The Budgetary Pantomine

The media have given a generous response to the Chancellor's Budget, emphasising that the grim assessment of the prospects for the British economy supplied by the 'Office for Budget Responsibility' gave the Treasury team very little leeway to take any risks.

The torrent of publicity and public pressure that must have made the Chancellor's life quite unpleasant ever since he accepted the job came to a peak in the days before the Budget was announced; and many 'leaks' and hints and briefings had already made it clear what the principal elements in the speech would have to be. If no more money had been allocated to the National Health Service the fuss would have been intolerable for the whole government: though exactly how much more is being given than had previously been announced is obscured by the possibility of double counting. The relative regression of the British educational system, compared especially to those in emergent countries, has been shaming for many years; so small steps to tackle the issue are the least that could be done.

As founder of a housebuilding firm, Mr Hammond can be assumed to have a direct and personal grasp of the issues about housing which had to be addressed. While still fiscally cautious, the measures announced to increase construction and to begin to restore the dream of a 'property-owning democracy'.

The intrinsic theme of the Budget, as had long been foretold, was the desperate state of the British economy: most especially the deplorable level of productivity and the yawning north-south divide. In the past year, plans to electrify the main line to Sheffield and a transpennine route have been axed, thus the lie is given to the words about redressing regional inequity. Still the government is pressing on with HS2 and Hinckley Point, which will do no good for anybody but will take up both engineering capacity and money.

Nothing will be done about productivity until radical change is introduced to the economy at large. That will be my theme for the next few days, when I will be based in Derbyshire and thus can probably have a better perspective on things.

Puerile Politics

The news media this morning tell me that some of the pathetic runts who have inveigled themselves into Parliament have come up with a spiffing wheeze. They suggest that as Mrs Merkel is in a possibly-terminal struggle for her political existence, the time is right to cut down the amount that the UK should offer to the European Union to settle our obligations as departing members.

Most of the citizens I know - many of whom voted Leave - agree with Mrs May's public assertions that we should pay all that we owe, fair and square. It should have been possible to produce openly-published estimates of the amount many months ago, and most people are bemused that this has not been done. It is a matter of accountancy: the items should be listed, defined, quantified [in sterling] and a total determined. The UK government's tabulation may not tally with that of the Brussels bureaucracy, and an arbitration might be needed; but the whole thing should be open and and conducted in a fair minded manner on both sides.

This is the latest incident of low-mindedness among some politicians, whose behaviour has become a national embarrassment. The word puerile derives from the Latin puer - a boy - and is used to denote human conduct [chiefly by apparently-adult males] that seems to others to be very like the sort of behaviour in which pubescent males engage: often when they group together and goad each other on towards a greater excess of silliness. Every male adolescent is puerile at times: that is human nature. When grown men act in a puerile manner that is always embarrassing: when men in public life behave thus, it is a national disgrace. We have almost become used to fractions of the Conservative Party behaving in such a way: yet it is still painful, and the nation is shamed by it. That Mrs May is so weakened by her election debacle that she is at the mercy of such men is a national tragedy.

It is very hard to see where we go from here. It does appear that the government has ignored the idiots, for the time being, and agreed that we should make an increased offer to get the financial conditions of Brexit settled. It is devoutly to be wished that the government can hold to that decision and move on to substantive discussions.

Education, Immigration and Austerity

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

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

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

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

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

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

More of this in the coming days.

BBC Salaries and the 'Paradox of Value'

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

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

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

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

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

Back to the Mighty Markets

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

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

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

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