Malcolm Blair-Robinson's Blog, page 86

Ending Austerity Demands More Than Wishful Thinking

I, like many others, find the arguments from distinguished economists, over whether and how to end austerity, quite limited and often confusing. So I am going to throw into the argument some simple principles of my own. Since economics is a cause and effect discipline rather than an exact science, anyone can contribute.

You cannot maintain an austerity programme for longer than eighteen months, without damaging economic output. This is underscored by a persistent failure to balance the budget. The original forecast in 2010 was to achieve this in 2015. It was extended to 2020 and then on to 2025, all because, while the cuts were made, growth has been very poor.

You cannot have low taxes in a welfare economy with low growth. To enjoy low taxes linked to evenly shared prosperity, you have to construct an economic model which achieves growth at 3% above inflation.

You cannot reflate the economy and drive substantial and sustained net growth without major public investment, in which limited long term borrowing is matched by increasing the money supply into the base of the economy.

Asset inflation sucks out new wealth creation. It must be reduced and the creation of new wealth at the base of the economy increased.

Spending on public services must increase to bring them out of crisis and up to standard. In the short term this will require tax increases.

But in the longer term better services will be funded by  economic growth driven by large public investment over several years, to bring our public infrastructure, communications, security, health, education and housing up to acceptable standards.

This will stimulate the private sector into investment and expansion of its own, driving up tax revenues. Rates can then be reduced. This will act as a further economic stimulus.

Taxation reforms and restoring democratic responsibility by reducing outsourcing and quango management are required to deliver an efficient state.

For too long we have drifted downwards with gaps between rich and poor, state and private, old and young, north and south, growing all the time. This process must be reversed. We have to start now.

So over the coming weeks and months listen to the politicians and follow whichever of them comes nearest to addressing all these issues.

The Bank Gets Nervous: Personal Debt Fears

The Bank of England’s Financial Policy Committee is worried, with due cause, at the ballooning level of personal debt, which risks turning into a disaster in the event of a change in the economic climate. There is no doubt there are storm clouds on the horizon, but there is no agreement on the direction of the wind. It could blow the storm towards us or it could blow it away. It is the Bank’s job to prepare for the worst.  Loan companies and banks are being told to beef up their capital reserves to cushion against the toxic combination of defaults on payments due and a plunge in the value of the underlying assets. Renewed stress tests will be introduced.

All this is reassuring at a time of unprecedented political uncertainty with a Tory government propped up by the semi-toxic DUP and, if that were not bad enough, in a state of civil war both within the cabinet and in the parliamentary party. On the biggest issue of the day, Brexit, there is no agreement about which form of it to aim for. There is most likely a majority in the Commons for an economy first, jobs priority, soft Brexit, but to achieve that the government would have to bust apart and the Tory party, both in the country and the Commons, to implode. This is not the kind of political scenario that Central Bankers like. Interest rates would have to rise and quite fast.

And at that point the folly of waiting so long to make the first move will become apparent. Maintaining, year after year, the lowest  interest rate since the 1690s will exact a price for which few are fully prepared.

DUP Deal For May: Now She Is In Real Danger

This Blog has been sceptical that the DUP would sign a deal with May. But they have been helped on their way by a one billion pound cash handout. To buy power with the most bigoted and provocative political party in the UK, is just about the sorriest outcome of an election in the history of the Tory party. At least there can be honour in outright defeat, but there is none here. The DUP brand of free church unionism is toxic to many in Northern Ireland and many more in the United Kingdom as a whole. There is also quite a bit to say about the ratio of seats to votes, but that can wait till another day.

What is really interesting is that this seals May’s doom. Because so long as she led a minority government any attempt to unseat her as prime minister would have, by most constitutional interpretations outside Tory HQ, demanded that the Queen send for Corbyn. But once the Queen’s Speech is passed, it is possible for May to be deposed and for the party she has led to relative disaster, to have an opportunity to elect a replacement. Hence the chatter of the weekend that Spreadsheet Phil could very well move next door.

At the end of the day it will stick, like dog mess to a shoe, that the Tory party, to cling to power it had lost, bought the votes of these bigots who oppose gay marriage and LGBT rights, outlaw abortion and consider women who chose it should be imprisoned for life. When election day finally rolls into view, like an avalanche down the mountain, the Tory party will be buried by the electorate for this grubby little deal. And there will be nobody willing to dig them out.

Camden Evacuation: Was This Necessary?

First things first. Grenfell Tower need not have happened if notice had been taken of tenants and occupiers, and proper judgment had been exercised about fire safety measures during and after the refurbishment. There is little doubt that both local and national governments have questions to answer; the police are now investigating and there is talk of manslaughter charges. The Fire Service is in the frame because it appears they carried out inspections and the building passed. Together with the police investigation, the Public Inquiry will discover how it all went so badly wrong and why, and who is to blame.

All across the country Tower blocks at risk are being identified, including those in Camden, a borough with a good reputation and keen to do the right thing. Suddenly the fire service phones the leader and tells her that it ‘cannot guarantee the safety’ of the people in these buildings and immediate evacuation is demanded. Never mind they have fire patrols 24/7 and were willing to pay for fire engines to be stationed at the ready by each block. Never mind that the council was willing to do anything demanded of them to allow the tenants to remain overnight so that an orderly evacuation with adequate alternative accommodation could be arranged. No said the fire bosses. Everybody out. Now. With no warning, or preparation, just banging on doors and shouted orders as harassed officials had to drive 4000 people from their homes, there was chaos, anger and very real distress.

Surely this cannot have been necessary in practice. These buildings were not about to burst into flames. Is there a good reason which has not been made clear? Falling short of the required standard and needing immediate upgrade is not doubted, but flight into the night?

 

 

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Parliament Has The Power: A New Era

May was in a strong position before the snap election. But her egocentric personality and intellectual isolation demanded a personal mandate, not a hand-me-down from Cameron. Moreover rebel Tories on both sides of the Brexit argument in a party chronically split for decades on this issue, meant that troublemakers could inflict defeat upon the government on key votes in the future. May does not like to share power as we know. There is a lot of me, my and I. She did not even want to consult Parliament over triggering Article 50. That was a straw in the wind.

Now she is back after her election victory with the largest number of votes and seats, but dressed in the stark robes of the biggest political humiliation of modern times, stripped of her majority, a prisoner of her angry cabinet, itself split on the key issue of Brexit and at the mercy of her party, which actually never got to vote for her in the first place. Power has passed from the executive to parliament. That is all ghastly but it gets worse. The Leader of the Opposition, one Jeremy Corbyn, who was before the election a figure of whom she made much fun and who was regarded as a certain goner, emerges as a national hero, his party increasing its vote share by twice the level of the Tories and, in the latest opinion polls, now the preferred choice in the country for Prime Minister.

As for the negotiations to leave the EU,  they have at least started. but the weakness of the Brexit hand is now being laid bare. Everybody is being polite, but the EU is making the running. May arrived in Brussels for a summit and dinner yesterday, with a brave face wearing a forced smile. When she left early because she is no longer welcome at club meetings, in the brief clip later cut, she looked worn out and at the end of her tether.

She is.

Shrinking The State: Have We Gone Too Far?

The dreadful fire at Grenfell Tower, an event which becomes more shocking with each new day, is the final act in a process which began in innocence, but has ended with a terrible truth told in the deaths of innocent men, women and children, burned alive in their homes in the middle of a summer night. That truth is that the shrinking of the State, which in the 1970s had become overbearing and inflexible in the eyes of so many, was at first a benefit which liberated, empowered and enriched. But like so much in life, too much of a good thing is worse than a little of a bad thing.

In the beginning was the notion that there were limits to what the State could do well and as time went on, the bar for those limits was set lower and lower. Privatization, outsourcing, agencies and quangos took over responsibility from government. The State became an enemy and a drain. Finally came the bonfire of regulations begun in 2010. It is there that the seat of the Grenfell Tower tragedy lurks, for it is a fact beyond denial that a fire-safe block was turned into a death trap during refurbishment, allegedly in compliance with the regulations then in force. The police will discover if those regulations were breached and the public inquiry will reveal whether they were adequate. None of that will bring the dead back to life, nor restore to normality lives scarred forever by loss.

But it may, indeed it should, teach us all a lesson. The State is a friend, not an enemy, which it is why we have one and some things it does much better than the private sector. It is a guarantor and an enabler, a guardian and a helpmate. It belongs to all of us and we are part of it. Because of it we are free. Let us resolve to treat it with better respect in future. And once again empower it to work for the public good. Of everyone.

Interest Rates: Up or Not?

This Blog has always been an interest rate hawk. Indeed worse than that. I believe, unlike almost every economist anywhere, that control of currency and interest rates by central banks has been a mistake. It has had advantages for global business, but its impact on ordinary lives has been negative, the gap between rich and poor has grown and that squeeze on living standards is creeping up to the middle classes. That produces political unpredictability, unexpected election outcomes and a creeping tide of uncertainty, which in the end, is not only bad for business at every level, but bad for everybody else too.

At the heart of a well balanced economy must be the power to create new wealth. That wealth must produce a profit at the corporate level, but it must also show a profit for ordinary foot soldiers right across the economy. The surplus of income over living costs should in part be invested in improvement and part saved to provide for a rainy day. These savings are the source of new capital to finance further economic growth. But if the return on saving is tantamount to nil, it dries up. Instead replacement money is pulled in from international markets, most of which is now the product of quantitative easing by the US, UK and EU.

This is used not to create new wealth, but to pump up assets. That makes the rich richer and the poor poorer. The crunch comes when it begins to pull the aspiring middle backwards towards relative poverty. That is happening now. In the US it gave us Trump, France has Macron on a voter turnout below 50%, a shocking statistic for a democracy noted for high voter participation, and in GB it gave us first Brexit, then the shock outcomes of the Corbyn surge and the May humiliation.

It is imperative that interest rates begin their slow climb back to viability, as a necessary spur to saving and an effective lever of prudent economic management. Failure to act will create a combination of social and economic volatility which could easily slide out of control.

Democrats Lose Again: Are They On The Right Track?

The answer must surely be no. For whilst the entire Democratic party in Washington is drunk on the Russia connection in all its forms and manifestation, prosecutors, investigations and committees, there is a country out there with people in it who need looking after. They are Americans, so they do not need spoon feeding and they are averse to too much Federal Government. So is spite of everything the core support of President Donald Trump remains firm. More people want to get rid of him if the polls are to be believed, yet when votes are counted it turns out not to be so. The Democrats mounted a huge campaign in Georgia to win a suburban congressional seat in Atlanta and in spite of spending record sums on their campaign, they lost. In South Carolina they lost again.

There are two Trumps in the White House. The wild card twitter junkie who says whatever pings through his head whenever, shocks the world, perplexes staffers, annoys the media and turns the Democrats into hysterics.  And there is the America First deal maker who quietly works away fixing things to make the lives of the ordinary people in the beating heartland of the American dream, better. Mostly it is done by Executive Order, but one way or another it is done and things are getting not just better, but much better.

So long as the deal making continues this way, no matter what the world across the oceans thinks, or what the pantomime on Capitol Hill does, Trump will move relentlessly forward through the mid term elections, on to 2020 and into his second term. The Democrats could stop him if they came up with a better plan. Likewise if pigs had wings they would fly.

 

 

Strong and Stable? Weak and Wobbly!

As predicted in an earlier post, the DUP is playing hard ball and no agreement is yet reached with the tottering May. It is also the case that, behind a carefully arranged veil that the argument could be about money, it is more to do with the political risks of propping up a government short of a majority, split from top to bottom and toxic in the country. Should it topple, those attempting to prop it up could be crushed by falling debris at the next general election. The alternative is to allow a Corbyn minority government with broad cross party support, to get the country back on its feet, then to go into an election sweet and clean.

Meanwhile the Chancellor and the Bank Governor make speeches in  the City which are diametrically opposed to what was thought to be the government line on Brexit. This indicates not just a split in the Cabinet, but a growing power base of soft Brexiteers within the government, parliament, business, the Unions, the City and the rising generation, which talks of Brexit which puts jobs and the economy first. Taken literally that means no Brexit, but in practice it is a kind of Brexit which amounts to the same thing.

All eyes on the Queen’s Speech, in scaled down ceremonial in accordance with the sombre mood of the nation. Whether Her Majesty’s Government will have the opportunity to advance its proposals into action depends on what happens in the Commons over the next following days.