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Saturday, 30 September 2017

Brexit Buffoons, Regulations and Point Protectionism

Boris Johnson has sounded-off again, this time to the Sun, with his demands about Brexit. The transition must be absolutely no more than two years, and the UK should not accept new EU regulations in that period. This keeps him in front of the 'hard Brexiteers' in the Conservative Party, ahead of what is certain to be a very painful party conference for the Prime Minister who decided to hold an election, then ran it the way her close advisers suggested, and so lost her parliamentary majority. Members of the party from all factions know that the Corbyn-McDonnell chances of winning a general election [in England, Wales, and - just possibly - the lost Labour heartlands of Scotland] are astonishingly high. Thus the Tories dare not topple the leader, simply because there is no obvious alternative who could surely prevent the party from disintegrating sufficiently to force a general election.

Thus the Conservatives have to negotiate Brexit: with an increasing majority of the party daily becoming more aware [as are Labour MPs] that the complete separation of the UK from the European Economic Area would put the livelihoods of all sixty million people who depend on the UK economy in grave jeopardy. The Minority of fervent Brexiteers, together with the ambitious chancers who have joined them, assert that the UK can open up huge vistas of trade all over the world, by making trade agreements with a whole raft of countries under WTO Rules.

The World Trade Organisation had its origins in GATT - the General Agreement on Tariffs and Trade - which was set up alongside the International Bank for Reconstruction and Development [normally called the World Bank] and the International Monetary Fund [IMF] by the victorious allies at the end of the Second World War in the belief that the two devastating wars of the twentieth century were largely economic in origin. The USSR was wholly, dogmatically convinced that the First World War was the result of expansionist imperialist competition between the European powers; and they ascribed the second to a re-run of the same conflict between a resurgent Germany and the 'Anglo-Saxon' states that had succeeded in 1918 and then dissipated the fruits of victory in the Depression of the 'thirties. The USA and the UK shared the view that the competitive inefficiencies of capitalism had exacerbated the economic problems of the late 'twenties and early 'thirties. The idea behind the new system was to provide transparent means by which each economy could grow as part of a successful international community.

The USSR soon withdrew from active participation in the institutions, and compelled its satellites to leave as well. Then the international organisations served the 'capitalist' world, in an uneasy relationship with the 'third world' of notionally 'non-aligned' countries [which asserted their independence of both the USSR-led and US-led pattern of alliances that maintained the cold war from 1949 to 1992]. During that period the GATT became the WTO, and had to accommodate itself to a global reality where the rhetoric of free trade was greatly modified by each country building up defensive mounds of regulations that kept out many imports that other countries could offer them in greater quantity and of more sophisticated design than their own factories  could produce; without imposing tariffs that openly breached WTO rules. When such rules failed, and a government wanted to exclude some import, they could - and did - simply impose 'extraordinary' tariffs, usually 'temporarily' to keep out the unwelcome export. That is what I have called point protectionism in this blog. The recent spat engineered in the USA by Boeing is merely one of thousands of examples.

If Boris Johnson and Liam Fox are such starry-eyed innocents that they believe that WTO Rules will be enough to ensure that the UK can make a safe transit into a post-EU trading world, they are profoundly dangerous.

Friday, 29 September 2017

Cheap and Nasty Government; But Would Labour Be Any Better?

The present government constantly provides ministers and 'spokespersons' who will defend any policy and any situation. Thus, in the past 24 hours, a survey has shown that the majority of NHS nurses go home from their shift, not only physically exhausted but emotionally drained as well. They report not being able to be present when people die, completely alone. They are anxious and embarrassed that medication is not given on time; and is sometimes missed altogether due to the pressure of work. Some clown in the Health Department did not deny that the report was true, but made the irrelevant comment that there were 7,000 more doctors in the hospitals that there had been seven years ago.

Soldiers reported that the vehicles that were designed to protect them from roadside bombs and similar hazards often break down in the hot weather conditions for which they were supposedly designed, at a huge cost. The Defence Department flatly denied this report, asserting that the vehicles were effective in keeping the troops safe: maybe so, if the failure of the vehicles keeps the soldiers in their bases. Old naval hands despair at the lack of resources to keep the massively reduced fleet operational and seaworthy and fit for action. The two new aircraft carriers have no aircraft. There are plans to reduce the number of Royal Marines beneath the present level where they cannot cover all the actions to which politicians commit them. Mrs May flies off to Estonia to declare that Britain will defend all its NATO allies: with words and sharp cuts?

More than seventy Tory MPs have signed a demand to the Prime Minister to implement her election promise to impose a cap on energy bills for millions of households: it would only affect a minority of families, but would cover many of the most vulnerable. A smaller number of Tory MPs are also agitating for delay in the implementation of the government's penny-pinching scheme to accelerate the roll-out of the single state benefit. This would save money; particularly in that as people are migrated from the complex of former benefits onto the new system there is a six-week delay before they get any money from it. This the government's outward cash-flow is deferred; while individuals and households are plunged into desperate want, forced to apply to food banks and doorstep lenders.

The sheer insensitivity of all of this calls into mind the cynicism of the worst Victorian workhouse masters and the cynical Stalinist Commissar. Both of those classes of individual - like the civil service in austerity Britain - have had drummed into them that no more resources will be made available; so they simply deny truths that are on open display.

It is the record of socialist governments, whether Marxist or not, to assert their own propaganda more often and more fervently when the truth does not accord with the official line. This is happening more intensively [and more absurdly] by the day in Venezuela at the present time. Jeremy Corbyn's  enthusiasm for the Maduro regime consequently becomes more indefensible by the day: but the Labour leader evades every opportunity to admit the lack of substance in the regime's claims and assertions; or to recognise the increasing level of oppression. Those who wore 'HANDS OFF VENEZUELA' T-shirts and baseball caps in and around the Labour Party Conference earlier this week seemed to me to be anticipating their future role as deniers on the domestic scene when the Labour Government that they expect to take office soon fails actually and humanely to implement their proposed policies. While Corbyn can still claim to be a 'seventies idealist, the people who have built his machine are ruthless advocates of extreme measures to rob the rich and to coerce the rest of the population. Nasser, Ghadfi, Ken Livingstone and a score of other 'strong men' shoved aside the much gentler figures who originally fronted their coups or electoral victories. It is well authenticated that while Mrs Attlee was driving her husband to Buckingham Palace to take the King's commission to form a government, Professor Laski, Herbert Morrison and others were plotting to hold a leadership election in the Labour Party that would choose a far different candidate than the election-winner Attlee.

There is a real and proximate danger that a Labour election victory, especially if the party won by a small majority, would quickly be followed by the overt capture of the government by a radical faction who would move quickly to consolidate their power undemocratically for a long period of authoritarian rule. As the saying in revolutionary circles goes: rely on one man one vote, once! Hence, although the Labour offering in the past week has been largely composed of highly desirable policies, and the austere Tories show that they cannot mind the shop while they flounder towards a Brexit disaster, the risks in having either party in power are immense.

Thursday, 28 September 2017

Labour Luddites and a Prime Minister as a Poodle

Jeremy Corbyn has gained a new measure of popularity in recent months, largely because he has become popular. He has changed from being a crabby, obsessed 'leftie' to being an almost-charismatic emblem of popular disgust with boring, respectable politicians. In his speech yesterday his main task was to transmit some of the enthusiasm that was being shown - to excess - in the hall at the Labour Party Conference to the wider population; while combining it with a measure of responsible policy that can be presented to the electorate. Much of what he has recently advocated has my strong endorsement , based on half a century of intensive study of the history and effectiveness [or, as usual, ineffectiveness] of economic policy: especially when derived from economic theory. A modern country needs a mixed economy, with a large amount of state investment and public ownership of natural monopolies [which must, of course, be at least as well managed by the public sector as the private sector: which would be hard to achieve, but is doable].

One aspect of his speech, however, verged on the cretinous. That was his apparent Luddism in suggesting that action should be taken - including punitive taxation - to prevent human beings' jobs being taken over by robots; presumably at the behest of wicked capitalists. Virtually every forecast for the medium term future of the economy envisage huge benefits [not least, massive gains in productivity and in the range of products and experiences that will be available] due to innovations where human ideas are made into products and experiences to be enjoyed by everyone by the combined action of people and machines drawing on intensified robotics and enhanced artificial intelligence [AI].

The origin of the term Luddism comes from the mythical character Ned Ludd, the supposed organiser of the gangs of handicraft workers who broke into premises and smashed machines that were capable of replacing old-established crafts [because they greatly enhanced productivity] in the new factories, particularly in textile manufacture in the period 1790-1820. Individual employers were ruined by the Luddites, and a few workmen were penalised when they were caught in the act [or betrayed by colleagues]; but over a couple of decades the machines prevailed, and employment increased [though this often included child exploitation, until that was banned by laws that were enforced by inspectors who actually entered the employers' premises]. The ban on child labour, the ban on womens' night work, bans on the use of dangerous chemicals and processes need to be enforced in a civilised society: the state must be active in the economy to promote and preserve human rights and humans' health. One result of recent laissez-faire attitudes in society at the start of this millennium is the rise of 'modern slavery' [though I cannot detect anything notably modern about it]. The government's obsessive austerity has reduced the numbers of police officers, while terrorist threats have reoriented the work of many officers: with the result that offences like internationally-traded forced prostitution and domestic service have grown almost uninterrupted.

This is the background against which - so it is promised - Mrs May is to utter a peon of praise to the 'free market' as the central point of her speech to the Conservative Conference which opens today. This will be contrasted by the press [which is predominantly pro-Conservative] with the backward-looking old socialism and Luddism of the Corbyn effort yesterday. Mrs May will utter this claptrap in between calls to the US president asking for his intervention in a trade war with the US over the fate of the Bombardier aircraft factory in Belfast [and three other plant in Northern Ireland, as described yesterday in this blog]: a prime example of point protectionism which makes nonsense of the hard Brexiteers' vision of the future. Mrs May has to press this case, in defence of free trade ideology, despite the fact that her parliamentary majority depends upon taking a chauvinistic stance on the Bombardier issue. She lost the recent general election, and clings on to power with the votes of the Democratic Unionists. All the Bombardier plants are in constituencies held by the DUP: and the Bombardier jobs are of such importance to Catholic as well as Protestant workers that Sinn Fein's leader has signed a joint letter with the DUP leader to send to the US Vice-President. Hostilities at Stormont have been transcended by this issue; and Mrs May is compelled to make a nonsense of her free market rhetoric even as she utters it. Nevertheless, as a poodle of the Northern Ireland politicians she has no option but to demonstrate in the clearest way that her rhetoric is claptrap. Thus the Tories will be diminished by the inconsistency and infighting that will be in full view in the coming days: yet they all know they must hang on to office, or Corbyn will have the chance of his lifetime.

Wednesday, 27 September 2017

Bombardier Bombarded: A Lesson for Brexiteers

The Canadian aircraft manufacturer, Bombardier, has suffered a huge blow at the hands of the US regulatory system: a tariff of 220% has been imposed on imports of its new aircraft to the USA: one of whose airlines has ordered 75 of the planes, with a further order pending. Both the British and Canadian governments have made grants to the company, to maintain its technological capabilities and to protect employment in Canada and in Northern Ireland; and Boeing, the US aircraft builder has cried 'foul' even though the new planes will not compete directly with any of their products.

Boeing has massive contracts with the US military and with NASA. The prices set on such products are necessarily sufficient to support the research and development that is necessary to design and build the craft and devices: thus giving Boeing a comfortable profit base that exempts the firm from any need openly to seek subsidies for its civil aviation sections. Bombardier - the former Short Brothers in Northern Ireland - now has little demand from the British defence sector, which is so strapped for funds that the national defences have been excessively depleted and the country only manages to present figures showing that it meets the NATO target of 2% of GNP on defence by cooking the books rather brazenly. It is absolutely essential that a country purporting to be any sort of power invests hugely in defence technologies, which are expensive. The more innovative the defences are, the more they are likely to cost: and the more effective they are likely to be. It is a quaint paradox that some of Corbyn's 'loony-left' colleagues are more likely to see this than are Tory Brexiteers, because they can see the linkage between economic development and military might in Russia, China and the USA.

On the same day as the US decision was taken on the new tariff, the British train building section of Bombardier also received very bad news. A long-planned consortium arrangement with Siemens to build a new generation of trains for the world market was abandoned by the German firm in favour of an alliance with the French firm, Alstom. This has, allegedly, been engineered at the behest of President Macron, whose government is reviewing all major sectors of the economy with a view to ensuring that the French presence in each, within a European context, is the best that it can be from a chauvinistic French viewpoint. Brexit Britain can expect many more similar snubs from the Macron regime.

Both these stories teach the lesson that an isolated Britain depending on free trade agreements under WTO rules cannot succeed. WTO rules do not prevent the US paying Boeing top prices for research of incalculable value. WTO rules will not stop President Macron's chauvinistic plans from coming into effect. Cash tariffs are trivial obstacles to trade, compared with regulations on product standards and safety that can be manipulated in to assist favoured products, and the 'needs of national defence'. The naive optimism of 'hard' Brexiteers is a form of idiocy. Unless the UK remains within the European Economic Area, with all its common standards and definitions, British firms and their products will be picked off [by being deemed not to meet standards] one by one, as their European competitors develop their capacity to supply the equivalent of their former exports.

British airlines and train companies are under no pressure to buy British: so the demise of the bombardier plant in Belfast and Derby is threatened. British jobs can be lost, and with them generations of accumulated knowledge: and the dimmer Tories won't even weep into their whiskies. Of course, there are intelligent people of conservative cast of mind: but few of them are content with the present deeply-riven government, and even fewer are comfortable about the prospect of a 'hard Brexit'. Despite his Marxist blinkers, John McDonnell shows some awareness of these issues. As the parties stand at the end of the Labour Conference today, Labour has the best of the bad arguments. I do not expect the Tories to gain any ground when they meet in conference next week.

Tuesday, 26 September 2017

The Kurds: An Inconvenient People

In parts of the northern regions of the country called Iraq there is a majority of people who consider themselves to be of a Kurdish ethnicity: as there are in a large swathe of Turkey and parts of other 'national' territories; not the least important being Syria. The vast majority of the Kurds were subjects of the Ottoman Empire until the end of the First World War, when that monarchy [like the Austro-Hungarian 'dual monarchy'] was dissolved.

In Europe the victorious allies imposed the Versailles Treaty on Germany, and the Trianon Treaty was supposed to resolve the territorial boundaries of the successor states to Austria and Hungary; including much-reduced 'rump' states called Hungary and Austria. The US President had published his ''Fourteen Points" during the war, setting out America's war aims: to which the British and the French subscribed, insofar as the postwar settlement of Europe was concerned. Prominent among these points was the 'principle of nationality': some groups who had been subject to Austria and Hungary had declared themselves to be separate nationalities and small armies [for example, cohorts of Czechs, Poles and Slovaks] had fought with the allies;  or claimed to be ethnically related to the people of neighbouring states, as with Romanian-speaking subjects of Austria and Russia. All these claims came out at the peace conferences, and an attempt was made to accommodate them.

The distribution of people and languages in Europe did not easily lend itself to a process of drawing clear frontiers around the ethnic groups. Thus German speakers were allocated to France in Alsace and Lorraine, alongside French speakers, and to Poland and to the Czecoslovakia that was cobbled together after the great Slovak leader Stefanik was conveniently removed in an 'air accident'.
Hundreds of thousands of Hungarians were deposited in frontier areas of Slovakia and Romania. The great German port of Danzig was created a 'free city', the polyglot Austro-Hungarian port of Trieste was severed from its hinterland by its allocation to a sliver of Italian territory, and the German-speaking former capital of Hungary - Pressburg - was considered for free city status until it was designated the capital of Slovakia and given the newly-minted title of Bratislava.

Some of these territorial allocations - notably those in Czechoslovakia and Poland - were the trigger point for the Second World War; and hangover border issues still remain as with the Slovak-Hungarian minority. New ethnic mixes were created by Stalin, who rebuilt the USSR by moving millions of people so that Donetsk is an almost-entirely Russian-speaking city and the Baltic states of Estonia, Latvia and Lithuania have large Russian-speaking minorities. Spain faces an urgent crisis over the much longer-running claims for independent sovereignty for Catalonia; and Scots nationalism is not dead. Rich Dubliners send their children to centres in the west of Ireland where they are expected to improve their pronunciation of a language that they are most unlikely to deploy in their careers; while the Ulster protestants are fiercely resisting demands for their province to adopt the formal bilinguality that prevails [at great cost] in the Irish Republic.

With so many loose ends quietly festering in Europe, there can be no surprise that similar problems exist elsewhere; as with Tibet, and with the Muslim minority who are currently in flight from Myanmar.

The Kurds have the misfortune to have had no advocate of significance in western capitals in 1919, when the majority of them were allocated to the newly-defined Turkish state and others were simply in the way of the mapmakers as the British and French arbitrarily delineated new states which defied both the aspirations of the Arabs who had fought with the 'allies' in the First World War and the interest of minority populations within those artificially designated states. After all, it was what the Europeans had done at the end of the nineteenth century in delineating their colonies in Africa: which led to the absurd situation of today, whereby the posit-independence states in Africa bear little or no relevance to the ethnicity of their populations. There is scant chance of Kenya electing a President Obote as long as the Kikuyu are the majority ethnic group.

The Kurds of northern Iraq provided tough and useful allies for the USA in the resolution of the mess that Bush II and Blair created in that country. Yesterday they voted to be a sovereign nation. That is utter anathema to Turkey. A festering sore that is ninety-eight years old is about to swell into a major international crisis. The Kurds surely have their rights; as do the rulers of Turkey, Syria and Iraq. The times call for new thinking: the fraught political situation will not permit that to have any effect.

Monday, 25 September 2017

Managing the Labour Party

Jeremy Corbyn may be the starry-eyed idealist that he often presents himself to be: in which case he is too good for practical politics, and certainly the last person to control nuclear weapons. Yet there is a good chance that the incompetence of the Tories, and the egomaniacal economic illiteracy of Boris Johnson in particular, could hand him the control of Downing Street.

It is therefore particularly important to note that he - or his manipulators - has prevented the Labour Party Conference from expressing a view [let alone, declaring a policy] on the dominant issue of the day: what does Brexit mean?

On one aspect of the matter his view is entirely sensible: this country needs a fundamental economic restructuring, with a significant implementation of mixed economy policies. This could well include the resumption of state ownership of natural monopolies - the railways, electricity, gas and water supply. It is also fundamental that a country with advanced manufacturing industries, which need to be fostered and developed into a new era of high productivity, retains the fundamental capability to produce steel. Corbyn has rightly said that the EU rules on 'state aid' to business would make it virtually impossible to take the necessary measures; but he has conceded that it is plausible to envisage a model in which the UK can be free to make industrial policy and still have a close customs agreement with the EU.

Given Corbyn's popularity with the new party faithful, and the anxiety of older loyalists to remain in favour, it is likely that he could win a vote on Brexit in the conference, and vindicate his stance: but he had declined to do that. This is pure Stalinist politics; the avoidance of any risk that he-who-must-be-obeyed is to experience challenge.

Also in the conference, John McDonnell is to make a major issue of the mass indebtedness that has beset the United Kingdom since the 2007 credit crisis compounded the economic disablement that Thatcherism brought upon the population of the ex-mining and formerly-industrial regions. His 'solution', to make it impossible for lenders to charge more than twice the amount borrowed, in fees and interest during the length of a loan, looks wonderful: but is utterly impractical. While it could apply to specific hire-purchase type agreements of individual items, most debt is not susceptible to a cap of that kind. Car loans are usually cut short when the car is changed: the debt outstanding on the loan is settled usually by manipulation of the used-car's and the new car's 'prices': it would be impossible to compute what would be twice the amount of the loan, in any simple terms. Even more complex is the question of credit cards, which are by definition a flexible rolling loan covering a complex of debts that are entered into and resolved in myriad individual agreements. It would be impossible to compute how much interest and service charge was imposed in respect of any item within the card's compass. To set a maximum APR would make the system non-viable for the banks, even though they would be constrained by circumstances to charge the set maximum all the time for everybody: and the system might still be non-viable. If the credit card system collapsed, a lot of people would be disadvantaged. But it is odds-on the McDonnell's proposal will be accepted with rapturous applause. This will demonstrate another Stalinist 'truth', that the practicality of a policy is unimportant: it is the principle and the intention that count in an authoritarian regime.

There is always somebody to blame when a policy fails; and McDonnell has spent the last quarter century blaming the bankers, for the much evil they have done and the many things they could not help. Thus the world rolls on, and the left changes as little as do the Tories. Time for the Liberals to re-invent themselves again?

Sunday, 24 September 2017

China's Opportunity to Defuse Trump

China - the political masters of that country, to be precise - well understands that the North Koreans' unexpectedly rapid development of nuclear weapons capability is largely their fault; or, at the very least, their default.

The 'received wisdom' in foreign ministries around the world is that China is now locked in to a crisis that it has allowed to happen. China has limited [and 'interpreted'] UN sanctions in a way that has allowed the Kim regime to survive; most notably by allowing petroleum products to enter the country. This is said to be due to China's terror at what would happen if the regime collapsed. Starvation and anarchy would be very quick results of the collapse. There is said to be a fear that in such circumstances South Korea would step in to supply the people of the north, and thus be on the way to 'reunifying' the country on a capitalist basis: which would be anathema to China, and a great shame for the president who has begun to permit the media to liken him to the [still-sacrosanct] Chairman Mao.

More likely is the scenario that the regime would be able to tighten its grip even as the cessation of food and energy supplies [in a savage winter] picked off millions of already undernourished people. In such circumstances the rhetoric against the USA, as the perceived authors of the country's misfortunes [due to sanctions], would increase: and with it the prospect of nuclear adventurism from the Kim regime. The naive narcissist in the White House has recently had his image toned down by the largely-military cohort who now surround him. With the strong assistance of the Secretary of State, he can often appear reasonable; and this makes it unlikely that in the near future he could be declared unfit to continue in office. Thus the risk of a first strike by the US increases. The recent threat by the North Koreans to detonate a hydrogen bomb 'over the Pacific' has increased the probability of disaster greatly.

Were the US to deploy nuclear weapons against North Korea [and so far they are the only power to have done this in a real war] the fallout would certainly reach China, Russia and South Korea. This prospect is imminent.

There is an obvious solution. China has facilitated the North Korean weapons programme, and done nothing effective to tame the regime: or even its rhetoric. President Xi can stand tall as a statesman comparable with [and morally much superior to] Mao, by taking drastic, swift action. China should first seal the frontier with North Korea: then send in overwhelming forces to occupy the country. As it does so, it should call on the United Nations to send in a control team to supervise the neutralisation of the nuclear weapons and ballistic missiles.

As soon as those conditions are met, a joint command formed by - and led by - China, comprising the permanent members of the Security Council with the other 'brics' [India, Brazil and - perhaps - South Korea] should establish the preconditions for a reformation of the North Korean state. A safe haven could be offered to the dictator, perhaps in Switzerland which he knows from his schooldays: there is no reason to believe that he is mad, and assurances of personal security might be acceptable. Of course, for as long as lives, wherever he lives, victims of his regime and their children will [understandably] wish him harm: so he will never live in secure comfort.

Such a resolution would completely overcome Trump's posturing and rhetoric. It is arguably President Xi's duty to resolve the drastic dilemma that his country's hesitancy has fostered: and it can be the basis for real greatness.

Saturday, 23 September 2017

How to Turn Things Round: By Jingo

The term 'jingoism' has fallen out of use in the British Isles. Its origin comes from a song that was popular in a different social, economic and political environment from that that under which the UK is now groaning [and today being downgraded by yet another credit-rating agency, Moody's]: the song goes:
We don't want to fight
  But by Jingo if we do,
  We've got the ships, we've got the men,
  And we've got the money, too!

Very quickly after his seizure of power in 1933, Hitler got the German economy on the move by re-armament and by building up the supporting infrastructure: re-equipping steelworks and arms factories, and building the Autobahns. This created employment, which in turn generated demand for radio sets, new clothes and better food. Britain's turnaround after the Depression of the early 'thirties was also helped by a massive increase in armaments including - as mentioned in the last couple of blogs - the construction of dozens of airfields, which dispersed the RAF's growing but limited resources and made it vastly harder for the German airforce to attempt to destroy our 'planes; and a massive house building effort.

The British economy could massively be boosted right now by re-running what we did in the 'thirties. We could order the twenty frigate-type ships the navy needs, and equip them both for missile weapons, and for rescue missions [such as the one in which we have so visibly been inadequate in the West Indies in the past few weeks]. The order for ships could only be fulfilled by sub-contracting the building of sections of the hulls to small shipyards around the country and boosting the capacity of Rolls Royce and other firms to produce the engines and equipment. That would involve thousands of sub-contractors, who would all be able to invest in improved machinery and better work practices, to apply both in their defence contracts and their increasingly-competitive civilian work. The future of Short-Brothers [aka Bombardier] in Ulster and of Westland would be boosted by having aviation capability on the new ships and on Britain's long-neglected island bases around the world. Instead of being reduced, the number or Royal Marines and soldiers should be expanded: all of this putting wages into peoples' pockets and 'real' business into the shops those people use.

At the same time, a state-funded scheme of construction of 'affordable' homes should begin: that too would create jobs in the sector; and break the near-oligopoly of the existing developers [who are deliberately concentrating on an inadequate supply of higher-cost housing]. It would add to demand for businesses all down the supply chain and thus increase demand in the whole system; and the houses would start to produce a flow of rental income within a year, which could then fund  the scheme in future years [preferably boosted by the income from selling some of the houses as the supply became less stretched].

And how would this all be paid for? As the austerity addicts would plaintively claim.

By borrowing. By offering National Recovery Bonds at a rate of interest [capped at 6%] that would be at least 1% higher then the Retail Prices Index - something close to 4% as things stand just now. There are millions of people who have been starved of sensible vehicles for their savings, all through the era of low interest rates that followed from the crisis of 2007-9. As the economic growth provided by those two stimuli [defence and housing] all other sectors would face higher demand: led by innovative young companies. Thus the cost to the government would be only the interest that had to be paid [plus administrative costs]: and that would easily be met by the growth in the national income that would have been stimulated.

It has been done before: it can be done again. The only things needed are credible leadership in both politics and economic life. The bus-pass holders have the money!

Friday, 22 September 2017

Merkel and May: Common Origins, Shared Failures and Different Prospects

Angela Merkel and Theresa May are both the daughters of clergymen, so they grew up in the psychologically comfortable environment of a clergy house with attentive members of the local community willing to support them even though the majority of the outside population was post-Christian. May's route into politics was typical of an Oxford graduate who had always been a young Conservative. The much rougher road that Merkel followed depended on the collapse of East Germany, on Helmuth Kohl's determination quickly and fully to integrate the east and the west, and on the ruthlessness that she had learned under Communism to move in at an opportune moment and slip herself into Kohl's place. By contrast. Mrs May's accession to the party leadership was by default of David Cameron, whose panic flight from the tragic situation that had been created by his daft, imprecise referendum question was one of the most shameful incidents in British history.

Mrs May's great 'weakness' as Home Secretary was the abject failure of her department to come anywhere near meeting the policy requirement to reduce net immigration to the UK to fewer than 100,000 non-students a year. In one sense, the target was unattainable under EU Freedom of Movement rules; Mrs May should have said that clearly: she had no way of limiting EU immigrants. She would then have had to establish and enforce a quota of non-EU immigrants; and that would have to be a tight one. That would be impossible to enforce, too, because almost every MP is constantly battered with demands and petitions from their Asian constituents to support the immigration of family members, and to support cousin-to-cousin mail-order marriages; many urban constituencies could be swung if the whole south-Asian population united to support one party [Labour, if the Tories in government had imposed a real cap on immigration]. George Osborne was apparently scathing about this'failure' in and out of Cabinet meetings: so she had to dismiss him on taking up office as Prime Minister; and superficially journalism's loss is her political gain in not having his constant carping at her elbow. He will, however, be a powerful enemy outside the Westminster hothouse, and he will surely dissect her ongoing failure to address Brexit adequately.

Mrs Merkel's massive mistake was to allow around half a million chancers from the Muslim world to claim to be asylum-seekers when she opened Germany to Syrians who were genuinely in flight from the appalling chaos of their home country. Many of these men - Afghans, Eritreans, Pakistanis etc - claimed to be juveniles, despite their appearance being clearly that of adults. She and her ministers appealed to Germany's Christian tradition as a major ground for welcoming the homeless: a sound point, in principle, which was instantly vitiated by the recognition that the chancers must include some jihadis and some potential recruits to jihad. Other EU countries have refused to take the quotas of these thugs that Germany has persuaded to EU to thrust upon them, and that will continue to be a source of discord within EU institutions for years to come.

Even if May is able to achieve a half-sensible Brexit, with the help of Merkel [which is by no means guaranteed], there is no reason to think that this will make May's position in the UK more secure: it could create the situation in which the Tory party can ditch her. May has, however, one cunning ploy that she has used already and will doubtless play heavily in her Florence speech today: that the UK can contribute materially to 'security' in the EU on an ongoing basis, after Brexit. That could well have a positive resonance, [particularly with Merkel and with the central Europeans who are resisting the quotas of chancers and thugs whom Merkel is foisting on them]. But everything is 'up for grabs' in a quickly-changing world and European context; with Trump and Putin spoiling on the sidelines.

Thursday, 21 September 2017

Countdown to Humiliation?

Neville Chamberlain was apparent a man of almost-infinite vanity, who believed of himself the quotations [from Shakespeare's Hotspur, and others] that he used to extol his success at the time of national humiliation in the days of the 1938 Munich Agreement. Perversely, public anger then and at the outset of war was directed to his predecessor as prime minister, Stanley Baldwin, who had in fact had a much clearer view of Hitler and initiated the process of rearmament and [in particular] the expansion of the RAF and the widespread development of airfields that were to save the country in 1940. Chamberlain handed over to Churchill only when his illness made continuance in office impossible, and his death was buried in the fraught news of the nation's survival and eventual victory.

Mrs May may be equally delusional with Chamberlain, but I do not believe that she is. She is, however, mortally wounded [in political terms] by her failed general election: since which, she has seemed like a doped rabbit in the headlights, buoyed-up by a remarkable self-belief that she is unable to communicate to the nation that she very rarely troubles to talk to. Even during the election, that she called herself, she did not face up to confrontation, but took a tedious road-show around the country making absurd claims about her own strength and stability and risking losing the oldie vote by a totally silly launch of a plan to pay for home care with a 'death tax'. That might be a sensible basis for consideration: but it would have to be pondered deeply and planned carefully, not drawn up on a fag packet and launched during an election campaign that was already failing to match that of the antediluvian Marxist who had repackaged himself to capture the inexperience of younger voters.

Now Mrs May is gearing up to make only her second major speech this year in the Brexit issue: the one matter that will determine her reputation and the durability of her tenure of office. Early in the year, at Lancaster House, she vaguely talked about the sort of outcome that she hoped for from the negotiations with the EU on how Britain would stand after March, 2019. Many months later, she is to go to Florence tomorrow to make a speech whose content and tone - so it is rumoured - will be determined in the Cabinet Room in Downing Street today. Given Mrs May's propensity to take up pusillanimous positions with the advice of a kitchen cabinet of close advisers, there is a possibility that what is decided in Cabinet may be transmogrified en route to Florence: but the probability of Cabinet resignations may rule that out. However, some Cabinet members in the past have brought down prime ministers and government by resigning; and at least one egotist might be tempted to go - in the hope of future glory - if he is dissatisfied by her remarks.

Rumours about the content of her draft speech are scarce; but they include the suggestion that she will offer a [low] sum of money to the EU as a divorce settlement, spread over a couple of years after March 2019, if the EU will agree to a transitional phase that could well end in British membership of a redefined European Economic Area.

It still appears to be the case that a small number of Conservative buffoons in the Commons actually believe that Britain can walk out of the political AND economic aspects of the EU and survive economically from April 2019. If they were to have their way, supported as they are by a larger number of other MPs who would be prepared to risk a 'hard Brexit' with crossed fingers and justifiable doubts, they would be open to the same treatment as the Rumanian dictator got from the people after his

Wednesday, 20 September 2017

The Present State of Economy and Society

Official statistics are compiled by honest professional people, and tell the 'truth' in simple numerical terms. But much can be done to interpret them, either favourably or unfavourably, according to the wish of the interpreter. Hence, although the United Kingdom now has the highest proportion of its available adult citizens in employment since 1975 [one of the three years during which the mixed economy was tested most severely] it is sobering to note that in almost every way the present pattern of employment is massively more fragile than was that which NeoKeynesian inflation undermined. The effect of the inflation of prices, especially after the oil price hike of 1973, was that production was interrupted by strikes when the authorities took action to suppress wage rises in their clumsy attempts to cap the wage-price spiral. In each period of pay 'restraint' government costs rose while government revenues declined, and the balance of payments with the rest of the world became strongly negative. In those circumstances, the Labour government [which relied on minority parties to retain control of the House of Commons] sought a loan from the International Monetary Fund; and the conditions applied to that loan [in retrospect] can be seen as a demand for the state to bring in Monetarist policies to replace they failed pseudo Keynesianism that the Economic establishment had applied.

The Labour Party was torn apart by the consequent dissent from the new policy, with the trade unions - the traditional paymasters of the party - doggedly opposed to the government. Consequently the Conservatives won the 1989 general election. The new Tory leader, the largely-unknown and completely untested Margaret Thatcher, embraced monetarism enthusiastically; and she deplored the less-than-half-hearted attitude towards her radical policies from most of the Tory establishment [including most of her cabinet]. They had been broadly content with the mixed economy and were scared by the new radicalism. Mrs Thatcher and her close cohort dismissed the majority as 'wets', and became more intent on radical change in the economy. As to the social consequences of disruptive economic policies, Mrs Thatcher was simply to say 'There is no such thing as Society'.

The people who could be identified as the 'enemies' of the new Monetarist policies began with the Economists, 364 of whom signed a letter to the TIMES condemning her policies from a standpoint of NeoKeynesianism [and who succumbed thereafter, with amazing speed, so that those who remained in their 'profession' become locked in to the new Econocracy by the millennium]. Next among the 'enemies' were the trade unions, that had frustrated the attempts by the Labour government of 1974-79 to control the wage-price spiral. Here the Thatcher gang decided on a radical solution: if you close the coal mines and a large section of the iron and steel industry [including shipbuilding] you take the cash and the members away from the unions, leaving them as shell organisations with no real power. These radical solutions were adopted; and the majority of the electorate was unmoved by the pleas of miners and steel workers whose communities were largely isolated geographically and socially from the cities where banking, finance and smart retailing were providing more nice, clean jobs for the middle classes. While the traditionally unionised areas continued to return Labour MPs from constituencies with very high percentages of the industrial and ex-industrial population, other urban centres and the less-densely-populated majority of constituencies were content to return Tory [or, in some cases, irrelevant Liberal] MPs; and thus the wrecking job was done.

It is now more than thirty years since the steelworks of Sheffield, the pit sites across the country with their unmistakable winding-gear, the massive cranes on the dockyards to the Tyne and the Tees and the Upper Clyde, and other symbols of the most basic and essential industries were first left derelict; then cleared away. It is hard to believe that Meadowhall in Sheffield was once the world's leading steel and engineering centre, or that the placid banks of the Upper Clyde were once the proudest shipyards in the world.

No thanks to successive governments, pharmaceutical and biological companies have developed lucrative new products; creative industries [including computer games] have developed magnificently and - despite the idiocies that created the financial crisis of 2007-9 - the financial services based in London lead the world in expertise and innovation. So Britain has high spots, and remains uniquely innovative; but fools in government have congratulated themselves on 'attracting inward investment' as one after another the innovative firms [along with the intellectual capital] are snapped up by aliens. This almost-constant alienation of the most valuable assets that the British continue to create means that the balance-of-payments becomes increasingly adverse, as British consumers have to pay foreign firms to access British inventions, even if they are manufactured here.

The final knell of heavy industry has been sounded today, with the news that Tata is selling its steelworks in the UK to Thyssen-Krupp: whatever promises are made [and especially if we really do leave the European Economic Area] Port Talbot will go; and with it the last evidence of heavy industry will be consigned to the film archives and to history books.

Tuesday, 19 September 2017

The Glory of a Mixed Economy

Between 1950 and 1972, Britain boasted of its Mixed Economy. Then, in the 'seventies, the misapplication of Keynes's principles by the self-styled NeoKeynesians combined with the OPEC cartel to create an inflationary spiral that threatened to destroy the economy. That situation, in turn, made the opportunity for Thatcherite Monetarism and the 'free markets' dogma to be installed: with apparent temporary success and long-term ruinous outcomes. I have issued sufficient jeremiads about the latter state to give it a rest for the moment, and to pick out instead the features of the economic policy [broadly pursued by both Labour and Conservative governments] that prevailed beneficially under the generic description of the Mixed Economy.

During World War II the coalition government published the Beveridge Report, which promised a universal, compulsory social insurance scheme that would provide healthcare, unemployment insurance and old-age pensions for all contributors and their dependents. Both the major parties in the coalition were committed to implementing the scheme, and though the costs - especially of the national health system - always exceeded the income of the national insurance fund it was hoped that a time would come when those books would balance and a subsidy from general taxation would not be necessary. The National Health Service, in particular, was immensely popular and it delivered massive benefits to the entire nation.

Labour won the 1945 election, with a clear mandate to nationalise core infrastructure services and the 'commanding heights' of the industrial system. Under the infrastructure policy, the clapped-out railways, the partially-derelict canals, the major bus companies and the biggest road haulage companies [with their depots and other support facilities] were nationalised. The railways already owned some ports, and major hotels near stations, and these were taken into state ownership as well. For the first decade of nationalisation there was an attempt to support all of these facilities; but with the rapidly rising popularity of private cars and the consequential demand for the state to provide an appropriate road network the aggregate costs became too great. The slow death of the canals continued, and the subsidy of railways became excessively burdensome until a Tory government appointed a 'technocrat', Dr Beeching, to manage the railways. He just adopted a slash-and-burn approach, reducing the system too much in an orgy of destruction that is pretty universally regarded with hindsight to have been absurdly excessive. But the core railways system was preserved, to become a success eventually: and the motorways were built.

Coal and steel were among the 'commanding heights' of the economy which were nationalised, reorganised, and subject to massive investment and modernisation: which worked beneficially for a couple of decades. Electricity and gas services were nationalised, with massive investment in new power stations and the creation of the national grid for electricity and the beginning of a similar system for gas distribution. Telephones had been developed as a state monopoly, under the Post Office, and their availability increased immensely. Television had been suspended for the war, and it was reintroduced [BBC only, at first] to become massively popular.

The state managed all these things, while making good the massive destruction that had been effected by German bombing during the war and the massive wear-and-tear on all types of plant and equipment that had happened while concentration on war production had meant that maintenance and repairs had been minimal. Perhaps the greatest achievement was in housing. Private builders were enabled to develop private estates while the state sector built hundreds of thousands of houses. So great was the success of that programme, that under a Conservative housing minister in the later 'fifties 400,000 houses were completed in a single year. By contrast, the pathetic shower who govern us now cannot orchestrate the 'market economy' to provide so many as 100,000 homes in the face of desperate need.

Not all was perfect in those years; but things felt better than they do now because there was a feeling of common national purpose with significant objectives being achieved by the public and proivate sectors of the economy working in concert.

Monday, 18 September 2017

Brexit Britain Divided

The United Kingdom is more deeply riven by economic, political and social issues than it has ever been before. I say this with the benefit of a quarter of a century teaching Economics and economic History in a major university followed by a further quarter-century living in Tower Hamlets and active in the City of London. Thus I have half a century of reading, listening and probing; and, as a bonus, I have the luck to have a second home in the Peak District where I hear another spectrum of opinions and lore. Throughout history, most constituencies were controlled by a single party, after the dominant landowners surrendered control during the nineteenth century. Rural areas and affluent inner London were solidly Tory, some mixed-economy areas tended to return Liberal MPs, and the heavily industrial and mining areas were solid Labour. There were - and still are - anomalies: the constituency in which I first had a vote [Darwen, now Rossendale and Darwen] has improbably elected Tories all my life; but such exceptions are rare. However, in a rapidly-changing context, the old certainties have gone. The Brexit vote cut right across party traditions, and leaders' admonitions had minimal impact on voters' choice.

In the nineteen-nineties the Labour Party was split by the Blairites, who did not eradicate old-Labour in the new century but instead left stagnant pools of Marxist infantilism to fester while the legendary pragmatism of the big-union bosses became heavily diluted. The present mushroom growth of a new-left Labour is both an indication of voter dissatisfaction - especially [but not only] among the young - and of a search for ideals. The cupboard-love of the students and graduates who liked Corbyn's reckless 'pledge' about tuition fees during the recent election has dissipated, and the peak of the latest boom has probably passed.

The Conservative Party has never been in such disarray as it now displays: the old establishment of 'grandees' who could remove a leader with swift silence seem to have disappeared, and everything now hinges on a speech in Italy which has been heralded for weeks and will prove in the event [on Friday] to be a display of the Prime Minister's incomprehension, confusion and insecurity. Even if her cobbled-together second kitchen cabinet is able to deliver a more rational speech than I expect, the Tories will be left with the recollection that they set the referendum hare running - expecting a different result - and they have no idea what to make of the situation that they have created. Mrs May said "Brexit means Brexit", a supremely silly phrase which will haunt her even more than "strong and stable"; and she has given no indication of whether she thinks the vote was to leave the political institutions of the EU [only] - as would gain massive popular approval - or to cut adrift from the customs union and the common market, which would smash the economy and make the Irish situation irresolvable.

Tories and Labour are split on which sort of Brexit was intended by the voters, and by their opinions as to where to go now. The LibDems and ScotNats are determined remainers, and may well swing parliamentary votes: especially by the LibDems in the House of Lords.

Meanwhile, media commentators cannot agree whether or not the country has a wider gap between better-off and worse-off citizens; though the gap between the most highly remunerated and the lowest has not been greater than it is now, since the economy and society were put back to zero by the Second World War.

An early General Election would not resolve the situation. In England the LibDem vote might go up, which would mitigate Labour gains and produce the spectacle of Corbyn and Cable negotiating a coalition: that would then have to try to attract the ScotNats and some Irish contingent [most of whom hate Corbyn as an IRA supporter].

Most people know that they are getting worse off. Many worry about their borrowing. Many are extremely anxious about the homes they can barely afford to keep or those they cannot afford to rent or to buy.

Just as the majority of Russians are content to have Stalin rehabilitated, and his statues refurbished in some places, so there is a nostalgia in Britain for the mixed economy and the welfare state that the Thatcherites and the Blarites did so much to destroy.

To that I will return tomorrow; as my recent blogs have become overlong.

Sunday, 17 September 2017

QE: The Social Cost

The Labour governments of Tony Blair and Gordon Brown [1977-2010] progressively moved from following their Tory predecessor's conservative budgetary policy to creating a deficit on government spending [the amount by which the government spent more than their income from taxes, tolls etc]. As Chancellor of the Exchequer, then Prime Minister, Gordon Brown made a very quaint use of the word 'investment'. It has been normal for a couple of centuries [at least] to use the word 'spending' [or expenditure] to mean the amount that is spent on pay-as-you-go government activity, and the word 'investment' to mean spending on projects that have a net cost as they are undertaken, but which it is hoped will yield an economic or a social dividend - ideally, both - when they have been completed. Under Labour, this distinction was eliminated. 'Investment' was just part of current spending: it just sounded better to make it seem as if some future return was in mind.

Alongside this abuse of words [and of common sense] the Labour government introduced the wildly irresponsible PFI concept, by which a school or a hospital building [which could be seen as an investment for the long term, in the conventional understanding of the term] would be built by a private contractor who could then charge a rent for the building while it was in use. This crazy system meant that the contractors, and the funders with whom they formed consortia, would be able to take a high rent from the health service or the school governing body. In addition, many such contracts gave the builder the right to undertake all maintenance work - at their own 'costing' - for several years, at the expense of the user of the building. This obviously provided a massive drain on the income of the user organisation when the premises came into use. As the premises had often been designed many years before they came into use, the designs were often very much less that state-of-the-art when they became operational. Thus taxpayers were involuntarily having to meet these charges.

Thus, when the Tory-LibDem coalition came into power they were horrified at the 'out-of-control' public spending obligations that they confronted. They decided that the burgeoning annual deficit on the national budget must be reduced: then they experienced their own brainstorm, and decided that they must cut future spending projections by the state. Hence began the regime of 'austerity'. Under that regime, public spending has been held down; almost as a matter of faith.

This policy was imposed in 2010, just after the Bank of England had become used to administering its programme of Quantitative Easing, as explained in the previous two blogs. The orderly queue of bankers was allowed each to encash approved securities for new credit, which they could then spend as they wished. This meant that they could keep in being the securities whose existence had been threatened by the market crash of 2007-8 until they came to their term dates; and an increasing proportion of them could be sold once their face-value had been restored [more or less] within the highly flexible wholesale finance market. So while people running public services were increasingly constrained by what they could spend - including on wages and social benefits - the banks could lend more money to firms and to individuals. Not many firms needed to borrow from the banks: the successful among them could derive all the investment they needed from their profits and from share issues; the unsuccessful drew in their horns and hoped to survive. Furthermore, the government provided modest funds to help some classes of start-up and developing businesses [although most of the more successful of them fell prey to overseas takeover, whereupon the technological innovation that they embodied was alienated].

In both the public and the private sectors, wages were constrained; in the public sector by the austerity rules, which included either nil or 1% increases each year. The private sector was able to import staff from less high-wage countries, and a consensus of commentators accepted that the combination of immigration with the appallingly low level of skills among the indigenous British population kept wages low; in both cash terms and real terms. Hence after 2010, most people found that the only way to increase their spending on consumption was by borrowing. Loans and credit card debts were freely available, so people borrowed; largely to buy imported commodities. So the balance-or-payments deficit burgeoned, while the government struggled to keep public spending within the limits that Osborne and then Hammond vainly aimed to enforce. Unsecured household indebtedness increased, alongside the debt that the UK owed to the rest of the wThen it became apparent that QE had another perverse effect on ordinary people. After the financial crisis, new starts in house building had reduced to a record low level; and virtually nobody was building social housing. Thus the resale prices on existing properties increased: but with interest rates set at their lowest ever level by the Bank of England the cost of borrowing [per pound] seemed affordable. Cassandra-like warnings that people who had mortgaged their property heavily might not be able to maintain payments when interest rates rose received scant attention.To get a new home, people had to borrow the money to buy expensive new properties on terms that profitable to their constructors. Mortgages were freely available for house buyers with even modest incomes, thanks to QE and government schemes to enable a minority of first-time buyers to enter the market. The majority of would-be first time buyers could not find the cash deposit they needed to enter the housing market; and anyway their incomes, especially for those burdened by student loan debt, could not support the ongoing cost of house purchase. In addition to the existing poor, there was a growing cohort of nearly-poor, including many graduates. In the next blog I will examine the pattern of poverty in Mrs May's Brexit Britain, and relate it to QE and to austerity.

Saturday, 16 September 2017

QE For Ten Years: Saving the Banks and Smashing Society

My last blog began with a second reference to the ten years that have elapsed since the collapse of Northern Rock told the public - and the unobservant Econocracy - that there was a crisis already well developed in the world of banking. More than a year before the Northern Rock event hit the British system, the USA had had its own crisis in the collapse of several institutions which the Clinton regime had induced to accept 'sub-prime' mortgages. The term sub-prime was not in common currency in the UK, and the USA was far away, so not much notice was taken of those events even in the London money market.

Within the US financial system, it had slowly become apparent that the sub-prime mortgages had been sold on [in the manner described yesterday] as parts of securities which were just bundles of debts where the borrowers would [in the main] carry on making the payments they were contracted to make: thus the buyer of such a security was effectively buying a cash-flow of future payments. The original lender of the money would retain the duty to collect the payments and pay the interest on the security, and there would be an allowance for the proportion of the borrowers who would default on their payments. So the original price of the security was based on a supposedly objective view of what it would yield to its owner during the term for which it was valid. On that basis, the security could be sold on, for inclusion in larger or more inventive types of security. The sub-prime mortgages were a category where the borrower was very likely to default, and the continuing decline of the old industries in what were quickly becoming known as the 'rustbucket' areas meant that many families lost their main earnings and could not afford the repayments. Defaults on payments of sub-prime mortgages seemed, at first, an American problem: but during 2007 an increasing proportion of securities traders became worried about UK securities that included packages of mortgages issued by banks and building societies whose lending had become [by all historic comparison] reckless.

Among these was Northern Rock, which was borrowing credit in the wholesale market [see last two blogs in this series for details] in order to lend to new customers. The lending was reckless: more than 100% of the asking-price for the house was available to clients who were taken at their word as to how much they earned. This sort of lending [in which the Rock was only the most conspicuously adrift from traditional caution] led to clever traders realising that securities based on Northern Rock loans, and securities containing a 'repackaged' share of Northern Rock, may not perform as promised. So the wholesale market stopped buying Rock securities: and the Rock had no ready money in its tills beyond the usual daily turnover. Hence, as customers heard the rumours and queued with their documentation to demand their own money, the firm failed and [as explained previously] the government instructed to Bank of England to provide the money that the customers were demanding. After the crisis the residue of the Rock was sold off: its trading branches were taken over by Virgin Money and most of them are still trading, and the mortgage debts were sold to firms that managed the run-off so that most of the securities that the Rock had sold were successfully [and profitably] carried forward to their terminal dates.

Behind this happily makeshift resolution of the crisis caused by one smallish [albeit prominent] firm, the financial markets as a whole were beginning to panic about the multi-trillion pound market in securities that had been built up by 'innovative' firms that had been making their own paths to untold wealth by taking the fullest advantage of the market freedom created by the Thatcherites on the urging of the Econocracy in 1986. Within a year of the Northern Rock crisis, there was an emergent crisis throughout the market. Nobody could be sure which securities contained how big a proportion of debt that might become 'sub-prime' if the root provider of the cash flow failed. So the Bank of England was instructed to copy the US Federal Reserve, which had already begun an indefinitely large open-market operation which it called QE: Quantitative Easing. Though the detail is mind-bogglingly complex, the principle is simple. The banks were told to form an orderly queue, and slowly to arrange their portfolios of securities so that they could present government bonds at the Bank of England which would [in essence] 'print money' with which they bought the government securities [and just kept them in their vault, metaphorically]. Thus any bank could get cash by selling government securities to the Bank, and use that cash to fund the orderly winding-down of the 'assets' in the market. Those that were considered 'toxic' were disposed of cheaply, and holders of the rest of the mass of securities could resume trading, albeit cautiously. Nobody realised, when Britain adopted QE in 2008, that the queue would continue shuffling to the Bank asking for cash until now: but that has happened. it has saved the banks and the wholesale securities trade that lies behind the banks; but it has been ruinous to the economy in which human beings depend, and to the society that binds humans into a community. This is the subject for the next blog. 

Friday, 15 September 2017

Northern Rock: How the Crisis Happened

Northern Rock was the first bank in the UK to go bust for almost a century and a half; thus it was a great shock, which the authorities were not prepared for. I commented yesterday how Alastair Darling, the Chancellor, rose to the occasion ad accepted responsibility for finding a way of resolving the crisis and ensuring that the depositors got their money back.

There was no mystery about how the crisis happened. A few months earlier, in a lecture to the Insurance Institute of Ireland, I warned that the banking system was heading for a catastrophe. I said specifically that insurance companies should avoid accepting any bankers' risk onto their own balance sheets: if they did, they would be brought down with the crashing banks. Only one insurance giant, AEG, took on a massive amount of bankers' debt. Hardly recognised by their US head office, a minor London market component of the massive global conglomerate accepted billions of dollarsworth of a clever new 'financial instrument' that would only be activated in the most exceptional circumstances: then they would have to pay in full on those certificates. Hence, later in the crisis period, the US Treasury had to take over AEG and meet obligations of hundreds of billions of dollars. The existence of those obligations had not been understood by the firm's central management nor by any of their regulators while these liabilities were adopted.

The much smaller-scale, but still catastrophic, crisis that affected Northern Rock in September, 2007, arose from the same cause as the crises that hit bigger institutions in subsequent months. Thus it stands as a perfect example of the consequences of the Thatcher government releasing new 'market forces' into financial services. Until the nineteen-nineties Northern Rock was a Building Society, largely serving customers in and around Newcastle Upon Tyne. But in the mood of market freedom that followed the 'big bang' of 1986, 'the Rock' was transformed into a bank and it expanded its operations nationally. It could do this because the executives had realised that they no longer needed to accumulate new 'capital' slowly. There was a new 'wholesale market' of firms anxious to build their business by giving access to large amounts of credit to building societies. Ambitious managers throughout the country were changing comfortable businesses [which took in their assets as peoples' savings, and lent them to reliable wage-earners as mortgages] into aggressive, competitive lending machines. Licensed lending firms could sell mortgages to people who promised to repay over many years; but the new twist was that the lender could then bundle these contracts up into multi-million-pound 'packages' and sell them to the new 'wholesalers'. In return for millions of pounds a year of income [to be paid by the mortgagees], the wholesalers bought these bundles. Thus the ex-building society had more millions to lend to more customers, which became mortgage debts that the seller then bundled into new packages and sold into the wholesale market. This enabled the mortgage lenders to compete more aggressively for business. Northern Rock became famous [a fame later converted to infamy] for its willingness to lend more than the asking-price of the house that a customer wanted to buy: so that, in addition to getting a 100% mortgage there was a cash sum to pay for furniture. Furthermore, customers were not asked to prove what they said was their income: 'self-certification' was the polite term: 'liar loans' was often a truer description.

The banks joined in this competition. Most retail banks had always done some mortgage business; so they, too packaged parcels of promises-to-pay by mortgage holders and sold them in the wholesale market. What they sold was the promise of a cash flow into the future, embedded in a contract known as a security. Hence, the process came to be known as securitisation and all the people who used it both from the 'retail' market of mortgages and credit card debts and from the 'wholesale' side of the business that swapped credit for securities passed on the securities to other innovative firms.

The old style building societies had obligations to their depositors, and assets in the form of the cash balances that they held plus the valuation of the mortgaged properties. Their assets exceeded their liabilities, in general; and they had the added security that the [usually inflated] price of a house whose mortgagee failed to maintain payments meant that when the house was sold, the price would usually pay off the mortgage debt and the accrued arrears of interest. In the new world of securitisation, Northern Rock had also bought some of the packaged securities as part of their capital reserve. So when the word went around that the Rock was insolvent, and queues of depositors gathered at the doors of their branches, the firm did not have ready money to pay them. This caused a widespread market panic over the solidity and security of a vast range of securities, which may include some mortgages. There had already been a panic in the USA over the similar packages including 'sub-prime' mortgages, which made the British market more insecure. In order that the Northern Rock customers could get their money, the Chancellor ordered the Bank of England to make the cash available.

Over subsequent years, as the mortgages were repaid, it became clear that Northern Rock's assets had exceeded its liabilities as of 13 September 2007; but they had not been able to turn their assets into cash at the moment the depositors demanded it. Hence the crisis has rightly been called a liquidity crisis. Over the next ten years it became apparent that most of the clever 'products' that were floating around the wholesale market were basically sound: but as the financial crisis developed over 2007-8 those securities could not be liquidated: that is to say, swapped for cash on demand. Hence Quantitative Easing, QE, was needed; and more of that anon.

Thursday, 14 September 2017

Ten Years After the Northern Rock Crisis: and the Economy is in a Worse Condition

We are now ten years away from the date when a still-under-rated minister, Alastair Darling, took the decisive steps that 'rescued' Northern Rock; and, with it, the economy. I referred yesterday to the fact that some five years after the crash a few students in the University of Manchester dared to challenge the fact that their teachers in Economics classes could not explain [within their own intellectual universe] how the crisis happened, precisely what constituted the crisis, and why they had not adjusted their 'analysis' of the economy in the light of a shattering, cataclysmic event. A second set of questions, soon to be posed and left unanswered, was how and why all these clever professors had not seen the disaster approaching.

Off her own bat, the Queen posed the same question on a visit to the London School of Economics, and received no immediate response. A few weeks later a group of professors sent her a totally unsatisfactory sequence of exculpatory piffle, which satisfied no-one. The Queen later put the same question on a visit to the Bank of England; and because they had no answer to the challenge why they had not anticipated the crisis - and thus been able to avert it, or mininise it - they could not give any sort of satisfactory response.

The Econocracy, the Manchester students' term to describe the wrong-headed devotees of free-market Economics, cannot formulate an answer within their terms of reference: I have frequently damned them in this blog, and set them aside again today as being potentially part of a solution to the mess that their dogma created when it was embraced as deep state policy by the Thatcher gang. To anybody who questions the use of the term 'gang' I respond that the tight group of people who advised Mrs Thatcher and her guru Keith Joseph, several of whom were ex-communists, intended their ideologically-driven policies utterly to destroy the mixed economy no less completely than the Bolsheviks had planned to destroy capitalism.

I have perhaps not stated this point strongly enough in this blog so far. It lies at the root cause of the crisis of 2007-9, and thus it still overshadows the British economy, and damns millions of people to diminishing real incomes as they drag out their days on minimum wages in jobs with barely measurable productivity and negative productiveness. Behind the relatively few specific policies that are still recognised as having been 'Thatcherite' [such as selling council houses] there lay a serious ideology which informed the 'deep policy' that lay behind everything that they did. This dogma is the unconditional belief that 'free markets' release the inventiveness of the brightest and best of the rising entrepreneurial cohort: and that their spontaneous actions would give sufficient positive momentum to the economy that hundreds of thousands of redundancies and billions of poundsworth of plant and equipment that were scrapped [or just left underground] could simply be ignored. If you believed this fervently enough, no specific policy and no government investment would be needed to free self-centred components of the economy to expand at an unprecedented rate.

Of course, this ideology comes up against a mass of real-world inhibitions: laws against defrauding or cheating fellow-citizens, laws controlling dangerous substances, the requirements of national defence, the absolute belief of the public that there must be a national health service, the entrenched tradition that children should attend school, and many more. While telecommunications, gas, water and electricity supply were privatised quickly, many areas of the economy could not directly be attacked in the first wave of Thatcherism. Meanwhile the flow of taxation and government spending had to be maintained to keep the publicly-recognised essentials in being; though plans could be made to privatise hospitals and schools; and other public services were required to cut their real cost to the state. The government made a virtue of shutting down the most heavily-invested material industries [where the state had been the prime investor for decades: in some cases for centuries] such as shipbuilding, iron and steel, shipyards and coal mines, regardless of the damage that was done to the economy.

Much of the material economy went into a state of shock, as protections against competing imports were removed and supply chains from foreign countries had to be accessed because British suppliers had disappeared. When the mines and shipyards and steelworks closed, their suppliers were ruined also, and many supply-chain firms failed; which meant that across much of industry there arose   a need to import components that had previously come from the British firms whose major customers had been taken out in accordance with the prevailing ideology.

The one area where buccaneering entrepreneurs could thrive was in banking and finance, where many controls were removed precisely at the time when the emergence of sophisticated computers became available to firms; while the regulators [most notably the Bank of England] did not develop the means to understand what was happening. That was the fruitful field on which the the crisis, to be recognised by ministers in 2007, was developed over twenty years from 1986.

[Next installment tomorrow]

Wednesday, 13 September 2017

People and Political Economy Versus Econocracy

Yesterday a Times leader-writer who frequently writes an Economics column for the paper recognised the Manchester action group that created the Post-Crash Economics Society, and the related movement that has spread around the world [as frequently mentioned in this blog]. He noted that a very few university teachers have cobbled-together courses that give an introduction to the different approaches to the subject that have been taken over the last couple of centuries; and that the vast majority of the established teaching cohort - the Econocracy - have adhered rigidly to the pseudo-mathematical formularies that are their only stock-in-trade. That stock is being demonstrated to be putrid. I was a university teacher, specialising in the History of Economics, for a couple of decades until 1988. During that time I assiduously researched the question of how Economics was taking an increasingly perverse approach to the world; and meanwhile my colleagues selected me to be Dean of the Faculty and eventually Pro-Vice-Chancellor, which I like to think indicates that I was taken seriously as a person.

By 1988 it was clear that common sense and Economics were becoming implacably opposed. The Thatcherites were busily destroying industry, blinded by the mantras of open competition and monetarism that undermined the traditional support from the state budget for the economy [which was repaid as economic growth produced the tax revenue that increased the state's capacity to spend on infrastructure developments, research and product development, and popular welfare]. So I bailed out of academic life, into one of the great support organisations that underpin the skills on which the City of London depends for its unique depth of resources which constantly renew its role as the world's leading financial centre. I have continued to watch the consolidation of Thatcherism into 'austerity', which in turn gives the government the ludicrous notion that state spending [on almost anything] is a 'bad thing'.

There are, of course, the glaring exceptions: of which the most conspicuous are HS2 and Hinckley Point, where the state is in for tens of billions of pounds of useless and unwanted spending. Otherwise, spending by the state is a bad thing: especially on peoples' welfare.

Today's News on the BBC is headed by the facts disclosed in a report on tower blocks that has become critical in the light of the Grenfell Tower tragedy. Sixty-eight per cent of the tower blocks in the UK have only one staircase, almost 40 per cent have some form of cladding [of which a yet-to-be determined proportion are flammable], and only two per cent have sprinkler systems. Sprinklers have been proven as a valid means of quenching fires, and thus preventing their spread, for centuries. When Britain had extensive factories and warehouses, the insurance companies employed inspectors who had the right of entry to premises to check that the sprinklers were installed and operational: if they were not, the insurance was immediately cancelled. Factory Inspectors also had to duty to check on the effectiveness of spinkler systems, and could close units that were non-compliant; and in most local authority areas buildings were only licensed for use if certified as compliant with local specifications by the Fire Brigade. The present shoddy government have made it as clear as they clarify anything - which is not very far - that they will expect local authorities to use their own resources, to the extent of using up all their reserves to begin to introduce measures to address the fire hazard in the blocks that they control.

The Econocracy supports the government line: state spending, bad. Occupiers should pay competitive prices for their flats; and if they want safety measures built in they must pay more for that assurance. If their earnings or benefits or pensions will not cover the higher rents, they must move their homes; or get better jobs. For myriad reasons, such as access to schools and hospitals, proximity to relatives who need or provide care, lack of skills or lack of drive, millions of people cannot get better jobs or pay higher rents. The Econocracy has no patience with such people: they clog up the system and prevent the 'model' from functioning as they think it should, in all its clockwork simplicity. 

We need a new Political Economy, that takes account of people as they are, and has their development and the welfare as its highest goals. The housing situation - with hundreds of thousands of households outside the tower blocks effectively homeless - is a perfect example of the Econocrats' model economy not working: because it is utterly out of kilter with the realities of human existence.

Tuesday, 12 September 2017

Brexit: Farce Slides Into Disaster

I voted for Leave, on three grounds:
1. I was sure the Remain side would win; but if a strong minority voted to Leave that would provide a check on the political class in the UK and in the EU,
2. The Cameron-Clegg-Osborne policy of austerity was ruinous, economically and in its effect on social cohesion: so a strong opposition vote might cause a rethink;
3. In a despairing sort of way, I wanted to register my opposition to a European super-state.

When the result was announced, I was far from ecstatic: I then began to wonder how a post-Cameron government, inevitably to be led by Tory Remainers, would package the obvious outcome of withdrawal from the political EU institutions while remaining in the safety of the Economic Community. When Mrs May won the leadership, my hopes of any sensible outcome were smashed by her idiotic mouthing of the phrase 'Brexit means Brexit'. It was her job to suggest what Brexit might mean, in sensible political terms, and to lead her party to persuade the country of that proposition.

Instead, she blundered into the destructive notion that the vote implied complete withdrawal from all aspects of the EU. Which was soon to be modified by the recognition that from the daily business of air travel to the essentials of nuclear controls and commerce, there had to be continuity. Meanwhile, she appointed three ministers who were Levers to make and execute policy: Johnson to talk political waffle [his forte], Davis to 'get us out' and Fox to chase the chimera of compensating trade deals with the rest of the world as we left the EU.

Johnson has continued to talk nonsense, and has progressively diminished what reputation he had for intelligence behind his 'wit'. Fox has had very little to do, except propagate his fantasies, latterly helped by an imported 'negotiator' from New Zealand who expresses extreme isolationist views [based on the very different experience of New Zealand, which was cut adrift by Britain's slide into the EEC, then the EU: and saved by the rise of China as an importer country] that have no relevance to the situation of the UK in 2021.

Davis, meanwhile, says that the British people did not vote for confusion: but that is what now faces us. I have assiduously read the largely off-beam papers prepared by hard-driven civil servants for dim, obsessed ministers, that collectively do not add up to a coherent guide to anything. Britain has no recognisable policy.

And now, the Commons has voted for the bizarre power-grab of the Bill that they passed last night; by a clear majority.

Failing governments in failed states take up the power to rule by decree; then become increasingly dogmatic in their assertions of their rectitude as freedom is circumscribed and the economy collapses. This is the situation in Venezuela: so Mr Corbyn will understand what is going on as aspires to take over in the United Kingdom.

There is a slim chance that Tory Remainers - surely, still a majority of the party's MPs - will recognise the need to revolt; otherwise, the last hope for democracy would have to be fought out in the House of Lords early next year.

My vote was insignificant in leading to this outcome: but I do share in the post facto responsibility for the irresponsibility of the government that has followed it.

Monday, 11 September 2017

This Day - 9/11 - and the Knell of the Free Trade Fantasy

September 11, in the UK and many other countries, is summarised as 11.9.17. But in the USA they put the month first, hence 9.11 or 9/11. The date 9/11 has become even more rooted in folklore and the media as the descriptor of the terrorist attack on New York than is 'ground zero' as a synonym for the site at which the destruction was centred. It is purely coincidental that on this same date in 2017 an unprecedented storm has struck the mainland USA in Florida.

Besides providing an opportunity for him to show, for a second time, that he performs better in the context of a natural catastrophe than George W Bush did, Donald Trump has completely overcome his verbal incompetence in addressing this calamity. If he reverts to his usual bluster once the crisis is passed, his recent performance will quickly be forgotten: but, for the moment, his image is greatly enhanced by his mobilisation of congressional Democrats to expedite relief programmes.

Both New York on the 'original' 9/11 and the present [diminishing] hurricane Irma are proof that in a world where both the weather and the wickedness of human beings can create unprecedented catastrophes, a system of untrammeled free trade cannot prepare social and economic institutions, or the political system or the psyche of individuals to cope with unprecedented calamity. While it is probable that any extreme weather or earthquake event that we have recently experiences has been exceeded by many greater events before humans existed, we live within the record of human experience. In a much reduced timescale than the period over which we have economic records, the insurance business has grown sophisticated, within its own parameters, in coping with disasters that affect businesses and individuals' estates [i.e. all their material assets] by paying for repair, replacement or reinstatement of assets that are damaged or destroyed by flood, fire, storm winds and other catastrophic and humdrum accidental causes.

Insurers are even prepared to take on concentrations of obvious risks, such as the tower blocks in the City of London or at Canary Wharf; and the homes, hotels, shops and offices in Tampa and other built-up areas of Florida. But they only take on those risks on strictly defined conditions. The properties must accord in full with the building standards that apply to the type of building and its location; which, of course, represents a massive restriction of free trade imposed by government. Thus Florida can ban construction that does not provide assurance of its capacity to withstand storms of the force of Irma. No government can compel insurers to extend insurance cover to building that do not meet building regulations that the insurers do not accept as sufficiently robust for the perceived risks that could operate in the area where the asses are placed. There are many instances where state authorities in the USA will only allow insurers to operate if they take on risks in categories that the firm would not accept: so they simply do not write such business in such areas. In one case, over many years, one major US insurer did not write some categories of business within the state where they were headquartered. In the UK, where expectations of catastrophe are much lower, properties susceptible to serious flooding can only be insured at affordable premiums under conditions established and guaranteed by the government. Thus the accessibility of insurance is limited by the choices that have been made by political bodies; to which companies have to conform.

The idea of complete freedom to build almost any sort of home anywhere in a hurricane-high-risk area cannot survive the need for structures to meet requirements for both health and safety and for insurance; while the state authorities and relevant utility companies exert their right nor to provide a road, or sewerage, or water or gas supply to property that is inappropriately sited in terms of risk management. Thus, to a very considerable extent, taxpayers are protected by not having their communal resources and assets put at risk by buccaneering businesses.

It will be interesting [and often very sad] to see how far the sort of system of building regulations that has been implemented in Florida in recent decades has been set up in the various territories through which Irma passed. How much property has been insured, to what extent, with what exclusions: in the end,this will show how much loss will fall on the well-capitalised and highly organised insurance business and how much will fall on people who had to take the risk themselves.This will emerge over the coming weeks. But the key point to note here is that insurers and governments necessarily collaborate to make any sort of insurance, and any sort of sophisticated structure or business activity viable.

The Econocratic idea that there should be free trade in every field simply does not work in this area.

What does work, is collaboration between government agencies and insurers to ensure that when people [personally as as managers of firms] make investment decisions that are rational in the geographic and temporal context, then viable insurance is available at a fair price. There may from time to be small differences in the price [the premium charged] for an insurance product in any month, but these arise from the need of competing insurers each to maintain the balance of their 'book'  - their total range and cover of risks - so that it meets their template for the mix of business. by making small adjustments in the price, up or down, one insurer brings balance to the book while all their competitors experience a countervailing movement of business away from them. This helps all the books to be balanced as the companies plan, all the time.

Primary insurers who supply policies for individuals and households and for all types of business constantly balance their book of business internally. They also buy reinsurance so that larger losses than they want to accept on their own balance sheet, which could drain away too much of the company's own capital. Reinsurance is a highly efficient market in which capital providers find a profitable way of investing their funds until more lucrative possibilities emerge.

Both insueBoth insurers and reinsurers

Sunday, 10 September 2017

Firefighters Memorial

The second Sunday in September is kept special by the fire services of the UK [and the Isle of Man and Channel Islands] as this is when, in 1940, the blitz on the UK really began in 1940. The Fire Service was then in the front line, which remained on UK soil until the last V2 landed in London  just a few days before the German surrender in 1945.

I have had the honour of being a Trustee of the fine bronze memorial, by St Paul's Cathedral, for over 24 years. I will be proud this midday to march one more from our annual church service to the memorial, where a wreath laying will take place.

Representatives, including standard bearers, will be there from fire services across the country. We now remember all firefighters who have given their lives in the course of their duties. Sadly, again, there will be present the family of a firefighter who died on service in the past year. For his family there will be strong fellow-feeling from all the past and present firefighters, whose families have had the daily awareness that when they went to work today they may never return home.

Mercifully, the Grenfell Tower cost the fire service no lives as the London Fire Brigade saved dozens of people from the appalling fate that befell at least eighty of their neighbours. The news coverage of that event showed the risks that the service takes, in less spectacular circumstances, every day. The living, the surviving and the dead of this great service deserve the honour that will be paid to them today.

Saturday, 9 September 2017

The University Conundrum

The Vice-Chancellor of the University of Bath has become notorious as the highest-paid head of an English university. While the Vice-Chancellor of Oxford has [in my view, mistakenly] defended her more modest stipend by drawing comparison with US salaries and footballers' wages, nobody doubts that she has been attracted to Oxford in international competition because of her proven talents and experience. The lady at Bath, however, appears as a sort of machine product: she was deputy V-C before being given the top post in the same institution - very rarely a good thing - and before that she was a professor in a middle-ranking university. There is no evidence at all of her exceptional abilities or achievements.

How have the Vice-Chancellors come to be so highly paid? This is an intriguing story: especially as the number of universities has risen from fewer than 40 when I was a student to about 150 now. Long ago the universities ceased to be part of any national plan for 'manpower' development. The last serious attempt to do that was in the nineteen sixties with the Robbins Report. They proposed, and the government accepted, very significant expansion of the system, both by increasing the number of universities and increasing significantly the student population in the existing institutions. Some - notably Loughborough - were designated as Colleges of Advanced Technology [CATs] and although that status has been eroded away Loughborough stands well in the league tables of universities because it has stuck closer to its founding mission than have most other institutions.

The University in which I was employed for a quarter of a century had a world reputation in materials science: metallurgy, glass, ceramics etc. Robbins recommended further strengthening this orientation, and new buildings were provided with superb facilities; even a small steel rolling-mill.. But UK students were not interested. The a few students who were UK citizens rattled around in the workshops and laboratories, as an increasing number from emergent countries came, learned assiduously, and took the most advanced skills home to build up Britain's competitors.

Ever since then, there has been a nonsensical push for a higher proportion of the population to get degrees; but this has never been linked to building up the skill base that Britain requires. I was horrified this year to see that the Faculty of Social Sciences [of which I was Dean more than thirty years ago] produced nearly four times as many graduates as the whole of engineering and applied science: and while the majority of the Social Sciences people were UK nationals, the majority of engineers and metallurgists were from overseas. As emergent economies forge ahead, Britain is being clogged with 'skills' that are not needed: some are even socially and economically destructive, as with Economics [see this blog, passim].

As this daft situation has been built up, the universities have been decoupled entirely from the local authorities who used to have some control of funding as the bodies that paid for students fees, maintenance grants, union membership, sports subscriptions and so on. Councillors and Directors of Education had some power of the purse over higher education, and their representatives served on governing bodies. Technical colleges that had been directly controlled by local authorities merged with teacher-training colleges and gained designation as polytechnics: and at that time there was a genuine hunt for real talent to head these rapidly expanding institutions. Salaries of Directors of Polytechnics shot higher than the universities paid their V-Cs; so when the polytechnics became redesignated as universities the established V-Cs were able to demand parity. Thus the racket began of ratcheting-up the boss-man's pay; as a prestige game rather than evidence of performance.

Since nobody now has the slightest idea what the lower-ranked seventy or so 'universities' are for, there can be no criteria for assessing the performance of their heads that reflects the national interest. So at present students borrow billions of pounds to buy 'education' which is aimless and not properly quality-controlled. A really great British achievement!