx absorbed Political Economy and combined that with a voracious acquisition of facts, and believed that he had found a more profound truth. This was his perception that a class had emerged in the modern economy who were not any part of the ancient classes of people as they had become segregated by economic role and circumstances over the centuries: farmers, handicraft workers, landlords, soldiers, priests and civil servants. This class was the capitalists. Marx reckoned that this group collectively aimed to seize control of capital and use it for their own purposes rather than for the general good of humanity. He assumed that the capitalists would use the capital that they brought under their control to expand industrial production [including ultimately production on factory farms] and that this would be taken to extreme lengths. As industry expanded and machinery improved, output would increase; but then would occur a crisis. The  capitalists would have expanded productive capacity  to a point where there was not enough demand to meet the output. So the capitalists would cut costs and, as their priority was to carry on buying more more-intensive machinery, the obvious economy that they could make would be to reduce the cost of labour. Some workers would be sacked and the others offered lower wages: there would be plenty of unemployed available to take the jobs if the remaining workers would not accept the lowering of wages. Meanwhile the natural increase of population would produce large numbers of relatively healthy young people looking for work on any terms.

Marx presented capitalism as a machine that would inevitably generate excess production, lower living standards and create a growing 'reserve army of the unemployed'. This did not happen.

For a century and a half after Marx's death economic growth produced a diversification of products and a rising general living standard in the relatively free economies of Europe and the Americas.  Owners of businesses accepted being known as capitalists, and there was a consensual acceptance of the term 'capitalism' to mean 'an economic order in which a least a major portion of industry and commerce belongs to companies and to individuals'. Meanwhile the Russian Empire was captured by revolutionaries who claimed to be Marxists [and whose dogmas spread to central Europe and China after the Second World War] and those people made a disastrous mess of managing their economy by authoritarian means that were asserted to be leading towards the blissful condition of 'communism' that Marx had envisaged. Largely because Marxism failed, the people in the [relatively] free countries accepted their environment being described as 'capitalist'. But the term capitalism has no clear meaning, other than the pejorative term that Marx coined .

The fact that the members of a 'capitalist' society have no clear understanding of what they mean by the term has had disastrous consequences. If there had been acceptance of a definition of 'good' capitalism as an economic system that recognises the importance of managing capital investment effectively the present economic crisis could not possibly have arisen. Individuals in their various roles as politicians, business leaders, investors, voters, workers, pensioners and consumers would have seen that the crazy combination of de-industrialisation with untrammelled credit-creation and house-price inflation that built up after 1980 was preventing a rational allocation of capital from taking place. The survivability of the economy was being undermined in an orgy of imported consumption funded by borrowed money. Financial phenomena - mostly invisible in the internet - absolutely dominated the economy: and the creators and managers of those phenomena included many of the brightest graduates in maths, science and engineering who could have used capital to lead into new worlds of physical output, energy generation and medical science.

It is precisely because politics and society allowed the economy not to be capitalist in any rational sense that the crisis now exists. It is not a 'crisis of capitalism': it is the consequence of the economy ceasing to be capitalist.

Capitalism in Crisis?

The waifs, strays, agitators and rent-a-crowd who have settled outside Saint Paul's Cathedral are living under various banners, of which one of the most prominent declares CAPITALISM IN CRISIS.

It appears that the majority of the squatters broadly equate capitalism with 'bankers' who are inferred to be rich, exploitative, dishonest and void of social conscience. It is probable that a great majority of the British population would endorse that view of bankers, or at least of 'City bankers' or 'wholesale bankers' [as distinct from local retail branch bank counter staff]. But is the equation of 'capitalism' with 'banker' in any way valid?

The City of London and New York banking sectors have been hugely successful in the era since the regimes led by Margaret Thatcher and Ronald Reagan fostered liberalisation of the rules, enabling them to develop a completely reckless cats-cradle of interdependent innovations that made increasing use of developing computer software and passed way beyond the ken of inadequate regulators. Few people could explain how this system crashed and what was the nature of the collapse: but everyone has experience of the consequences, and can see the pathetic attempts of political systems to capture some sort of control over phenomena that they do not understand. The Economists do not fully understand them either: some Economists understand some features of the system and of the crisis very well, and have sensible policy suggestions: but nobody can definitively say to what extent this or that 'expert' has the right answer.The debate is close to stalemate; but it is increasingly obvious that the crisis occurred in 'banking' even though it subsequently threatened the existence of the economy as a support mechanism for human beings.

Few people in or out of politics, inside or outside the 'Economics profession', doubt that human survival in all the industrial and 'post-industrial' countries depends on developing the 'real economy'; and specifically on developing what is broadly [and therefore pretty meaninglessly] described as 'manufacturing'. No materially productive plant can be created without capital  in the forms of buildings, services to those buildings, machinery, supplies, ancillary services, trained labour [which is in itself expensive] and a cash float to pay the bills until sales revenue cover costs. Society cannot survive without capital. So what is 'capitalism', and does the addition of the suffix confer a morally or socially negative inferior - or even hostile - aspect to the necessary investment funds? It is highly improbable that any of the 'protesters' could answer that question in a credible manner.

Friday, 21 October 2011

Last Days

Last Day 1: Ghadaffi.
Massive gloating over the death of a dictator is unsurprising; though the squalor of the killing will in future be deplored. One great lesson of the Ghadaffi tyranny should be taken on board by the international community: even though it has little been noted over the forty-two years of capricious oppression.

The normal relationships of states are formally conducted between responsible mutually-recognised Heads of State. Some are hereditary monarchs, most of whom have surrendered absolutism in favour of some form of  consensual democracy; the majority are elected Presidents; a few are unambiguously recognised because they have a clear constitutional role such as the rotating Presidency of the State Council in Switzerland. The whole world made an exception for Ghadaffi: the other Heads of State and the governments that they formally embodied treated him as if he were a Head of State, even though he insistently and constantly maintained that he had no international sovereign status. He persisted in the ludicrous assertion that he was a mere 'advisor' to the sovereign Libyan people: yet the rest of the world received him as a 'regular' sovereign. This constantly reinforced his belief that he was above the law: not just Libyan law [which was made and abandoned at his whim] but international law.

Political and Economic order in the world depend on the mutual recognition of sovereign persons who identify states which follow the principles of international law and which maintain within their territories a system of law and order that recognises and protects human persons. Uniquely, Ghadaffi was allowed to behave outside that context for forty-two years, during which Libya was catastrophically oppressed. All the states that allowed him to get away with it were co-conspirators in his tyranny. It is probably a forlorn hope that the lesson will in future be applied by all Heads of State if a similar maverick regime emerges.

Last Day 2: Europe
Surprise, surprise! Germany has not ceded its assets to a French plan for the refinancing of the Euro Rescue Fund. So this weekend's European Summit will no longer be asked to endorse a Franco-German agreement. Before the Ministers gather in Brussels they have been told that there was to be no definitive discussion of the major issues: and this appears supinely to be accepted. Some Heads of Government are more equal than the others. The minor actors must wait until next Wednesday when a Franco-German deal is promised: they need not hold their breath.

Thursday, 20 October 2011

One Day to Go

President Sarkozy missed the birth of his daughter yesterday in order to try again to persuade Chancellor Merkel to release German wealth to support something close to the present situation in the eurozone. All the signs are that he has failed: though Mrs Merkel again said that they would reach an agreement by Friday evening; which is likely to mean that the French will have to accept something close to the German position.

Meanwhile the streets of Greek cities have been defaced by increasingly violent protests against the relatively low-key measures that the Greek government has so far announced to meet some of the demands that have been made by their partners as the price of subsidising them. Many Greeks have already experienced real hardship, and the idea that the worst they have experienced is just a first tranche of the misery to come is infuriating.

Germans who read about it in the papers or watch the television pictures of the Greek riots could well feel that the Greek situation is irresolvable on the terms that have been offered by the eurozone countries, and that a more draconian solution - Greek default on their debts, probably accompanied by their withdrawal from the euro - is the only available resort.So the Germans' position could well harden against any thought of compromise.

The French and the Germans have promised to bring proposals for consideration by the other EU Finance Ministers [not just the eurozone seventeen] this weekend. The portents as to what they will agree upon are doom-laden; which scares the US Administration and has caused the Chinese to make it clear that they would be unwilling to contribute to any bail-out in Europe in the absence of some credible comprehensive provision [with the implication that China's Sovereign Wealth Fund would buy EU bonds if the context had been stabilised]. The overwhelming probability is that there will be a blatant fudge, followed by panic-as-usual. The medium-term outlook is stormy.

In the distant background to the Grand Continental Eurodrama is a delightful vignette of the fundamental rottenness of British politics. The 2010 intake of Conservative MPs are predominantly 'Eurosceptic' to various degrees, meaning that a majority of the Parliamentary Conservative Party is now of that mindset. They have used some of the Commons timetable that is allocated for Members' own motions [as distinct from Government time and time granted for formal Opposition motions] to propose that there should be a Referendum in the UK offering people various options. First, do they want Britain to stay in the EU, or to leave it? Second, should there not be a total breach with the EU, would they want Britain to be able to re-negotiate its relationship with the EU, including the repatriation of significant powers that have been ceded to
or arrogated by EU institutions? Both the Prime Minister and the Foreign Secretary have in the past indicated that they favour renegotiation; but in the Coalition agreement the Tories were committed to keep the issue off the agenda because their Lib-Dem partners are abjectly pro-EU. The vote has been brought forward to Monday so that the Prime Minister can quell the 'revolt' himself before he flies off to Perth [Western Australia] for the Commonwealth Summit Meeting. If he succeeds in whipping the great majority of the Tories into betrayal of a strong and often fervently-held position the shredded credibility of the political class will be further damaged; and Cameron's chances of winning a majority of seats in the next General Election will recede even further.

The Lib-Dems' treachery on student fees, and the Tories' betrayal of their Eurosceptic rhetoric will not be forgotten: and so the puerile Labour Party could form a government by default, in or before 2015. So much for integrity. 'Democracy' entails no integrity. Millions will see their options as lying between support for minority parties or abstention - staying away from the poll.

The next election will, however, be the occasion when millions of voters  could bestir themselves to go to their Polling Stations, get their ballot forms and mark them with bold writing 'NONE OF THESE'. If the 'spoilt' forms represent an overall majority of all the votes cast, the knell of the stinking corpse will at last be sounded.

Wednesday, 19 October 2011

Three Days To Go

On Sunday last the US Treasury Secretary said that the leaders of the Eurozone - France and Germany - had 'six days to save the world'. That leaves today, Thursday and Friday before the European Summit meeting convenes.

Chancellor Merkel has said that they are approaching a solution 'millimetre by millimetre' with no hurry to move towards the reputed French ambition to draw upon Germany's assets and strong reputation in an effectively unlimited bail-out fund for the whole of the Eurozone, including Greece. Mrs Merkel knows that her electorate are furious at the extent to which their assets have already been committed for the resuscitation of the common currency; and the significant Turkish minority are not reluctant to stress the idle and exploitative reputation of the Greeks. Merkel's government would face an electoral massacre next year if she risks ruining all that has been achieved since the foundation of the Federal Republic in order to rescue olive farmers who have been subsidised by the Common Agricultural Policy for implausibly-large numbers of trees whose 'existence' the overpaid bureaucrats vouched-for during their ten-hours of weekly attendance in the office between coffee time and lunch. It does not matter how far this is an unfair caricature of Greece: it is the embedded image that rests in sufficient truth to be sustainable.

Nobody can tell whether or not a domino effect would happen if Greece was simply shoved out of the Eurozone and given modest assistance from the IMF and the EU to soften the landing that would nevertheless be very hard indeed. With Greece out, would global speculators put so much 'pressure' on Portugese, Spanish or Italian state finances that they might also be pushed out, one by one? The apprehension that this could be so is a major factor in the consideration of options that have to be made by the European  leaders this weekend: the negative prospect of a serial unravelling of the Eurozone, the European Union and the 'European Dream' is strongly canvassed.

But there is an alternative vision that should quickly get more exposure. This begins with the fact that the Greeks have been vastly more untruthful and self-indulgent than Italians, Portuguese or Spaniards. Those three far-from-spotless countries have adopted stringency programmes that must be pursued rigorously, and possibly extended as the rest of Europe's governments also cut their 'systemic' public indebtedness while they all take specific short-term measures to stimulate sufficient economic impetus to break the depressive trend that at present is threatening to descend into another Great Depression. Dumping Greece would give the three most exposed countries the necessary shock to ensure that they really implement the undertakings that they have given. The more hardship the Greeks experience outside the eurozone, the more evidence there would be to encourage their Mediterranean neighbours to stick with the discipline that will be necessary to consolidate the bodged and ill-founded common currency into a valid international medium of exchange. The expulsion of Greece can mark the rebirth of the Euro. That is a desirable objective: a thoroughly good thing.

But if Greece is 'rescued' and fails to meet the almost-certainly unattainable targets that will be necessary to remain in the eurozone, there will be a huge temptation in Italy and Spain to soft-pedal on their austerity programmes: then the dominoes will begin to fall and the Euro will either collapse altogether or become the local currency for a hard core of Germany, Austria and the 'northern' Eurozone states whom the Germans trust.

In summary, if the Greeks are evicted, the Euro can have a future. If Greece is 'rescued', the chances of its survival are massively reduced.

Tuesday, 18 October 2011

Price Inflation: the Peak?

Today sees the publication of a figure reporting the increase in prices between September 2010 and September 2011. Even on the scaled-down index that government now prefers shows this to be in excess of 5%.

The only significant segment of the population whose incomes will at least have increased to match price increases are the elite at the top of organisations who are able to negotiate bumper increases: senior executives in companies and the owners of successful businesses. It is notorious that their incomes have increased by more than inflation [on average] usually as a 'package' of a generous salary combined with a bonus linked to an easily-changed performance target, generous expenses and large contributions to the 'top hat' personal pension fund. Despite the envy and anger that many people express about this disparity, it is notable that many jobs exist in luxury shops, restaurants and other services that supply the rich: the British super-salariat and the many rich foreigners who resort to London as a place to spend parts of the year. If that trade was reduced dramatically unemployment would rise as activity declined in London and around the major racecourses and golf clubs, and in the many firms and farms that supply the luxury trades. The great majority of employees have accepted static wages, or just slight increases, rather than try to force their employers to pay them more that might lead to a reduction in the number of people employed. Even so, there is a growing apprehension that in the absence of rising demand firms will begin to shed labour that they have 'hoarded' over the past couple of years in order to keep their skills base intact.

Economic growth is negligible, consumer demand is declining for many everyday products, and there is no sign that this pattern will change. Just now, the Bank of England has begun to extend the pattern of quantitative easing by which the money supply is expanded. While there is a vigorous debate on how far this activity will assist growth in the 'real economy' there is very little doubt that it will cause devaluation - a further drop in the value of the pound against other currencies - so imports to Britain will become more expensive and that will add more to the pattern of price rises in this import-dependent country. There is no sign of an end to the grim round: and the government has no plan to change policy.

Monday, 17 October 2011

Six Days To go

After a nugatory meeting of the G20 Finance Ministers over the last weekend, the world economic community is still waiting for France and Germany to overcome their significant differences about how the Greek crisis can be solved in a way that will assure the future of the euro. European Ministers are to have a 'summit meeting' over the next weekend: meanwhile, as the US Treasury Secretary put it, France and Germany "have six days to save the world". That is no less than the truth, about 'the world as we know it' . It will be important to follow that key story as the days go by; but it is even more important to understand what other realities the world community should be facing up to, regardless of whether or not the euro can be nursed into some sort of health.

I have just spent a couple of days in the Derbyshire Peak District, and on my return to London I noticed a phenomenon that I have not seen before: the leaves in the south are going brown before those in the north: normally spring comes earlier in the south, and the leaves remain on the trees longer in the south than in the north. I assume that this year's deviation is a consequence of the unusually dry weather in the south and east of the country, which has left the trees exhausted and deprived of nutriments. Parts of Derbyshire have also been drier than usual in the past year, but not sufficiently to have a comparable effect on the trees. Crop yields in the south and east - Britain's heaviest agrarian regions - are down this year. As the global population trend is raising more awareness that countries [and economic communities, if they can survive] must become more nearly self-sufficient, given that that they must export surpluses of what they produce if they want to continue to be able to buy crops that their climate will not sustain. Meanwhile, if it is implemented, EU environmental legislation will massively reduce the rights of farmers to access rivers and ground water when rainfall is insufficient to support the growth of the crops, and will increase the charges that the government makes for the permitted abstractions: so food is likely to become both more scarce and more expensive.

Another key sign is exemplified today by the Prime Minister meeting the main gas and electricity suppliers to ask them to lower their charges, at least to 'vulnerable' customers: and this at a time when the government is pursuing environmental targets that will require the companies to invest massively in 'green' energy supplies. The cost of that capital spending can only be repaid from charges to customers in the future. So it is becoming dearer to heat as well as to eat, in response to deliberate government policy: and that is happening in more and more households across Britain this year, as real incomes fall.

It remains fashionable, almost compulsory, in journalistic circles and in academia to scoff at the few commentators who advance a worst-case Malthusian proposition that the world is close to the point where it cannot feed the population that will be born in the next few years. And even when the possibility of a crisis of overpopulation in some faraway countries is allowed, it is assumed that this will not affect the old advanced economies. Yet it is now speculated by demographers that the ageing of the indigenous European population will lead to massively increased immigration of culturally alien Africans and Asians. Japan has absolutely refused to allow immigration to dilute the racial structure; and Europeans are becoming increasingly resentful of immigrants who draw on the benefits system while they 'outbreed' the indigenous population. Opposition to immigration has usually been based on racial and/or religious grounds: which means that people have muted their expressions of concern because of the existence of laws against 'racial hatred' . Ambitious politicians will soon recognise that dependent immigrants will cost so much in benefits that the rate of benefit for all claimants - indigenous and immigrant - will be reduced [at least in real terms] and large immigrant families will be seen relatively to benefit. Then opposition to immigration will become 'economic' rather than 'racist', which will make it respectable.

As the economic squeeze intensifies, the date at which this grim forecast for socio-political consequences will be applicable comes closer. That gives increased importance to the downward revision of unprejudiced forecasts for the British economy: the announcement by the Item Club today is consistent with the worsening prospect.

Saturday, 15 October 2011

Democracy, Debt and Doubt

As the G20 Finance Ministers and Central Bank Governors meet in an autumnal Paris they are all acutely aware of the historical context of the meeting. They have all been briefed on what happened to the global economy in the years from 1929 to 1936, and what were the particular effects of the Great Depression on their own countries.

 The Chinese have studied how the impact of the depression on a country that had notionally been through a democratic revolution, but which had seen only minimal structural change in the economy, was rendered even weaker than before and more susceptible to the imperialist ambitions of Japan. Those ambitions led to one of the most brutal colonialist wars in modern history, and left the unoccupied areas of the vast country prey to warlords. The Japanese withdrawal was followed by a partial Soviet occupation [of Manchuria] and a no-holds-barred civil war in whose aftermath the communists inherited a prostrate economy and a disintegrating civil society; which the new regime began to restructure on doctrinaire lines that represented a 'historial discontinuity'.

Japanese and Russian representatives in Paris knew that the debilitating effect of the depression on the the old industrial countries had left those former 'international policemen' unable to intervene in faraway countries, which were left to pursue whatever policies were selected by their non-representative regimes: Japan decided upon reckless imperial expansion and intensified political oppression at home; while the then-Soviet Union stepped up the incompetent processes of collectivisation of agriculture and overambitious industrial expansion combined with oppression on a gargantuan scale.which left the country in an advanced state of debilitation ahead of the German invasion of 1941.

Germany, France and Italy recall all too clearly that the depression was seen as the context for the consolidation of Mussolini's power in Italy and Hitler's rise to power in Germany. The restoration of national morale in Italy and Germany under the Fascists fostered the hubris that led them into aggressive war; while the absence of such a fillip to French society and the French economy helped to ensure the collapse of France in 1940 and the willing acceptance of their occupiers and of their puppet government by most of the French.

The English-speaking countries all recognise the Great Depression as perhaps the most decisive step in the shift of global economic  pre-eminence from Britain to the USA, which both suffered serious social problems as their economies plunged into the depression. Canada, Australia and New Zealand were forced to increase their autonomy from the 'mother country' during the 'thirties, in the worst of economic circumstances: only to find themselves in 1939 responding to the call to support the British war effort - which they did unstintingly, though  their role in the Second World War proved to be a major step in their maturation as sovereign states. The depression also signalled the coming of the end of the British Raj in India: although the imperial power was able to mobilise the sub-continent for the war, despite the fact that the unsustainability of the regime in the postwar world was evident.

Every other participant in the present Group of 20 'leading nations' has memories of the trauma that affected them in direct consequence of the Great Depression: so they all share a determination to take any sensible steps to prevent any re-run of that cataclysm. But they lack a clear and radical economic perspective from which they could possibly devise any 'magic bullet' solution. The nature of the economic crisis is becoming clearer: its potential political fallout is recognised. But the search for a solution lies in economic policy, and the men and women who have this formidable responsibility are looking for guidance into a soup of discredited economic theory, imperfect statistics and glib back-of-a-fag-packet propositions. They will not find any answer to their dilemma in the resources that are currently available to them..

Friday, 14 October 2011

The Trivialisation of Politics

As the British economy continues its freefall and social relationships become more exploitative and less humane, the political class is fiddling with Twitter and the press constantly finds trivia on which the focus.
Yesterday the House of Commons voted overwhelmingly to allow themselves to use electronic devices for text-type messaging while attending debates and queuing for the division lobbies. Anyone who has seen proceedings on TV will know that for the overwhelming majority of the time the mass of MPs are not present in the chamber: that they cannot be telephonically continent for a few minutes a couple of times a week shows a pathetic contempt for their core role to give attendance and attention to representing their constituents.
Meanwhile the sad story of concealment by the Defence Secretary gives the press plenty to 'investigate', and to fill pages with speculation. And now we hear that the cabinet 'enforcer', Oliver Letwin, behaves like a nutty vagrant in Saint James's Park, distributing official but non-sensitive papers round the public waste bins. We must assume that the Cabinet Office has both an adequate system for emptying waste paper bins and for the proper disposal of confidential waste: Letwin is presumed to be using the latter so why is he not using the former in the usual way? The answer is more likely to be found in deep psychology than in conscious rationality: but it is symptomatic of a malaise among those who hold the primary responsibility for the fate of the  nation and may not be coping terribly well with the strain.
The political class as a whole is 'on probation' and patience is nearing exhaustion even in this most tolerant of nations. Can the penny drop before the situation becomes irretrievable? Or are they too intractably obtuse and thick-skinned to  get it, ever?

Thursday, 13 October 2011

What a Mess!

Today the British news media carry another plethora of items that contribute to a general feeling of gloom  at the apparently-universal collapse of social norms across the economically distressed country.
Most shocking is a report of spot checks on geriatric wards in 100 hospitals, that shows half the hospitals provided inadequate care: and one in five were so neglectful that they did not meet basic standards - they were breaking the law.
Almost a million young people are not in employment or education; and women's unemployment is headed for a new all-time record.
House and flat rents in almost half of the urban areas surveyed by Shelter were 'unaffordable' to the people with the lowest incomes.
The government insists that there is no alternative to their policy of reduced expenditure: thence the lack of funding from central government is the excuse of local authorities and health trusts for their inability to provide new homes, clean hospital wards, caring nurses or edible food..
These phenomena are not the direct product of George Osborne's cuts: they are the result of cumulative policy failures over two whole generations. The Care Quality Commission [which issued the data about bad hospitals] is emphatic that the core of the problem is NOT a lack of funding: they ascribe the failings to hospital managers and nurses, especially supervising nurses, who simply fail to show care, concern or commitment to their patients. Arrogant management placed mechanistic targeting, box ticking and bean-counting at the centre of their concerns. An absurd theoretical picture of nursing has 'elevated' it to a 'graduate profession' that has completely lost the patient-centred concentration in which the matron and the ward sister inducted trainees in the 'bad old days'.
Never before was so much money spent on housing as in the years between 1980 and 2005: but the overwhelming majority of that money was churned through the system known as banking into a constant increase in the prices of used houses. Most new homes that were built in those years were in the private sector, and as soon as they were occupied they were viewed by their owners as assets whose rising 'value' provided security for borrowing that enabled them to enjoy a lifestyle that exceeded the purchasing-power of their wages. Private sector housing that has been bought by landlords for letting only pays for itself if rents cover the landlord's costs, including the costs of borrowing the high prices of the properties. Meanwhile, the supply of 'affordable' homes has fallen far below the demand of low-income families and the growing number of single-household people who cannot afford private rents.
These problems, with their long gestation periods, are intractable in the economic conditions that exist, given the coalition government's budgetary policy. Even if the government reversed its policy and decided to fund the building of millions of modest homes for rent they would run up against planning restrictions and capacity constraints in the building trades.
Only a few tens of thousands of the unemployed have building skills, so more tens of thousands would need to be trained: and the facilities for that training would require massive expansion. Then there would be a huge problem in trying to recruit trainees. It would be cheaper and less divisive socially in the short term to recruit builders from the eastern states of the European Union.
No quick fix can meet Britain's need in housing, healthcare, unemployment or any of the other major problems   that are all-too-well known. Simply to reverse the 'cuts' policy will not deal with any of the great issues. The overriding need is for a fundamental change in the national political economy, based on the construction of a new picture of the practical possibilities that are open to the nation. A political consensus must adopt the most rational alternatives, without the tedium of party-political banter associated with the idiocy of always having some of the most able parliamentarians in opposition.
But the House of Commons proved only yesterday that such a vision is pie-in-the-sky. Things will have to get very much worse yet before the blinkered ego-trippers begin to see sense.

Wednesday, 12 October 2011

Hold on, Slovakia

The Slovak parliament yesterday declined to be bullied by the Brussels eurorats into committing a sum equal to a whole year's budget to the initial rescue fund for Greece. There will now be immense bribery, bullying and propaganda to force a reversal of that decision: thus reaffirming the profound hatred of the rats for democracy and national sovereignty.

Every politically-aware European knows that the initial fund [if it is approved] is already insufficient, and much larger contributions are already being computed. It is also recognised that such a fund could only be managed by a eurozone Treasury: removing financial sovereignty from the member states. The Slovaks have only had their own state since 1993, and [despite many frictions] their economic progress has been spectacular. They have every reason to be proud of their economy, yet their standard of living is still far below that of the Greeks: they have every right to decline to be milked to subsidise wastrels and liars.

Eurorats and most members of the European Parliament [who 'go native' very quickly] will deplore the 'inflamatory' language in this blog, if it comes to their attention. But it is important that the strength of feeling is understood: merely trying to suppress it and to deny it exposure in the media will briefly drive it underground - only to emerge in ugly rightist movements.

Tuesday, 11 October 2011

Poverty: What Poverty?

The IFS [a highly respected think-tank] has guesstimated that the standard of living of a significant proportion of the UK population will decline in real terms [in purchasing power] by around 7% by the end of 2013. Price increases have been accelerating as the Bank of England has pumped more money into the stagnating economy, as key commodity prices have risen globally: while incomes have not compensated for the those price increases. This is compounded by a steady decline in the value of the pound against other currencies.

It all makes nonsense of past and present governments' declarations that they plan to 'eliminate child poverty', because low-income households with children will figure prominently in the data on declining real incomes.
There is no precise definition of 'poverty': the basic assumption is that a household that is not receiving  60% of the median income is 'poor'. This formula causes the number of impoverished people to rise quickly when salaries are increasing rapidly, because increases in benefits lag behind salaries even if they are indexed to inflation. This is really just a statistical device.

Few children arrive in school these days without shoes, hungry and suffering from hypothermia; as many did in the early day of compulsory attendance in the nineteenth century. But there are many indicators of profound and serious  relative deprivation: and these are becoming more common. Parents are increasingly depriving themselves of everyday products and experiences to ensure that their children are adequately maintained; but in a society where standard of living expectations are driven by social media and advertorial promotions many children complain bitterly about not being able enjoy the lifestyle that seems to them to be a norm. Thus the pressure on parents and the tension within families increases, and this is predicted to affect millions more parents and children within the present decade.

Behind the statistics lies an intensification of pressure points within households that cannot be fixed by any of the measures that have failed over recent decades or by Ian Duncan Smith's proposals. The process of impoverishment will inexorably increase domestic friction and the incidence of depression  among increasing swathes of the population who will be powerless to change their situation. Physical manifestations such as chillblains and boils will serve as omens for more alarming evidence of undernourishment and sleep deprivation through coldness. Simple statistics may serve as the mileposts on the route; but social outcomes - leading to medical situations - will be the more potent proof that the apparently inexorable increase of poverty is advancing.

Sunday, 9 October 2011

Now the Hard Slog

Winter is coming, and after two severe early winters the government has built up impressive stocks of salt and grit, fleets of equipment for road and runway clearance, the heating of railway points and other precautions: so Sod's Law indicates that there is to be a mild end to 2011 - climatically.

Economically the portents are negative.

The weekend newspapers have dissected and digested the statement by the Governor of the Bank of England that the economic situation of the United Kingdom is potentially worse than that which the country faced in the nineteen thirties, and probably the worst ever. The few commentators who have a partial understanding of the broad sweep of Economic History had already referred to the 'Great Depression' that began around 1873 in earlier articles; but some have decided that those references deserve another airing because that depression led to a more fundamental climacteric for the economic system than was visible in the restructuring that occurred after the middle of the nineteen-thirties.

An even broader perspective compares the present situation unfavourably with some selection from the alarming situations that the economy faced in the readjustment that was necessary after after the Napoleonic Wars, the Civil War, the Black Death, the depredations of William the Conqueror, the Viking incursions or the collapse of the Roman occupation. The important thing to note is that no such speculation is hyperbolic: the country is indeed standing now, as it did then, in a position that has been described infelicitously as an 'historial discontinuity'. I hope in coming weeks to see to what extent these decisive economic [and political] eventualities might offer some guidance for current policy makers in business and in government.

Saturday, 8 October 2011

The Pensions Disaster Intensifies

Newspapers have today emphasised the disastrous impact of the economic situation - and of 'quantitative easing' -on people who are close to retirement and who are in funded pension schemes [both the few remaining 'final salary' schemes and the now-predominant 'money purchase' schemes]. The headline figure is that the funds that retirees in the next few months will receive at least 30% income less, as compared to to someone who retired with the same amount of credit in their pension 'pot' just three years ago, in 2008 when the credit crunch became clearly discernible.
This alarming fact follows on from a decade during which the incomes receivable by retiring pensioners declined steeply. In 1997 the income receivable in a typical annuity for each £1,000 of assets held in the fund was £77.41.
After Gordon Brown's notorious 'raid' on pension funds, by which the tax advantages given to people who were providing for their old age [and to the payments-in made by employers who helped them to save by contributing to each individual's pension] were removed, the rate at which funds were added to each fund-member's 'pot' declined dramatically: so by 2000 it was very much harder to save each £1,000 - which only yielded £58.00 in pension. The decline in the yield per £1,000 was largely due to the fact that pension funds had been 'advised' to shift their assets from equities [shares in real-world companies] to bonds, especially including government bonds, which over subsequent years have produced much lower income yields than did equities.
The effect of 'quantitative easing' has been to reduce still further the income that is paid out per £1,000 on bonds. So pension funds can pay only reduced cash sums on retirement: after which the providers of annuities can only produce lower pensions than they previously did for each £1,000 that is used to purchase the annuity. There is no basis on which one can expect the situation to improve: so each pensionable person who comes to retirement will feel more comprehensively 'cheated' by the system. Saving will be seen to be decreasingly beneficial: and the children and grandchildren of the embittered pensioners will have a lifelong memory of this disaster.
Hence when politicians to urge people to be prudent and to save - and invest - this will seem hypocritical and hollow. The psychological impact of such aspects of the 'financial crisis' will be profound but unfathomable.

Friday, 7 October 2011

Quantitative Easing into Credit Easing

The Governor of the Bank of England was yesterday apocalyptic in his description of the present risk of a massive world financial crisis, when he announced another wave of money-creation that is euphemistically called Quantitative Easing
If this money simply goes to bolster wholesale banks' balance sheets - as the previous tranches did - this will do nothing for the 'real economy'. Only if the money is handed out as extended and increased funding of 'real' businesses can it help to stimulate demand and supply in the economic system that living people inhabit.

But there is a real problem here. Even if the Bank and the Treasury demand that some of the money is made available to businesses, they will hand it for allocation to the old lags in the retail banks who have been so cautious and cynical in lending to businesses in recent years. It is commonplace to hear from businesspeople that the only firms that can get money are those who don't need it. Business owners who want funding for small, often start-up businesses, have to offer their own homes as security, making the funding effectively a personal loan. In really hard times [such as the Governor expects to get worse] the risk for an entrepreneur of placing their house as well as their income into dependency on their business seems too great for many people to take. It is precisely these people and their ideas that should be funded: they are a large portion of the potential that exists as latent force in the economy that needs to be exploited.

Whoever hands out new money to businesses should be prepared to risk funding failures to an extent that bankers cannot comprehend. The greatest need is for an increase in activity and spending - and of productive potential - as soon as possible. Most businesses grow slowly; but they can be empowered to start spending quickly. There is no sure way of picking medium-term winners. The Bank and the government must accept that a significant proportion of properly-allocated easier credit will never be repaid. New methods are needed for getting it into the right hands. The Open Risk Exchange is one such concept: there should be many others: so where are they?

While I wrote this I paused to listen to an interview on the TODAY programme of the Chancellor. He spoke in obvious oblivion to the real current situation. He still argues that the multiply failed banks are the only agencies that could extend additional credit: oh dear!

Thursday, 6 October 2011

Party Conferences: Wasted Time and Money

The major political parties - and most of the minor ones - have now held their annual conferences. They were all covered intensively by the media, yet even within the week of the Conservative Conference apolitical televiewers have forgotten all that was said in them. The party faithful have gone home, with mild sensations of satisfaction at having rubbed shoulders with the second-tier professionals, has-beens and never-quite-made-its; and seen themselves on TV monitors and in newspaper photographs. Any feel-good sensations derived from being inside the tent cannot be supported by new policies or by any scintilla of hope for a relaxation of the depressing economic trend. David Cameron's status has been increased, largely because no other politician has enhanced his or her stature: hence the incumbent looms larger, and his responsibility  for the ultimate failure of his government becomes more conspicuous.
The great majority of delegates [and Tory representatives] are people of modest means who will feel the cost of staying in budget accommodation for a few nights over the next couple of months as they are forced to manage their spending that bit more tightly.
Standing outside any party one cannot see any value in the whole ritual; but the negative evidence of the potential bankruptcy of the British model of democracy becomes more compelling. The unfolding experience of economic failure combines with the democratic deficit to lead  towards disillusion with all the underlying assumptions that have allowed Britain to be a successful democracy for over a century. There is no sign of what will follow the final collapse.

Wednesday, 5 October 2011

Silly Speaking

So: David Cameron made a last-minute deletion from his Great Speech, toning down his pre-announced  admonition to the British people to pay off their debts. What a cock-up!
Tens of millions of those people are net debtors: their mortgages plus unsecured debts greatly exceed their assets. Many people do not even have one month's income in reserve. Meanwhile the overwhelming majority of the population have declining real incomes;  their wage or benefit increases - if they have any - do not meet the rise in prices and taxes that they must pay. If they are able to pay anything off their debts [and some people are being required to do so] this is a small sum each week, and it causes them to reduce their standard of living commensurately
Until today The Prime Minister's silliest utterance was his repetition of the meaningless 'Big Society' tag, which has never had any meaning for either the media or the public.
Now he has just avoided plunging headlong into a display of profound incomprehension and insensitivity. He and his team clearly have no understanding of everyday life under his own regime. Unlike the greatest Tory Prime Minster, the Marquis of Salisbury, David Cameron does not have daily conversations with the grooms, keepers and tenants whose lives were entwined within the routine of a great estate and who were used to speaking with complete frankness to the great man. Unlike Disraeli, Cameron clearly does not have the common sense that enabled the founder of modern Conservatism to say - and to mean - 'Trust the people'. Harold Macmillan was much criticised in the establishment for the 'vulgarity' of his adopting the phrase 'You've never had it so good': but it resonated with the mass of the population and ensured an election victory. Stanley Baldwin had managed a steelworks before he went into politics and he kept the lessons in mind. Winston Churchill was brutally blunt with aides whose recommendations showed an absence of common sense or a failure to appreciate the public mood.
David Cameron's intended admonition to people who simply can't do it to 'pay off their debts' shows a profundity of ignorance that is comparable with Marie Antoinette's 'Let them eat cake'. It is comprehensible [though it proved to be inexcusable] for an eighteenth-century Habsburg to have lived in ignorance of the condition of the people.  It is inexcusable in a twenty-first century Prime Minister to allow a similarly silly assertion to get into the text of a major speech. It may be comprehensible, given Cameron's origins and the fact that he has spent almost all his adult life in the political bubble; but it will not be forgotten as he and his chosen Chancellor stick to their increasingly isolated programme.

Tuesday, 4 October 2011

NHS Insiders Defend their Patch

Who could be surprised that hundreds of insiders to the NHS, all on comfortable incomes, should challenge the government's proposed changes in the organisation of the Service? The mass letter to the House of Lords, publicised today [when the government proposals go to the Lords], brings together the scare stories that have been coming out over recent months.
It is a pity that this looks such a self-interested move: because I am one of the many whose reservations about Andrew Lansley's proposals increase the more we know about them.
The NHS is notoriously inefficient, and the triumph of managerialism has been deeply regressive - as well as expensive - in terms of patient care. But I would much prefer to see 'competition' in the removal of tiers of management, with massively more authority passed to clinicians, than 'competition' in the form of bureaucratic empires within the NHS pitted against foreign for-profit companies running the hospitals.
The risk of creating huge gaps in universal provision by the NHS is clearly not properly comprehended by the Secretary of State, despite the many years he has supposedly been grappling with these issues.

Monday, 3 October 2011

Cameron's constitutionality

In quashing the members of his Party Conference who want to challenge Britain's status in the European Union David Cameron is bang in line with his predecessors.

Prime Minsters and their Cabinets have their massive power because they are the active members of Her Majesty's Privy Council. After each election the Queen is advised whom to ask to be Prime Minister: that Privy Councillor then invites members and candidate members of the Council to come to Cabinet meetings, and all the other Councillors stand aside. Some Councillors in 'loyal opposition' parties speak against individual proposals to change, or even to keep, policies that they enacted when in government; but the underlying reality is the commitment of all Privy Councillors to the continuity of Her Majesty's Government.

Cameron is resisting a challenge to that continuity.

This position is reinforced by the fact that the United Kingdom's immersion is Europe has been made by a succession of Conservative Prime Ministers:
Treaty of Rome - Heath;
change from Economic Community to European Union - Thatcher;
 Maastricht - Major.

No Labour Prime Minister has such explicit responsibility [or culpability]. The EU is essentially a Tory gift to the British people, and to turn away from it would be a denial of the past that it would be extremely hard for any Conservative Leader to risk.

As to the democratic wish of the people: when has that really mattered?