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Monday, 31 July 2017

Odd Ministers at Odds

Dr Liam Fox is a non-practicing physician, which means that he might have some advantage over a person with a doctorate in Economics when it comes to diagnosing the mind of the British population. But for him to suggest that it would be some sort of breach of faith for the government to seek a 'soft Brexit', or a period of transition from membership of the common market to some other status, because a small majority of the voters in the 2006 Referendum voted to "leave the European Union", would be too far to stretch credibility.

I voted to leave, partly because I thought that we 'leavers' would loose but that a strong marker could be put down against the continentals' nonsense of developing an "ever closer union" with its own military capability. When my side won, I hailed the narrow victory as a licence to negotiate a rational settlement with the remaining states of the European Union that would get the United Kingdom out of the morass of the Brussels and Strasbourg institutions but keep this country in the close European free-trade pact that pre-existed the Union. That Dr Fox is now putting up his version of what the vote means is in some ways helpful; because it shows that the Tory 'hard Brexiteers' are truly dangerous for this country.

The rhetoric around the time of the last general election, that both Labour and Conservative parties accepted the majority decision in favour of [undefined] Brexit, masked the underlying fact that most Members of Parliament from both parties who were to be returned in the election had voted to remain in whole shebang of the Union in the referendum. It would now appear that most Members of the Commons do not know how to interpret the referendum result, while an overwhelming majority of the Lords are opposed to the whole concept of Brexit but recognise that they cannot blatantly overturn the decision of the electorate.

The present constitutional position appears to be that referendum result stands as an historic fact, but the sovereignty of parliament was not abandoned by that result. Thus any resultant agreement with the European Union - as with the USA, or Australia, of Belarus - will be made with the assent of the Queen, the Lords and the Commons.

The present political fact appears to be that a small group of headbanging Brexiteers have been given licence by Mrs May to discuss half-baked promises of potential free-trade agreements with various governments that all have the common purpose of clinging on to power by not upsetting too large a proportion of their electorate. These tentative discussions about trade treaties appear to be understood to mean that the hardliners can simply effect a British exit from the European Union with no comprehensive draft treaty with the EU in place. This is infantile absurdity. If such a cliff-edge Brexit were to be undertaken, in a world characterised by point protectionism [as defined in this blog: do a word-check], it would be a recipe for economic devastation in this country.

Mrs May seems to have been flattened by references to her past 'failure', as Home Secretary, to reduce net immigration to a few tens of thousands of people annually. She seems to be caught in the headlights of a juggernaut that is bearing down on her, terrified lest she would be seen to oppose those few party colleagues who assure the electorate that they can keep out mass migration without detriment to the health service or the wider economy. The spectacularly dull Chancellor of the Exchequer is bringing some sense to the discussion, and thus earning the odium of those parts of the press that enjoy the power to press for reckless policies simply because they cannot be held responsible for any outcome. Those same media constantly carry stories to the effect that before the election Mrs May wanted to get rid of Mr Hammond, and can not now do it because of the precariousness of her own position. If the sort of sense that Hammond is promoting is swept aside by the 'hard Brexiteers' the country will be brought to a point of crisis which Mrs May shows no sign of  a capability to control.

 What Liam Fox was reported to have said over the weekend is gravely alarming: so the sooner the Democratic Unionists abandon their contract with Mrs May to sell her their votes, the better. The collapse of the government into backbiting is the harbinger of collapse; so let it all happen soon.

Sunday, 30 July 2017

The Very Basics

It is some time since I simply stated the basic assumption on which this blog is based. Although it was one of the earliest principles of Political Economy to be established, I have repeatedly cited Millicent Fawcett's introduction to the topic in her Political Economy for Beginners, which was published for use in the elementary schools which all children were legally enabled to attend under the Education Act of 1870. The book can be accessed on line via the Library of the University of California. I recently commented that it is highly appropriate that Mrs Fawcett is to become the first woman honoured with a statue in Parliament Square, Westminster.

It is a truism today that when the British economy comes under examination, there is a focus on the deplorably low productivity of employment in this country. Just scratch the surface of any such discussion, and the shocking fact emerges that productivity has scarcely improved [and in some sectors of the economy it has declined] since the financial crisis took hold in 2007.

When she mentioned productivity, Mrs Fawcett also dealt with productiveness; which is virtually never mentioned at all in the current discussions. Yet for Mrs Fawcett - as for me - it is the very key to understanding the basic economic problem that bedevils the country.

Productiveness means the extent to which any economic activity yields a surplus [of output, that can be converted to cash] that is used for investment. The investment may be applied to expanding or updating the plant that yielded the surplus, or to training the people who work there, or to recruiting better-skilled people; or it can be invested in other sectors of the economy. There are three main ways in which such cross-economy investment is facilitated:
1. by firms transferring profits from one part of the complex organisation to another, or
2. by the surplus being given to shareholders or bondholders as dividends or bonuses, which they can reinvest at their discretion,or
3. by firms that retain some profit as reserves or receivers of dividend depositing the money with banks, which the banks then lend to firms with ideas for expanding or improving production.

In any of the above circumstances, there is a realistic prospect that many [though not all] of the investments will improve the productivity of the sector in which the investment is made. Sometimes an investment fails, because it is wrongly timed, or a mistaken choice of technology is selected, or inept individuals are selected to manage the investment; or for a dozen other reasons: and the more risky the investment is, while it may yield spectacular returns, it also carries a higher degree of probability that it will fail.

The crucial fact is that the only way to raise productivity [and production] in general is if the productiveness of the system is properly understood and a sufficient proportion of the surplus that is generated sector by sector is applied optimally to investment in those sectors that will contribute most to the  productivity and productiveness of the economy in the future. In simple terms, unless investment is the absolute focus of business thinking and of economic policy, the economy can not succeed optimally: because everybody in a decision-making role is looking in a wrong direction. Warren Buffet has become an international celebrity by persuading people to let him make investment decisions with their money; and by delivering excellent results [overall] for decades on end. Mrs Fawcett would have approved of him, strongly.

In Britain, especially since the crisis of 2007-8, profitable businesses have been piling up cash reserves and returning cash to investors [through special dividends and share buy-backs]. In the current circumstances, shareholders who receive these cash bonuses use them to meet current spending because real earned incomes have been tightening; rather than making their own independent investment decisions for the future. This situation has greatly been exacerbated by the combination of institutional and policy disasters that have meant that major investing institutions [such as pensions funds and insurers] are discouraged from making equity investments.

Economic policy has become a conspiracy against productiveness, rather than a stimulus to investment. That is contrary to the basics that Mrs Fawcett set out for elementary schoolchildren in 1870: and the shocking fact that cabinet ministers have no notion of the concept of productiveness is a wonderful measure of the intellectual regression through which Britain has descended since the nineteen-twenties, when fantasy Economics was allowed to supplant the truths of Political Economy: because simplified mathematical models were easier to teach than the complex inter-relationships that are exposed in Political Economy.

Saturday, 29 July 2017

Insurers, the Fire Service and the Grenfell Tower Tragedy

Not many years ago, the local Fire Brigade would have been needed to certify the arrangements for controlling the risk of fire in the Grenfell Tower, Kensington; as they were for all such buildings. Since the millennium, governments of all parties have slackened the regulations and the Fire Brigade has no statutory role in fire protection. Whether or not the London Fire Brigade was aware of the innate vice in the sort of cladding that was recently applied to the Tower is a moot point, because the brigade was no required to verify the suitability of the material.

The local authority [as the ultimate owner of the structure] and the management company did what was minimally necessary to comply with safety law: which was thereby shown to be grossly inadequate.

In parallel with the slackening of standards for fire certification of structures, so insurers made economies [thus keeping down the cost of policies] by becoming much less interventionist in regard to the structures they insured. Half a century ago, an early stage in the career of any promising recruit to the insurance industry included a period - usually a few years - serving as an Inspector. By sending inspectors to make announced and unannounced checks on the buildings and the processes that they insured, the insurer could be reasonably satisfied that the conditions applied to the policy were being met. Thus the subject of the insurance was compliant with the law on structural soundness, health and safety and any special regulations relating to what the building or the machinery was used for. More recently insurers have shunted the burden of verification to the insured, who simply "warrants" that the conditions of the policy, including legal requirements, are fully met.

 If, in such circumstances, a George Osborne heavily influenced by the Econocrats come into power, the fire brigade and the insurer have no direct influence in the operational decisions taken by the occupant of a building [such as a housing management company].

On a national scale, admonished and applauded by the Econocracy, young George pursued his historic mission to eradicate the deficit on the national accounts: by imposing austerity. The only other way to remove a deficit of the size of the British budget deficit in 2010 would have been by a massive scheme of investment to kick-start economic growth: which was ideological anathema to the Econocracy. The coalition government in which George was loosed upon the economy deliberately decided on the austerity policy, as a whole government of Conservative and Liberal Democrats. Thus they were - entirely unintentionally - responsible for the impact of austerity on the Grenfell Tower. Combine that with the previous Labour government's decision to reduce the cost of the fire service by removing their role in building certification, and a diabolical cocktail of governmental failure was served up to the residents of Grenfell and [apparently] dozens of other towers.

Little local people all went along with the flow, and some may be faced by charges of personal liability; but the real chain of high command that was responsible for the tragedy is unambiguously clear.

Friday, 28 July 2017

Rethinking Economics and the Econocracy

Yesterday, after I had issued my lament for society on this blog: in which I specifically deplored the large number of students who receive degrees in Economics, I opened my TIMES to find a piece by Richard Barwell and Anthony Yates in which the 'basics' of Econocratic dogma are defended against the relative attractiveness of 'fashionable concepts'. Yates is a professor of Economics in Birmingham and Barwell is 'senior Economist' in a bank, and the article makes it pretty clear that students in Birmingham are not going to be encouraged to dabble with the growing international network which sometimes uses the descriptor Rethinking Economics. 

Yates and Barwell deny that Economics has become a narrow programme of dogma, which takes comfort in adapting simplified versions of mathematical models that have been tested and proven in Physics and Engineering, apparently to vindicate their assertions about how aspects of the economy can be understood. They refer to awards of a pseudo-Nobel Prize [called the 'Nobel Memorial Prize in Economics', and endowed by a group of bankers many decades after the real Nobel Prizes were set up] to individuals in various 'applied' areas of Economic comment and research. The Times writers imply that students can - if they so wish - divert their attention to the byways around Economics that have been explored by some of these pseudo-Nobel 'laureates' [this is my summary of their point] but such deviant study does not help them to become Econocrats.

To be gazetted as an Economist, apparently, the student must accept that the models developed by their teachers upon the work of their teachers are uniquely logical because they are mathematical. This is a re-run in these depressing times of economic failure of the argument that was first advanced in the eighteen-sixties, a period of great economic optimism, by one of the first Economists. William Stanley Jevons who held the professorship of Political Economy in Owens College, the forerunner of the University of Manchester, wrote that if Political Economy was going to be developed into a real science it must become mathematically based. He had himself come to Political Economy from a base in science. As a young man he had experienced the thrilling period of the Australian gold rush when - as in California and the Yukon - the news that gold nuggets were to be found lying on the ground and at the bed of streams brought a rush of hungry, ambitious men from all over Europe to try their luck. Jevons went to the gold field as an assayist, verifying gold discoveries and frequently disappointing those who had not found the real thing. He had plenty of time to observe the weather, the sky and the common astronomical phenomena. At that time, there was a high level of sunspot activity; which was very visible from Australia. Jevons was not the first person to form the notion that the level of sunspot activity affected the amount of solar radiation coming to the earth, and that this must surely affect the weather; but he extended the notion to become a putative explanation of the trade cycle. He wrote extensively on the applicability of statistical data to the economy, and thus earned his professorial chair. He even caused the creation of a Royal Commission - the highest level of government inquiry - by his publication of The Coal Question a book in which he declared that the entire prosperity of the United Kingdom since the first stirrings of the industrial revolution had depended on the development of steam power [both in locomotives and ships, and in stationary engines in mines and mills]. Steam power was derived from coal. Coal was still abundant in Britain in the middle decades of the nineteenth century, but demand was increasing and Jevons recognised that if the coal ran out, the economy would come to a full stop. Thus he tried to calculate the nation's coal reserves, set this against expanding demand, and concluded that well before the date when the lines expressing the depletion of reserves and the rising demand for coal converged, the national debt must be paid off and a whole new energy basis for the economy would have to be found. The Commission took evidence, cogitated, and decided that the crisis was far enough in the future not to be bothered with the issue in the short term. Jevons' two most significant attempts to cause the economy to be managed according to statistical data to which he had access were unsuccessful, but as the university system expanded teachers of Political Economy preferred to be called Economists, and tried better to develop Jevons' insight that their subject could gain credibility if it was shown to align with statistical data and mathematical models.

The first half of the twentieth century was disfigured by two world war and the removal of Russia from the normal world economy. The half-century after 1950 saw a divided human community, where the 'capitalist' states tried the flawed 'neo-Keynesian' model for economic management until it led to the chaos of the seventies, then the 'rational markets' [monetarist] model which gave the world the crash of 2007-8 [which the Econocracy did not foresee]. Economics has never given society at large any models that align with reality and with political imperatives. Thus the assumption by Barwell and Yates that the way for students to gain a broad understanding that will help them to serve humanity usefully is by learning the models that the professoriat have a vested interest in, carries no credibility. Hence contemporary students from Jevons' old stamping ground of Manchester began the challenge to the Econocracy which is simply based on the assumption that 'enough is enough'.

Thursday, 27 July 2017

Education, Immigration and Austerity

More than thirty years ago I was Dean of Social Sciences in a major English University, from which I had previously graduated. As a graduate, I regularly receive information from the university, accompanied by invitations to make donations to various aspects of the work that goes on there. In the latest issue, they gave figures for the numbers of graduates in each faculty: and social sciences was more than twice as prolific as any other Faculty. When I was on the staff, social sciences were similar in size [and therefore in numbers of graduates] to the arts, science and engineering faculties.

During the time when I was Dean, the worst of the Thatcherite destruction was being done to the steel and related engineering industries in the region: which had the impact of reducing dramatically the potential for growth of the materials sciences parts of engineering. In the subsequent decades demand from students - especially, from UK students - has been pathetic in applied sciences [which mean that there has been plenty of capacity to train tens of thousands of scientists and engineers and metallurgists for emergent economies], poor in pure sciences and weak in the 'hard' arts like languages. The result is that Britain has been preparing people to do parasitic jobs in the media and other sectors where no material product emerges, and in financial services [which, at high risk, brings significant income to Britain from the world economy: and which could now be threatened by Brexit].

The material economy requires workers to do jobs that are alien to UK graduates, who are 'too good' for farm work or for ordinary jobs in the retail and hospitality sectors, or in building and construction; so those jobs have been taken up by migrants, many from the EU and many from beyond Europe. Thus it is important to note that simply barring EU immigrants will not make the total net migration statistics 'look right'; but it will denude agriculture, construction and hospitality of their essential workforces.

The educational system has totally failed to create the British workforce that Britain needs. Teaching tens of thousands of young people every year the dogmatic nonsense that is uttered by the Econocracy makes the situation worse, because it renders reality incomprehensible to the people who are supposedly educated to illuminate economic life.

Thus the material economy has stagnated: except for those areas of the services sector which largely import the material components of the things they use, and import their labour: to which the British population comes - largely with borrowed money - to buy consolation for their nagging awareness that their incomes have generally not grown [in real terms] for more than ten years. Companies are hoarding their profits, or returning them to shareholders in buy-backs [in the cases where they still make profits, usually in overseas markets]. The only conspicuous sphere of investment is the proliferation of branches of quirky dineries, nail-bars and bars; none of which are famous for longevity.

The misapplication of neo-Keynesianism in the later nineteen-sixties and early' seventies means that it has been impossible to persuade an 'Economics Profession' dominated by 'rational markets' nonsense that a keynesian stimulus would restart the real economy. Instead, successive government have adopted and stuck to the policy of austerity; which has clearly become a mantra that will eventually provoke a populist revolt. The misdirection of education over the last four decades means that the economy lacks the people who could implement a Keynesian reflation of the economy; and the economic devastation that the Thatcherite monetarists achieved means that many of the means by which a traditional Keynesian restoration of economic growth could be accomplished do not exist. Yet is is only by a strong pattern of state support for the revival of construction and manufacturing that the economy can be rebuilt. It will be a task of immense complexity; but it must be achievable.

More of this in the coming days.

Wednesday, 26 July 2017

The Enervated Economy

When I was a schoolboy the immensely tall Canadian economist, J K Galbraith, produced a book called The Affluent Economy, which had huge success. It gave a message that both North Americans and west Europeans wanted to receive: that the traumas of the Second World War and [in the case of Europe] of post-war reconstruction were pretty well over. The British had re-elected Harold MacMillan's Conservative government with their slogan "You've never had it so good!" The French were coming to a settlement under deGaulle after the traumas of losing their south-east Asian colonies and Algeria [which had been accounted part of metropolitan France]. The Federal Germans were proud of the 'economic miracle' that had been achieved under Chancellor Adenauer and economy minister Erhardt, and of their country's rehabilitation within the western alliance. Life did seem good, society seemed stable and politics were - broadly - honest.

Now, in 2017, we Brits agonise over economic growth figures as they weaken, and accept that the economy is likely to 'slow down' as wages rise more slowly than prices, and as millions of households reach their debt ceilings [especially as the banks are being urged to lower the headroom] and are thus unable to prolong the false economy in which consumer spending has been the 'driver' of the economy. Exporters are maintaining their earnings by raising the sterling prices of their products, so that they get an approximation to the pre-Brexit real-world price in external markets, rather than significantly increasing the volume of exports. This is disappointing, because in historic experience when a currency is devalued relative to others [as the pound has been since the Brexit vote] exporters from that country have been able to maintain a price advantage over their alien competitors to gain to greater share of the export market for their produce; and thus maintain employment for their factories and their employees. Indeed, in several post-devaluation periods Britain's exports have grown significantly, enabling firms to pay overtime wages to employees and sometimes to take on more staff and expand their investment plans.That is not happening now.

British industry has very few current schemes of major capital expenditure actually coming to fruition, whether the produce would be aimed at domestic or export markets. Yet, as is often mentioned in this blog, British firms are at least as innovative as at any time in history, but they are prone to alien takeover because there is a dearth of imaginative investment support in the country.

The media are celebrating the decision of BMW to keep production of the mini in the well-worn Oxford factory where it was first introduced six decades ago; but the electric engines for a new version will be imported from Germany. The innovatory element will not be British: typical of the international firms that use established plant in the UK. Even though manufacturing in Britain is continued, a foreign-owned firm can gather its cash reserves for use anywhere in the world while the UK factories are run down. So long as British labour is cheap, and the factory can be patched up, it can carry on. This is a dispiriting view, and not wholly typical of British plant today, but there is enough of it about to be worrying. The economy is increasingly enervated: lacking in energy, vigour or drive.

The announcement that new petrol and diesel cars are to be phased out completely by 2024 is no surprise; but one automatically sets beside that announcement the lack of any coherent policy to generate the necessary cheap electric power to enable the masses to run their own vehicles in 2041. In virtually every aspect of the economy a lack of vigorous innovative energy is apparent. Even the Brexiteer ministers who are supposedly planning a bright future for the UK "outside the EU" show all the signs of physical exhaustion and intellectual stagnation: of enervation.

Then, today, we get the headline news that the male human sperm count has declined catastrophically, with the prediction that reproduction may become difficult to achieve by the time petrol cars are banned. That is a cheerless prospect!

Tuesday, 25 July 2017

The Fantasy Powerhouse and Historic Reality

Andy Burnham, having moved into the new [and partly undefined] job of a civic mayor has joined in the clamour - which resonates over the Pennines but hardly gains a mention in the London media - as to what has become of George Osborne's 'Northern Powerhouse'. The idea, such as it was, was to persuade Chinese and other foreigners to invest in Manchester and Leeds [and possibly Sheffield and Liverpool], to begin to lift those cities out of the post-industrial depression into which the Thatcher-Major-Blair-Brown-Cameron-Clegg continuum had left them. The concept was predicated on the assumption that there were no significant government funds, beyond the mega-scheme for a bifurcation of the [Chinese financed]  HS2 railway to Manchester and to Leeds, north of Birmingham and perhaps some electrification of other lines in the north [to be paid for by the Network Rail budget; not by the government directly]. So a great bubble of talk was built up, Vice-Chancellors pledged their universities to help with surveys and research and local councils hoped to bring their districts into a new co-prosperity sphere.

No material structures were built. A few alien takeovers were made of firms in northern cities. Then came the Brexit vote, Mrs May, the removal of George Osborn and the dissolution of his verbal construct. He asserted that the powerhouse concept would continue, but [notwithstanding his editorship of a London paper] he was just a voice who occasionally visited the wilderness of the north.

Thus the desolation that Andy Burnham sees dragging on into the future is the most realistic prospect for the areas that were exposed to Osborne's 'powerhouse' fantasy. This contrasts directly with the picture as it was half a century ago. Under the Labour Government of 1945 the supposedly exhausted and bankrupt country that is depicted in Econocratically-influenced history set about rebuilding the railways. They began with a massive northern powerhouse project: a fully-electrified, largely newly-routed railway over [and through] the Pennines, between Lancashire and Yorkshire and planned to link with electrified east and west-coast main lines between the midlands of England and the midlands of Scotland. The massive Woodhead Tunnel was driven through the higher hills on the route, and the new Sheffield-Manchester route was a subject of national celebration when it was completed. While the primary use of the railway in its early days was to carry goods, and especially coal as the great source of power for the new economy, it was seen as a significant first step in modernising the entire rail network, as was to be done on the continent over the next couple of decades.

Then came Mr MacMillan and the motorways; and the decision that the country would not afford to develop the railways and new roads: even though the continentals were doing just that. Then, eventually, came Blair and Cameron and the promise to phase out coal burning power stations; which was logical as the Thatcher gang had shut the mines and coal - unlike oil, which had been found under British home waters - had to be imported, to the detriment of the balance of payments. The last vestiges of the real, material northern powerhouse were destroyed: symbolised by the closure of the Woodhead Tunnel. Sheffield and Manchester are now linked by a meandering branch railway and by an overcrowded M62; and there is no sign that this will change. This exemplifies a total and dramatic failure of governance, in what used to be a great country.

Just a footnote, on debt. Consumer debt - especially car loans - is a worry for the Bank of England, whose officials have begun to bang on about it. The government is silent on the matter, so far. When the Woodhead Tunnel was being built, the government directly controlled consumer debt: there were controls of hire purchase, a set minimum for the deposit that had to be paid in cash, and control of the period over which the debt could be spread. No-one felt unduly oppressed by such regulation: it was all accepted as being part of a plan for postwar reconstruction of the economy, that people could see was working as homes became available and the roads were repaired after wartime destruction and decay. Hope and promise were in the air: so control of credit was no harm at all. Now the government is under the influence of the Econocrats who would oppose any reintroduction of state control of credit, which [they say] is the business of the banks and the supposedly-independent Bank of England. So we are exposed to a credit crunch, again: to set alongside material failure of the economy.

Monday, 24 July 2017

Spinning Batteries

Stalin called it 'agitation and propaganda', Goebbels was 'Minister of Propaganda and Public Enlightenment', the post-war democracies developed 'spin' and David Cameron was enamoured of 'nudge'. The present shoddy government does not really 'do' spin or nudge: they simply issue press releases or advance copies of ministerial speeches and leave it to the media to make the rest of the story.

A lead item for the BBC on the early News today was the story that Britain was to experience a 'revolution' in how electricity is generated and stored. It is well known to the nation, and deeply embarrassing to the political class - especially Tories and LibDems who have been in power for the past seven years - that there is no viable energy policy in the UK. The government [of any party] is compelled by law to get rid of 'polluting' coal-fired power stations by 2025, unless they are converted to burning wood-chip that has to be imported at vast expense [and may be depleting forests in less-developed countries]. One attempt to address the resultant shortage of energy is the madcap scheme from the Osborne era, whereby the Hinckley point scheme is supposed to construct an unproven type of French reactor [with Chinese funding] for which British taxpayers and/or electricity users will be charged a ridiculous amount over and above the predicted world price for power for the next two generations. A massive amount of money has been spent on windmills, afloat, settled on the seabed and ashore; all of which have the intrinsic disadvantage that they don't work when there is no wind, and they may produce more power than is needed at other times. The firms who have constructed the majority of windmills have been promised a price for the resultant power that involves a heavy subsidy of the provider by the consumers.

British firms, including Rolls-Royce, have been providing the power units for nuclear submarines for half a century, and could offer land-based mini nuclear power plant virtually ad lib; but the politicians are scared on the anti-nuclear lobby. Also, the politicians are scared of the responsibility for guaranteeing the costs of the construction and insurance of the potential nuclear solution; especially in the light of the row about Hinckley Point.

So they have spun the idea of diffused electricity supply, of individual owners of homes and small businesses installing solar panels and batteries. Solar panels are efficient and are becoming cost-effective, up to a point. But they only respond to the sun: so that they can make no direct contribution to the national grid in the dark. Householders can only sell power into the grid from their solar array when the grid wants it. Somebody in government has at long length realised that in the universities and in many firms high-quality brains have been working for years on improving battery technologies. In the USA Mr Musk has marketed his Tesla battery-powered cars very effectively, but worldwide motor manufacturers have been investing in battery powered engines and in battery technology. As a graduate of two universities I am battered with booklets boasting of their research achievements [and asking me for money] and it is clear that very significant steps have been taken over a long period, and that several of them are showing success. So the government has decided to present as a brilliant plan for the future a shabby little scheme to persuade the population themselves to buy and install panels and batteries from which the households can derive some of their electricity, and sell the surplus to the grid. The mass of the population would pay directly for this 'solution', with the stimulus of government-backed loans [probably provided by the commercial banks]; so that none of the cost would add to the statistics of direct government spending or borrowing.

If you believe that this is "the answer", you'll believe anything!

Sunday, 23 July 2017

Continuity and Change in Consumer Behaviour

I have the great good fortune to have [modest] homes in Wapping and in Bakewell.

Bakewell has been a tourist destination since before Jane Austen visited, and made its main hotel the setting for the reconciling encounter between Elizabeth Bennet and Mr Darcy. With the growth of urban centres, the Peak District became surrounded by major industrial cities, market towns and mining villages; and despite the Thatcherite destruction of much of the former employment, there are still over four million people who live within one hour's travelling time of Bakewell [which is pretty central to the Peak]. Since the days of charabancs, the number who walk or cycle from Sheffield, Manchester and Derby have been massively exceeded by those who come on buses and coaches, and in family cars, to enjoy the beauty of the countryside, the variety of the shops, the delightful interests of the Monday market and - bizarrely - to eat chips by the river bank. With the chips, some eat fish, or fishcakes [Yorkshire or Derbyshire style], jumbo sausages or pies and - latterly - deep-fried Mars bars: but many just eat chips, and reminisce about doing the same thing decades previously with their parents and grandparents. Whatever exotic holidays or pastimes the family members may have been able to afford, they retain an affection for the location of childhood memories; sufficiently to keep two chip shops busy. Especially on Bank Holiday weekends, the town centre literally smells of chips. There are several good restaurants in the town, including two pubs that have moved upmarket; but that burgeoning alternative has not dented the traditionalist demand for 'open' chips to be consumed in the open air [and, disastrously for the wildlife] shared with the ducks and the geese. This is thus an example of a consumer tradition being continued through the generations.

Wapping has recently become a 'destination', partly driven by the mounting of major events at Tobacco Dock, partly derived from the increasing success of the establishments around St Katherine Docks, and greatly facilitated by the opening a few years ago of the East London Line as an integrated component of London Overground. Saint Katherine's  is only a few dozen yards from Tower Hill Station and is immediately adjacent to Tower Bridge; and direct lines from Wapping station now go to Croydon, Crystal Palace, Highbury and Islington and Clapham Junction. Thus people from much of London can easily get to Wapping; but why should they? Unlike the South Bank, the north bank of the river, especially at Wapping and Limehouse, is largely inaccessible to visitors. Except for the listed St Peter's church, there is nothing to draw the visitor into the centre of Wapping; where there are just [excellent] family shops and five pubs, four of which are not designed or geared-up to take the tidal waves of one-time visitors who now appear in them. The one pub that is set up to take the tourists is the Prospect of Whitby, which is known by name to millions of people, and features in family anecdotes as the place where young men [and occasionally women] in the dark ages when the London Docks were open could more-or-less safely go to see the rough edges of east end life. Wapping has become gentrified, and the riverside is now almost completely given over to expensive apartments, some in former warehouses and others in buildings made to look vaguely like old warehouses [and called after the former wharves that stood on the site]. Two modern restaurants - an Italian establishment from the 'nineties, and a fish restaurant from the noughties - have both attracted trade from far afield; but the sort of people who crowd the pubs, especially on sunny Saturdays and Sundays are a very different clientele from those who are attracted to the restaurants. The cool wind and the rain yesterday did not deter many hundreds of people from cramming in to the riverside pubs; from which the once-familiar faces of surviving 'old Wappingers' have disappeared. This change has been accelerating for five years, but this year it has become almost overwhelming. Where these people come from, and why, is a modern mystery: a consumer phenomenon.

Saturday, 22 July 2017

Intellectual Property and Point Protection

Patents were invented in Europe, specifically in Monarchical France, and the concept was taken up enthusiastically around the continent. During the eighteenth century, France was way ahead of the UK in the number of patents registered; but by 1800 a clear difference was emerging: while most patents were never to make much money for their owners, some patents - notably British patents - were massively generative of wealth because they were fundamental to the change that was sweeping the United Kingdom into the predominant position in the process that was soon to be called 'the industrial revolution'. Then, into the nineteenth century, the process that led to the unification of Germany ran in parallel with the industrialisation of key areas in that territory; most notably in the Ruhr and Saxony, and around Hamburg and Bremen; and German industrialisation was accompanied by a flurry of patents that included an increasing proportion that were based on methodical research.

The United States developed as a group of former British and French colonies, with a significant proportion of German-speaking settlers helping to drive industrial growth in that vast continent. For a considerable period there was considerable piracy of European intellectual property in the emergent economy of the United States; and eventually the US legislature recognised the good sense of mutual protection of industrially valuable intellectual property [simply because, if the US stole from others, others could steal from them: and thus they could undermine each other]. But, even then, copyright in literature, drama and art seemed less important - especially in the context of US law which was designed to make the acquisition of information and education as cheap as possible - so such property was to be protected mutually much later; hence arose Charles Dickens' famous endeavours to get his new output into the hands of  American readers before all the revenue was lost to pirates.

There are pseudo-scientific explanations as to why the UK and Germany, in particular among European states, have been prolific in inventing useful things and processes; but those theories do not explain why the USA has been at least equal to the European leaders in invention and innovation. The Great Exhibition in London in 1851 was meant to show the British people and the rest of the world the range and brilliance of British industrial output, and [to a certain extent] it did: but it also shocked the British visitors to see how sophisticated and clever the French, German and American innovations were. Britain was still primarily an agricultural country in 1851, and most of the urban population had only recently moved into town and still had links to the countryside: so to a huge proportion of the million or so Brits who walked round the Exhibition the most amazing device on display was the McCormick Reaper from the USA. The great plains of the USA were beginning to be prepared to grow crops, and the sort of mechanisation that the reaper represented showed how the American farmers would be able to undercut labour-intensive European suppliers of the principal cereal crops without needing to wait for a mass of immigrant labourers. One of the bizarre side-issues to emerge from the conversations that were driven by the perceived shift in the balance of advantage from Europe to America [and, to a much lesser degree, to Australia] was that Russia remained a peasant economy: the development of that vast empire would have been utterly transformed if the same extensive mechanised farming were to be installed there as in the USA. Russian peasants were still enslaved as serfs in 1851, and the Cossacks roamed free over the future wheatlands. The potential short-cut to massive advancement and wealth was not taken up.

Over the decades since 1851, Britain, Germany and the USA have remained the global leaders in invention and innovation: France and the low countries have been in the league too, but the dominant three have remained in the lead. And now the UK is going through the throes of implementing the decision to leave the protectionism of the European Union; and there is frequent mention of the notion that Britain can 'go it alone' with a hotch-potch of free-trade agreements with other countries: notably China and India, and maybe Brazil, alongside the USA. As the strongly emerging economies develop their industrial capability, they know that the mutual protection of patents will become ever more important. Chinese goods can simply be frozen out of the US and the EU if they are produced in breach of patent: so it is in the interests of the Chinese economy that the state becomes more and more forthright in protecting foreign patents.

On quite different grounds, the major economic blocks can close their markets to specific Chinese exports - or slap punitive tariffs on them - if Chinese exporters try to 'dump' that output in export markets at less than the cost-price of making the equivalent in the receiving country. Raising such barriers is what I have called point protectionism. Big economies, or economic communities, can retaliate against each other if they believe that point protectionism is unfairly being applied against them. This is a powerful tool in the armoury of each major economy. An isolated Britain will not have adequate leverage to apply against the emerging mass economies that might infringe British patents or apply unfair point protectionism against the UK. This is the decisive reason why the crazy Tory Brexiteers must be exposed for what they are, now. The European Union stinks, from the Parliament to the Commission to the Court; the UK must get as far away from those institutions as is feasible; while remaining in the necessary protection of the economic community.

Friday, 21 July 2017

The Tories' Dilemma: 'Hard Brexit' or Continued Austerity

Mrs May appeared to think that she could do three impossible things on becoming Prime Minister: now she has come to realise that not only is each of them unfeasible in itself, but that they are mutually exclusive.

First, she did not even consider an alternative to the continuance of the Cameron-Clegg-Osborne austerity, so that had to be maintained, as near intact as possible.

Second, although she had been an unconvinced remainer, she was prepared to embrace the idea of a 'hard' Brexit: though she had no idea what this might mean, so she appointed not one, not two, but three Brexiteer Secretaries of State to come up with the policies that would be needed.

And thirdly, she wanted to be a 'compassionate conservative': at zero cost [because finding any 'new money' would, by definition, breach austerity].

Then she called an election in which she thought that she could defeat Labour purely on the grounds of the intellectual and moral deficiencies of the party's leader. Because he had decades of experience of not being a conformist or conventional politician, Corbyn almost won: and Mrs May had to clear out her inept kitchen cabinet and begin to respect ministers who she was reported to have wanted to dispense with.

Meanwhile Philip Hammond as Chancellor of the Exchequer was becoming buried in 'The Treasury View', a centuries-old tradition which insists that any new expenditure is unnecessary and any unnecessary expenditure must be opposed; regardless of the social and moral benefits that the expenditure is predicted to deliver to taxpayers. Thus he learned that stopping the free movement of people from the EU into the UK, and movement the other way, would cost billions of poundsworth of new expenditure in frontier police recruitment, training and salaries, and in the construction of immigration and emigration control points and the IT backup that would be needed to make such controls achievable at all. Add to that the cost of building modern port controls that could prevent smuggling and validate the contents, provenance, ownership, insurance and compliance with health-and-safety requirements [et cetera] of every item in every cargo and every private piece of luggage - and staffing them with men and women as tough as eighteenth-century revenue officers, in sufficient numbers, adequately well-trained and remunerated and backed up by the most advanced IT - that would be more billions.

A 'hard Brexit' would not only interrupt much trade with Europe, and permanently end more - it would thereby cause massive unemployment and demands for billions more in social payments. Most firms that trade significantly with Europe would experience catastrophic falls in sales, which would force some to cull their workforces and many to declare bankruptcy and their inability to pay their debts and their taxes. The government's income would plummet as the demands of a desperate population became clamorous. Not only would austerity have to be abandoned: government would become untenable in the context of democracy.

Thus minsters have been running around, meeting groups of representatives - particularly from the business communities - whom the May team had ignored in their first year in office. Now the government is indicating that Brexit will be 'soft', and nobody or no firm will find themselves at a 'cliff edge'. There will be a 'transition period' as long as Mr Barnier will be allowed to concede; followed by a shoddy compromise which lets the Treasury maintain at least the skeleton of austerity in place. On that basis of squalid surrender to the ghosts of Clegg and Osborne, a sort of exit from the EU Commission and Parliament, and a limitation of the powers of the European Court 'of Justice' [sic] will be found; and Britain will remain within the EU otherwise. Any alternative is unaffordable in the context of Treasury thinking: and The Treasury Rules: OK?

Thursday, 20 July 2017

BBC Salaries and the 'Paradox of Value'

The media - not least, the BBC itself - has had a field-day taking apart the data that the BBC has been required to publish on the salaries paid to people who appear on television; if they are paid more than the prime minister. These are only partial data, because [as has been pointed out in all the reports that I have seen] those presenters who sell their services through production companies are not paid salaries as such, so do not appear in the list. Those like Graham Norton, who are part salaried and part freelance only display the salary portion of their earnings: for this, and myriad other reasons, the data are of no effective use. But that has not presented any obstacle to the pontificators who have taken politically correct positions and argued that it is 'scandalous' that men are paid more than women, and that no person from an ethnic minority is among the highest-paid.

It would be possible for the BBC to award salaries [and refuse to employ non-salaried presenters] according to a popularity poll conducted by the Guardian, which was recently shown to the overwhelmingly the Corporation's favoured 'newspaper'; but it is most unlikely that the vast mass of the population would agree with that ranking. I am constantly astonished at the vulgarity of much of the output on all channels that appears to be highly popular.

Adam Smith, the founding father of the Econocracy, wrote about a so-called 'paradox of value'. Items that are absolute necessity for the continued survival of human beings, like bread and cheese, are cheap, while essentially 'useless' objects like gem diamonds are massively expensive. Human society is paradoxical: what people are prepared to strive and compete to get seems quite irrational to other people. Once a man or a woman has enough food to eat, a place to shelter and clothing that seems to them adequate, the preferences that they display thereafter if they are able to widen the pattern of their consumption seem utterly silly to other people. There are no natural laws to direct people's choices. Various religious guidance is offered; but more often than not that steers wealth towards the religion and those who lead it, and offers no valid guidance to individuals on how to manage their own disbursement of their incomes.

The medical professions have become vocal in expressing their view as to what consumption and behaviour is healthy and what is not, and sometimes there is sufficient evidence to convince people that the advice is basically sound. Politicians are presented with speeches to read out, in attempts to steer public behaviour in directions that are seen as affordable and socially desirable; but everyone views such utterances with cynicism.

Ultimately there is no valid system for valuation of anything or anybody's action. Some things, like poisons and poisoners, can generally be condemned; but they are at the extremes of consumer behaviour and they are threatening to the majority of consumers: so collective action against them is self-defence by the majority. There will never be a definition of 'value': so there is no 'true' way of differentiating Graham Norton from Fiona Bruce. They and their agents are left to haggle; and that is the only way it can be.

Wednesday, 19 July 2017

The Tragic Triumph of the Econocracy

'The Bank', with a capital letter, means the Central Bank in any country or community: in our case, the Bank of England; and 'the banks', as a collective, means all the other firms and partnerships that the Bank recognises as legitimate banks and thus it is authorised to give them instructions and to trade with them. Specifically, it will sell them bonds and other debt certificates [from a list of approved categories] and lend them money at a publicly announced rate of interest called 'base rate'. A large proportion of the Econocracy [the prevailing rat-pack of professors of Economics] argue that if the management of the banks by the Bank is perfectly calibrated the economy can operate perfectly. If the money-managing institutions work perfectly, the whole economy can achieve 'equilibrium': a state where all the resources available to the human race are allocated to their optimum uses.

This is a model of perfection. The realities of human existence make it a total nonsense: but the Econocracy currently has control of the channels of advice to governments, and most of the economic commentators in the media, in banks and investing institutions are required to parrot the prevailing orthodoxy: though there have always been some brave spirits who have the wit and the integrity to deny the validity of the whole structure.

So-called Monetarism, a package of ideas formulated by Econocrats in terms that could be explained to politicians and to students, was introduced in the USA in the later nineteen sixties, when the flaws in the attempt at practical neo-Keynesianism had generated a disastrous wage-price spiral as trade unions demanded pay increases to match price increases [as reported on official indexes of 'inflation']. In the early nineteen seventies the major oil-exporting countries tripled the royalties that they charged for access to their oil and natural gas; and this sent up the prices of all goods and services because of the universal impact of the costs of fuel for vehicles to deliver goods and people to where they were wanted, and the price of fuel for the provision of energy to heat homes and schools and to power factories. Additionally, petroleum was a vital ingredient in many plastics and polymers. So all prices were rising, hence wage demands took on a new stridency: and governments tried to stop the 'spiral' going out of control.

The Monetarists argued that if real control was given to the Bank and the government backed up the Bank in issuing stringent instructions to banks as to when and on when terms they could lend money to whom, that would strangle the spiral of rising wages and prices. Employers would not be able to borrow from their banks on affordable terms: so instead of borrowing to pay workers inflated wages, they would have to tell them "take what is on offer, or we'll have to close down and sack you all". Similarly, consumers would be told that they could only stay in the homes on which they were servicing mortgages provided they paid penal interest rates which went as high as 15%: which left them with little to spend on other things. So if they kept the house and the car, paying high mortgage interest and high interest on their car loans and the loans against which they had bought their fridges and TV sets, they had to reduce consumption of everything else.

The Thatcher government adopted their own version of this policy straight after their election in 1979, and by 1992 they were well on the way to implementing it. Economic growth slowed dramatically; and wage growth slowed even more. Then the government itself stopped creating money with which to maintain activity in the coal mines and the shipyards. They compensated for the loss of income that they suffered as the real economy declined from the tax revenue that they received on North Sea oil and by the sale of the privatised industries. They cut back heavily on government spending on defence and in support of industries that had previously been considered essential for national survival: steel, shipbuilding, aerospace and coal. The economy was dramatically changed, as the 'real' material productive sectors were decimated and the financial services - notably 'investment banking' - began to predominate: and that sector of the economy was supposedly susceptible to refined control by the Bank.

Thus, by 2005 the 'real' - the material - economy on which human animals depend for their continued existence and comfort was utterly denigrated and largely despoiled; and the finance sector was put in a position to undermine the entire economy through its greedy overindulgence in speculative deals that the Bank did not even understand. This is the achievement of the Econocracy. The real incomes [money wages adjusted so that their current purchasing-power can be computed] of the mass of the British population have been static for a decade. Over those years, 2007-2017, plenty of jobs have been created; almost all of them in activities that do not result in any substantive increment to the real economy. There has been a spectacular degree of material stagnation which, set alongside the government's obsession with 'austerity' [in which they have been mentored by the same Econocrats] leaves almost everyone with an awareness that the economy is not "working for me". That is because the economy is being driven in obedience to an abstract model. The fundamental reality, that the economy should be the mechanism that serves material, living, aspirational individuals, has no place in contemporary Economics. That is why Economics must be brought down from its high place in academic temples, and opened up for radical restructuring.

Tuesday, 18 July 2017

Brexit: Hard, Soft or Stupid?

Yesterday, David Davis began his 'negotiation' with the agents of the EU Commission about the terms on which Britain will carry through its invocation of the relevant provisions of the Lisbon Treaty, for the cessation of Britain's membership. It was emphasised on all the visual media, that the EU side of the table had extensive piles of briefing material while the British had none.

The British people has no idea whatsoever their government is seeking in this vital negotiation. All inquiries are referred to Mrs May's 'Lancaster House Speech'; which is uninformative and no longer relevant. It is uninformative because it has no specifics; it is irrelevant because since she made that speech she has tried, and disastrously failed, to establish a strong political base in the Commons for herself. On becoming the prime minister, she made the spectacularly stupid remark: "Brexit means Brexit". Brexit means nothing: it was dreamed up as a code-word for the process that no-one understood - how to interpret and implement the intentions of the narrow majority in the 2016 Referendum - and it copied the term Grexit which had been coined in the previous year to cover a potential Greek withdrawal from the Eurozone.

I voted for leaving the EU as part of the mass protest against the political class - even more the continental version than the British - and, more specifically, against the idiotic scare stories that were being promoted by George Osborne and David Cameron. I expected the remainers to win, but I hoped that their majority would be so small that it would serve as a warning to the class [right across the Union] that they were pushing the mass of the people too hard in a direction of austerity and integration that the people deeply resented.

It was obvious that the political class would still be in power on the day after the referendum; and my hope was that they would be sufficiently chastened for their europhilism to be modified. Instead, the class leadership crumpled. Cameron ran away early on the morning the result was announced; and in quick time a mild remainer, Mrs May, became a prime minister who was totally unprepared to address the situation. Inevitably, she rid her government of Osborne; then, at her own discretion she appointed three 'Brexiteers' to lead the negotiations and thus to shape the path that that the UK should take in implementation of the referendum vote. Boris Johnson has developed his role as an insubstantial buffoon and a pretty ineffectual Foreign Secretary. The important role of planning the way through 'Brexit' [whatever that might mean] was divided between Davis as lead negotiator with the EU and Fox as the man who would - apparently - make trade deals with the rest of the world that would substitute worldwide markets for what Britain might loose in a Europe that was closed against British goods and services. So far as one can tell, these are two dafter buffoons than Boris, who have been given licenses separately and in their own ways to ruin the country.

It is essential that Britain remains within the European Economic Area: news items every day show that supply chains from toffee factories to radiotherapy suites depend unconditionally upon that precondition; and the UK must be prepared to pay whatever has to be paid, immediately and for the indefinite future, to get out of the EU political institutions [Commission and Parliament, in particular] and to remain within the economic union. There must be a massive national uprising if and when it becomes clear that the 'hard Brexiteers' are trying to produce any other result. As I pointed out a few days ago, India, China and USA - in particular - are notorious for overriding trade agreements whenever point protectionism is needed to protect one of their industries or service activities. It is the height of folly for any responsible adult to pretend that a series of one-to-one trade agreements - even if they could be effected - would be validated by events.

Allegedly, some members of the Cabinet, unable to halt the buffoons, are arguing for a long adjustment period, during which more rational thinking should be allowed some space. Against such 'slow Brexiteers' there are those who argue that the national referendum result was binding, that it must be implemented in the most ruinous way, and that it must be done quickly to give effect to the 'will of the people'; who will be free to repent of their votes at leisure. Mrs May has no authority to adjudicate on this contest.

Mercifully, Corbyn has shown himself to be completely out of his depth on the matter: otherwise, the Labour opposition could be extremely difficult at this time. The Labour party will not provide the focus for the national revolt: so we all may have to fall back on Vince Cable to be the nation's lightening conductor. Let us hope that, if it comes to that, he has the necessary stamina. At least, he got his doctorate in Economics before the Econocracy had gained their mastery of the field.

Monday, 17 July 2017

High-Speed Idiocy: and Some Sense

Today will see another series of announcements on the scheme to build a completely new high-speed railway between London and Birmingham, with branches to Manchester and Leeds.

I am one of the many who deplores the London to Birmingham venture. The existing line from Euston takes only 70 minutes, non-stop. The need on that route is for more capacity to take stopping trains that can bring commuters more effectively into London from towns and cities on the route, and on feeder routes to that line. The environmental damage that it will inflict is immense, and the cost will be added to the effective national debt [from Britain to aliens, largely Chinese state-owned enterprises] even though it is to be wrapped up as corporate lending. That borrowing will have to be paid for: so if British people decide they cannot afford the prices that will be slapped onto tickets to travel on HS2, the cost of the daft first-stage enterprise will either be offloaded onto the prices of rail tickets nationwide, or onto taxes.

The so-say second stage: or, at least, investment in the improvement of main rail routes for travel across the north midlands and the south of northern England, is absolutely essential. Direct trains from Sheffield to London have been improved, and thus times on the route via Chesterfield, Derby and Leicester, with a sideline to Nottingham, are acceptable. The fast trains on the west-coast mainline that bypass Birmingham on the way to Edinburgh and Glasgow do not serve any major city in northern England: and they are slowed down by stopping at some selection from the list of Crewe, Warrington, Wigan, Preston, Lancaster and Carlisle. The history of railway company formation, and the consequential construction of lines, means that there are various cities and towns to be served in Yorkshire, causing there to be barely-adequate services to York, Leeds, Bradford, Wakefield, Halifax, Huddersfield and Hull from the metropolis: only after Northallerton is there a clear principal route via Darlington, Durham, Newcastle and the north: and this all leaves Sunderland and Middlesborough at the edges of the map. Huge expenditure is needed on that infrastructure to bring it up to the level that is common on the European continent. Half a century has been spent closing railways and parts of routes and despoiling the railways of the land that could have been sold to provide the cash to fund updating of the system. While the Osbornian HS2N plan may not be feasible, the investment is necessary: and it should come from a state-led infrastructure pool to which crowd-funding from the British people should be added. It is not necessary to add to the public external debt of the nation to improve this infrastructure: the state should lead, the people can follow, and the spending that will be generated by the construction work and then the operation of the lines will help to revive the economy. It is necessary to build not just 'strategic' main lines, but the ensure that all the 'bypassed' towns - even Darwen and Accrington - are effectively linked in to the new system.

Before one gets too depressed at the present state of the British railways, one should look at the home of capitalism, the United States of America: and at its financial capital, New York. There the railways are in a state of extreme dereliction: with collapsing bridges, five-mile-an-hour speed limits, frequent derailments at the major stations and [literally] century-old wiring providing power to some routes. President Trump trumpeted his intention to change all this, with massive investment in infrastructure, including in his home city: but so far he has cut down on the Obama-era commitment of federal investment.

Thought must be given to the effects of economic thinking, both in the neo-Keynesian era and in the more recent period when 'rational markets' theory has predominated, on the real structure and infrastructure of human life in the urban environment. It is Economics that got us down into this mess: economic dogma will not help us out of it.


Sunday, 16 July 2017

Economics - Again

A few days ago, I had a brief discussion with a student of History about my views on Economics and the Econocracy, referring him to the website of the Post Crash Economics Society where I first saw the very apposite term, Econocracy. On our next encounter [in the pub where he earns a crust as a part-time barman] he told me that he had mentioned my stance to a friend who is studying Economics; and the friend had vehemently disagreed with me. Perhaps we will be able to have a face-to-face discussion some time. In the mean time, I will post here today the briefest summary of my views.

I had the great good luck to go up to university when classes were small - my year in Politics and Economics comprised just 12 students - but teachers were good and libraries well resourced. The era of electronic access to data had not yet arisen, so we had to read: and we read voraciously.

At that time what we now call neo-Keyesianism was in the ascendancy, and models of the entire economy had been constructed in the National Institute for Economic and Social Research [NIESR], in the Treasury and in various universities. Given the state of development of computers at that time the models were crude and simplistic, and they could only be manipulated laboriously. Nevertheless, estimates could be made of the impact on the modeled economy of the policy options that were available to governments. These options came in two categories, monetary policy and fiscal policy. Monetary policy involved the creation of money; implicitly by the Bank of England on behalf of and with the authority of the government that owned the Bank. Banning the creation of money was a means of limiting the rate of growth of the economy; and encouraging the Bank to create money to lend to the trading institutions in the economy was a way of stimulating the growth of the money supply more generally. It was taken as a sign to the commercial banks that they could risk making more loans of their own money [deposited by their customers] whenever the Bank of England was stimulating the money supply; thus the amount by which spending could increase was very much greater than the amount by which the Bank increased the supply. Any commercial bank could borrow money from the Bank of England at a 'bank rate' [later called the 'base rate'] which was publicly announced; and lending by commercial banks was made at rates higher than the bank rate. The banks charged their customers rates of interest that varied according to the perceived riskiness of the loan. When the Bank of England had the nod from the government, it lowered bank rate; which was a clear indication to all the banks that they could drop the rates they charged to their customers, and perhaps risk extending the range. Thus a drop in bank rate, accompanied by an increase in the Bank of England's willingness to lend, signaled that banks and their customers should invest to expand the economy; thus expanding trade generally and stimulating economic growth and job opportunities in many sectors of the system could be increased.

However, at that time there were major constraints on the expansion of credit extended by banks. Their customers were required to pay cash deposits on durable consumer goods, and were only allowed to borrow a set percentage of the purchase price. Thus the spread of TV sets, washing machines and other desirable consumer goods was slowed down by the legal requirement for would-be buyers to save up for the deposit before they could enter into a hire-purchase agreement under which [having paid the deposit] they could pay off their borrowing while they had the use of the device. The firms that made the television sets were protected from foreign competition by import tariffs and controls on the amount of foreign currency that businesses could buy: so the system of monetary policy operated within a physically controlled system of protection. The present situation, where consumers can borrow huge amounts of credit and thus create the 'consumer demand' that 'drives' the economy was unthinkable. The world in which neo-Keynesiansim appeared to thrive was utterly different from the world in which we live now; and over the next few days I will outline how that change happened.

I try to keep my blogs at a modest length, and hope that anyone who becomes interested in my ideas will word-search through the archive.

Saturday, 15 July 2017

Water off the Donald's Back

The pictures of yesterday's ceremonies in Paris feature two utterly bizarre couples. Wearing an almost-pristine Dior A-line dress of 1953, Melania Trump looked about the right age [but, certainly, not the right temperament] to be Mme Macron. Dressed for today, the real Mme Macron obviously made no positive impression on her near-contemporary, Donald Trump.

President Trump lapped up the limelight - it helped to correct the hassle he has been having at home - but it will be hard to find any evidence in the coming months that he actually feels any strong fellowship with a younger man who is trying to be monarchical while scrambling to assemble a sustainable government. Macron went home feeling that the day had been a success for French diplomacy: by the time Trump was in Air Force One the flattery had gone where the water goes off a duck's back. The net impact of the event was nil: except to reinforce the reflection in British minds that the French will never forgive the UK for saving them twice in the twentieth century. The French were thanking the US for entering the First World War in 1917, by which time hundreds of thousands of young Brits had been killed and wounded at the battle front in France.

Donald Trump is so used to apparent adulation from his TV audience, his minions in his patchily successful businesses, and the recent audiences at his campaigning rallies that he takes all such responses in the same way. He welcomes them, as reptiles welcome the warmth of the sun, because he needs them: but the impact of each day's intake is trivial in context of of the extent his previous experience. It has become apparent that he bridles - and twitters - at any critical comment that gets onto his radar; and this trait, too, seems now to have become ineradicable.

The progenitor of modern political campaigning in the United Kingdom, Benjamin Disraeli, was a magnet for criticism, much of it vitriolic. Some was easily turned aside as ignorantly antisemitic. For the more substantial venom of his many enemies [including much from his own party as he rose through the ranks] he had a well-studied display of contempt. He knew that success came to an outsider like himself by using his verbal facility and quick wit to pour flattery on those who could be useful to him. Once, when he was commended on this attribute, he responded on the lines of: "Everyone likes flattery; and with royalty I lay it on with a trowel". He showed the virtues of resilience and intelligence that have yet to be displayed by Macron, and which are apparently completely alien to Trump.

Another politician who combines indefeasible egocentricity with insensitivity to other people's opinions of him is Tony Blair. He has now imagined what shall happen to keep Britain in a 'reformed European Union'; or, perhaps, just within a European Economic Area where the continentals will surrender their 'red line' insistence on the free movement of peoples. It is sad that any newspaper would pay him for such tosh.

Politicians do almost nothing to deny to their fellow citizens the right to despise them.

Friday, 14 July 2017

Britain-in-Europe Survived as a 'Service Economy'

Yesterday, I hinted at the crucial fact that in 1948 the British people generally accepted that the country needed to rebuild its balance of payments; but their interests as consumes came to predominate over the recognised priority for productive investment in the economy. Following the collapse of neo-Keynesianism, the entry of the UK into the EEC was a vital step in the next major development. Within the cocoon of the EEC, then the EU, Britain was brought within a vast shelter that [it was hoped] could save any member country from economic catastrophe.

After Mrs Thatcher had eviscerated the economy, her successors were obliged to express admiration for her achievement in 'rebuilding' it. So, as the balance of payments worsened and the material economy continued to decay, it became imperative for the European shelter to be toughened. Mrs Thatcher herself huffed and puffed about Europe's exactions - and she gained an unprecedented rebate when other member states admitted that Britain was, indeed, being screwed under the prevailing formula - then she signed up to integrationist agreements. John Major, a hugely under-estimated figure, won a general election and proceeded to lead the country into the 'inevitable' process of political association of the EEC states with the passage of the Maastricht Treaty. A significant number of Conservative MPs, who he apparently classed as 'the Bastards', recognised that a political price was being paid for an economic shelter; and several of them did not like it. Thus they sought to oppose the surrender of ultimate sovereignty to the European Union: and though Britain went fully into the Union, there were many who resented it, in both major political parties.

Tony Blair's contempt for any history but his own, and for any political principle more profound that his convenience, led him to pack the House of Lords with donors who spared him the need to mollycoddle the trade union leaders whose predecessors has dominated the Labour Party through their control of the purse strings. His cavalier attempt to abolish the ancient office of Lord Chancellor showed how superficial he was; and the scandal of the Gulf War has rightly become the basis for an ineradicable contempt for his unconcern with truth; and apparently for the lives of British forces and Iraqui civilians. He allowed the drift towards further integration of EU institutions to continue, while considering himself a 'bridge' between the USA and the EU. Gordon Brown's brief period in office was dominated by the economic crisis, to which he and his Chancellor, Alastair Darling, responded well.

The came the Cameron-Clegg coalition. The LibDems were fanatically pro-'European', so for the five years of the coalition government the subjection of the UK to the EU was welcomed: the economic protection that it gave to the UK was recognised, and as the major financial centre to have survived well when the dust settled after the great crash of 2007-8 London was proven to be an asset to the whole of the EU. Of course, French and German bankers resented this situation; but their banks had to build up their London operations to remain globally competitive. Thus in the period 2010-15 a sub-set of the service sector, the financial services, became central to the economic offering that the EU made to the rest of the world. After five years of coalition the LibDems were adamant that they needed to stand [and to crash] as an independent party in the 2015 general election; while David Cameron [with an arrogant insouciance reminiscent of Tony Blair] promised a referendum on membership of the Union hoping, once and for all, to show that the 'Bastards' were a declining and impotent minority within the British state. Cameron was surprised to win the election, and he decided to call the referendum on the basis that a simple majority was required, with no limiting conditions. He apparently expected something over 70% of those who voted to favour continued membership of the Union. He had not foreseen that the referendum could be opened up as an avenue for the pent-up resentment of large swathes of the nation against his austerity policies, against deindustrialisation, against alien immigration, and simply against authority. The more the odious apostle of austerity, George Osborne, predicted doom and disaster, so the more people were tempted to vote against the government.

Thus came about Brexit. Cameron stood down, shocked at the consequences of his actions. The largely unknown Theresa May became the surprise premier, and she immediately grasped the wrong end of the stick on Brexit. Without comprehension of the importance of the economic cocoon, she set in train a process which - if it were continued to the end - would be calamitous. On her minsters' first presentation of major Brexit legislation - yesterday - it immediately became clear that she would not get away with it. The nation is about to descend into faction, debate and disagreement that will be reflected in both houses of parliament and in all the devolved assemblies. Things are getting interesting: and the only certainty is that Brexit as Mrs May has misconstrued it has gone into protracted death throes,

Thursday, 13 July 2017

Good Jobs?

Yesterday the Right Honourable Damian Green, for the first [and perhaps the only] time stood in for Theresa May to answer Prime Minister's Questions in the House of Commons. As is common, he had been fed with various points to include in his responses: regardless of whether those points actually fitted with the run of the questions that were put to him. Thus he challenged the opposition to agree that the employment statistics that had just been issued were a very positive indication of the strength of the economy. He did not get the answer that he was supposedly seeking, but that did not matter as the boast about the state of the jobs market was entered into the records of the House.

Only in the most superficial sense are the data positive. The number of people recorded as being employed had gone up, and the recorded number of unemployed had gone down; which meant that on those measures the figures are the most positive for more than forty years.

Forty years ago, in 1977, the Thatcherite destruction of the real economy had not begun and the mixed economy was essentially in good shape. There was an economic crisis nevertheless, due to the effects of failed neo-Keynesian economic policy in stimulating inflation and a consequential wage-price spiral that was causing ever-more-disruptive strikes.

During the nineteen-sixties the Economics profession was dominated by self-styled neo-Keynesians who believed that they could advise the government so precisely on using the 'tools' of macro-economic management that the economy could be 'fine-tuned' to produce a high level of employment without shortages of specifically skilled sets of workers that could became so severe that wages would rise due to the competition by employers to attract those skills.

During the nineteen-fifties there had been willingness among the general population to develop the economy step by step to repair the ravages of the Second World War both in terms of direct damage [especially by bombing] and the exhaustion of industrial plant due to it being run hard for a decade with absolutely minimum investment. Thus a massive house-building programme was given high priority both in the public sector of council homes and in the private market where the building societies were flourishing. It was also accepted by trade union leaders as well as by company directors that Britain was a trading nation, highly dependent on imports. This had been emphasised during the war by the U-boat threat: everyone knew that the country would have been starved into surrender if the German navy had been able to cut off imports of essential foodstufs and other commodities. So it was easy for people to understand that in peacetime it would be necessary to build up the export markets that alone could pay for the imports the UK would continue to need.

But the workers were also consumers, who were informed by mass media [among which television was emerging as probably the most important] as to what was fashionable as well in the USA as on this side of the Atlantic. Most of continental Europe was more damaged and run-down than Britain, so it was to the prosperous North American markets that Britons looked for examples of what was fashionable. American films were the principal content in the cinemas, and there too people saw what a relatively-affluent community of consumers could have. Twenty-first century people will find it hard to understand how desirable nylon stockings and simple make-up were to women, and why their menfolk accepted and accommodated those 'needs'. Thus scarce foreign currency, especially dollars, had to be spent importing those things, and many others. Consumer goods were far more prominent among imports than economic planners had anticipated during the war. Thus less machinery was imported to develop the exporting industries, so that more could be spent on consumer goods; and once that trend was accepted it came to dominate the pattern of economic evolution.

Fast-forward sixty-odd years and we see that the balance of payments is hopelessly adverse for Britain. Industry is still important as provider of goods for export, but massively overshadowed by service trades. Tomorrow I will develop this theme further.  

Wednesday, 12 July 2017

Weather Wisdom

After a long period of hot, muggy nights, London has had one cool wet night. I lay awake for much of the night, due to the now-unfamiliar sounds associated with heavy rain: particularly gurgling drains on the patio three floors below my bedroom.

Then I went to sleep, and woke two hours later than usual.

For several days previously, people have been commenting on their difficulties in sleeping due to the [relatively] hot and muggy weather. Today one will hear of people oversleeping and travelling in more crowded commuter vehicles [which would have been even busier has the school holidays not begun]. In some cases the stress of travelling will have offset the advantage of having deeper, longer sleep; in other cases, especially for people who work near their homes, or at home, one refreshing night will have had a restorative effect.

This is a trivial reminder of how much the weather has affected humanity throughout history. Extreme weather events have changed history. Some leaders have been associated with good weather and great good luck: other have fallen because of inauspicious weather. Population movements have been driven by the weather: and climate change is forecast to bring about the greatest mass migration of humans ever, during the present century. Freak occurrences of tropical fish in the English Channel are increasing, and Atlantic cod are moving northwards around Iceland and into the northern seas where summer ice cover is less than at any known historical period.

The options facing human history are being set by climate. How much of climate change is due to human agency is not known, but there is some evidence that human intervention has exacerbated a problem. Now Donald Trump is able to play a maverick part that could be catastrophic if the most extreme assessments of the consequences of human behaviour are valid. Thus are small men allowed to become extremely significant.

Tuesday, 11 July 2017

'Free Trade' Deals and Point Protection

Mrs May was apparently very pleased with the offer that President Trump made to her on the side of the recent G20 Meeting, that Britain would have a 'great' free trade agreement with the USA after Brexit. He probably didn't remember that the next day; and even if he did, it does not add up to a string of words. The US Congress, specifically the Senate, has the power to make or to decline to ratify Treaties of all kinds; and Mr Trump has enough hassle with the Congress [even though both houses are controlled by his recently-adopted party] for him to be willing to make a big deal of a mere trade agreement with the UK.

Much more important is the fact that the USA is an instinctively protectionist state. It is the natural reaction of American politicians to set up temporary tariffs or other means of restricting imports, wherever a significant sector of the US economy activates its lobbyists to make Washington aware of any potential existential threat. For post-Brexit Britain - if we ever reach that state - to depend at all on the US as a crucial export market would be even more foolish than it would be to leave the European Economic Area.

British manufacturers' organisations have already issued warnings about the tendency of India, China and other advancing economies to follow the US example. As industries in those countries are developed to be able to offer sophisticated consumer goods, pharmaceuticals, advanced software and the rest of the range of sophisticated products and services, so the tender 'infant industries' can run to their governments for protection against the inroads of alien producers into their markets.

Although the UK has been laggardly in developing the market for inventions that continue to pour from British residents [including immigrants], the potential for the expansion of Britain's global markets continues to be among the best in the world. Shamefully, many innovative British businesses are sold to aliens [and then misrepresented as 'inward investments] simply because their developers have not been able to get development funding. Other brilliant British inventions, that do get adequate investment and build up their markets, are picked off by alien predators before they make anything like the contribution to the balance of payments that they should: and once the ik [the intellectual property] that the companies own has been alienated, the benefit of that ownership goes wherever the alien owners of the business direct it. This depressing pattern has been developed even while the United Kingdom has been within the cocoon of the European Union, and will not be broken by a 'hard Bexit': rather, it will ensure that the economy shrinks drastically.

While the UK is fully within the European Economic Area it will not be subject to point protectionism by Europe. If our government is crazy enough to try to take us out of the EEA, they would expose the country to European point protectionism, whenever a British concept or project caused a scream from EEA firms and interests. That is the way of the world. Lobbies transcend Trade Agreements and set aside solemn international agreements. Ministers seem to be oblivious to this, as to so many other obvious facts. They have no right to cross-party support in the Commons.

Monday, 10 July 2017

Lame Ducks and Kamikaze in Cloud-Cuckoo Land

Mrs May's new ploy might be quite clever; and if it is, one wonders who dreamed it up for her. To issue a draft speech two days early is a new trick, as far as I know. It is designed to set the media into a frenzy and to challenge the opposition parties to make a considered response to the apparently-arid actual content of the discourse.

Mrs May appears to be a lame duck premier, but her party dare not precipitate an election if it can be avoided. She may indeed survive long enough for the arch-Brexiteers to be shown up as lame ducks, instead.

A so-called Kamikaze wing of the Conservative party is - against all reason - demanding a 'hard' Brexit, which seems to mean complete withdrawal from the European Economic Area and the destruction of what the Thatcherites [and the neo-Thatcherite New Labour crew] left of the British economy. With various degrees of enthusiasm about self-immolation, there are reckoned to be up to sixty people of that persuasion: enough the prevent any more moderate consensus in the Tory party. Before her spectacularly unsuccessful election campaign, Mrs May hoped to get a big enough majority, including a large number of Remainers among the new MPs, to be able to face down the loonies and come to a solution of the Brexit dilemma [which she did not solicit personally] that could probably attract massive support in parliament and in the so-called parliament of the EU.

She is now launching an attempt to build a Commons consensus anyway. It will take a long time, but it may have the effect of moderating the success of the Momentum movement in the Labour Party.
Corbyn was spectacularly equivocal in all the recent election grandstanding about the Brexit issue. His personal antagonism towards anything that might protect or strengthen capitalism is beyond doubt, and as is evidenced in Germany the EU is good for business. M Macron's euro-enthusiasm is largely driven by his recognition that it will be less difficult finally to smash the French trade unions in a context of a stronger European Union than in has proven to be in a still-sovereign France. The Corbynistas will have noticed that: Macron is a product of the French system for producing technocrats who serve the secret state that lies behind the constitution, and the hard left recognises the enemy. This is the context in which Corbyn's twists and turns in the coming months should be observed. He has command of the party - increasingly - thanks to the crazy constitutional changes that his predecessor pushed through the party: but he has no empathy with the mainstream tradition of the Labour party which most of his MPs [including the new cohort] represent.

Thus Mrs May's scenario planning could set the Corbynista minority of Labour and the Kamikaze minority of the Tories on the outside of a developing consensus. As that political experiment fails at the first hurdle, but might eventually be made to run, economic reality will turn the enthusiastic Brexiteer ministers into lame ducks. Putting both Fox and Davis alongside Johnson in key roles at the sharp edge of the Brexit negotiations seemed crazy at first: and perhaps it was simply that: crazy. But now the real evidence is coming to the top, the wedges between the three musketeers will become apparent. David Davis is learning the limits of practicality, and will soon have to make a decision about whether he sides with Philip Hammond [who has already, in effect, said that the UK must remain within the European Economic Area] or go out on a limb. Johnson will follow where the wind blows: he was late in deciding to opt for the Brexit camp, astonished when they won, and confused now that they are faced with increasingly harsh realities.

Liam Fox has appeared to be the most dangerous Brexiteer minister. He seems really to have believed what he said about the gains that post-Brexit agreements with the USA and India and China can bring to the country. But today the main manufacturing employers' body has emphasised that point protectionism is increasingly transcending overall trade agreements specifically in China, India and the USA. To protect their own firms, trade associations and governments in those countries are simply setting up ad hoc barriers against imports, especially of the high-tech and IP-strong exports that Britain needs to build up in the future. Fox will be proven to be a very lame duck before he can be really dangerous; and that public exposure will greatly strengthen the argument that the UK must remain within the European Free Trade Area: on almost-any terms.

Sunday, 9 July 2017

Penal Economy

It is increasingly well-recognised that prisons in the United Kingdom are at, or very close to, a crisis point. The Cameron-Clegg-Osborne austerity programme has reduced prison officer numbers below the level at which health and safety requirements for the inmates can properly be maintained, and though some recruitment is now taking place it is probable that the new staffing levels will be enough.

Meanwhile health fetishists are arguing for a complete ban on smoking in prisons. This indicates the tip of a huge iceberg of trouble. It is notorious that many thousands of prisoners are addicted to tobacco [and very many to other addictive substances, including cannabis], and that there is a massive underground economy to supply the prisoners with their 'need': backed-up by a brutal system of enforcement among the inmates. Today the BBC placed a report that massive amounts of tobacco and other addicts' supplies had been found in prisons over the past year: together with thousands of illicitly-held mobile phones [and, presumably, the related charging devices]. The use of drones to carry some of this contraband into prison has been reported extensively; and means to prevent their use have been implemented in some prisons to modest effect.

But it is clear that the historic routes for illicit commodities into prison are via visitors and by the use of corruption or intimidation on prison officers. To impose mandatory vaginal and anal examination of 'innocent' visitors to prisoners would be considered outrageous; so that route for contraband remains open. Given the operation of human nature, activities like threatening an officers' family will always find a way of influencing individuals. There are historic ways of mitigating this problem, but it will never be eradicated. As was indicated in Ronnie Barker's brilliantly-scripted series of TV scripts about life in prison, there is a stand-off, a compromise, between inmates and management that can usually be kept in balance. To overset that balance by having too few staff, or unacceptable strains placed on prisoners [such as a smoking ban would cause], would be calamitous. The attempt both at once would be catastrophic.

Saturday, 8 July 2017

Hospitality and Productiveness

An area of significant growth within the 'dominant services sector of the British economy' is designated as Hospitality. This covers hotels, restaurants, pubs, cafes and all such outlets; which directly employ 3.2 million people, supported by 2.8 million people who work in support and supply trades to the sector. Thus six million households are wholly or partially maintained by the business. The trade association for the sector, the British Hospitality Association, has undertaken studies that show that the sector is well spread across the whole country, with Hospitality constituting a top-six employer in every region of the United Kingdom.

It is also a sector that has defied the general sluggishness of the British economy since 2008. The increase in output measured over the period is 5.9%, double performance of the whole economy. Labour productivity [measured as gross 'value added' per hour] is around 3.2%, which compares favourably with the shameful national figure for the whole economy of only 1.5%. The sector paid £38 billion in direct taxes and claimed to have brought £161 billion of turnover into the economy in 2016.

The sector also displays many of the structural weaknesses to which the British economy is prone. It is very heavily dependent on low-paid labour, much of which is recruited from abroad: mostly from the European Union and the Commonwealth. This is obvious in the patchy linguistic skills of the staff, where more 'white Europeans' are in front-line jobs, with a higher concentration of non-white people as cleaners, kitchen porters etc. There is very considerable use of casual staff on very uncertain contracts, who receive low wages and thus make little contribution to the buoyant consumer demand on which the momentum of the economy depends. The British Hospitality Association emphasises that there is great potential for growth in the sector, so long as foreign travelers are attracted to the many well-marketed natural and urban assets that Britain and Ireland have to offer, and so long as the resident population have sufficient incomes to enable them to use catering and related facilities. If the now-evident slowdown in the real earnings of the nation at large continues, it will impact disproportionately heavily on the hospitality sector as people buy ready meals and take drinks home from the supermarket rather than eat and drink out.

Over the past twenty years hundreds of pubs have closed in every part of the country as social habits have changed. It is increasingly unacceptable for chauvinist husbands to leave their wives at home with the television and the children and cups of tea, while they booze with their cronies several nights weekly. Couples, often with their children, dine out together; though it is notable that many families sit as three or more isolated individuals who are communicating with different sectors of the games business, or with different contacts, even as they eat: so they may just as well stay at home where the kids could access 'unsuitable' sites from the bedrooms. It is little hardship to a family to cut out a restaurant meal when economy is forced on the household budget; but the negative impact of that happening a million times to the hospitality business is huge. Supermarket takings increase, and more pubs close.

To preserve their market, the better-designed and best-located pubs are moved upmarket as dining and drinking establishments; and, increasingly, managers are deterring 'traditional drinkers' from occupying floor space in 'gastropubs'. Significant investments are being made in the physical plant and in the image of selected catering outlets: and this requires the 'right sort of customer' to be attracted to them: people with sufficient money to provide a return on the investment [in premises, staff and the offering that is made] and who have the inclination to use just that sort of outlet. So this enhances the need for specialisation, branding, image-building and the need to advertise; which also require heavy investment. The returns that come to successful outlets are increased turnover, higher productivity from staff and increased productiveness which justifies constant further investment. A very few pubs survive as retrospective examples of the 'spit and sawdust' image of hostelries: though sawdust is not welcome on customers' shoes and most people would deeply be offended by any use of spittoons: it is a very subtle job to make an 'olde Englishe pub' attractive to capable consumers.