Thursday, April 29, 2010

Lipstick on PIGS

OK, that's a bit lame.

But anyway, the Greek situation, which risks spreading to Portugal, Spain and probably ultimately Italy too, reminds us that the implications of EMU for Southern Europe haven't been adequately debated or understood. When the euro came along, it had two immediate effects: it made issuing bonds easier for Southern governments, and it led to significant hikes in prices for basic necessities. But the longer term issues were barely discussed by anyone (Krugman is the usual exception).

The point is that these countries all had a history of high inflation, and dealing with competitiveness problems through devaluation. All of that was forgotten for a while, as the euro provided an inflationary anchor (notwithstanding the annoying price hikes - caffe' 1000 lire, caffe' 1 euro) and competitiveness problems crept up gradually, and were largely masked by capital inflows (in Spain and Greece, at least, not in Italy where they came out as glacial growth rates).

Now the hot money has gone, and a brutal adjustment awaits. These countries all have high unemployment, high inequality, and lots of tax cheating and corruption. I can't see low and middle income people accepting the cuts in nominal wages that are going to be needed. It's not going to be pretty, and it could mean back to drachma.

Wednesday, April 28, 2010

Brown's Leslie Nielson moment

One of my favourite scenes in Naked Gun is where Frank Drebin, miked up to give a speech to local councillors, retires to the bathroom where the sound of his ablutions are transmitted to the auditorium.

Today Gordon Brown forgot he was wearing a mic wired up to Sky News, and ranted (rather gently by his alleged standards) about a grumpy Labour voter who had berated him by for being soft on immigration, and the rest is history. Well, we'll probably have forgotten about it by next week.

So, now in Britain a politician who describes a voter as a 'bigot' has to take a 200 mile detour to go back and apologize. How humiliating. After all, if there is one thing we can be sure about, it's that nobody in the British political, economic and media elite could give a monkey's about Gillian Duffy's everyday concerns. Gordon Brown was foolish enough to say so with one of Rupert Murdoch's mics clipped to his lapel, and now has to pretend otherwise.

The truth is that all politicians are capable of saying that much and far worse, and that Gillian Duffy clearly isn't at the easy-going end of the scale when it comes to diversity. This election is truly a desperate charade. Let's hope a hung parliament comes to save us from ever having another campaign like this again.

Sunday, April 25, 2010

The end of British politics

Well, it could be. David Mitchell has a nice piece in the Guardian which sums it up: usually a government this discredited would lose the election to the main opposition party, if they got their act together. The Conservatives took a long time to get their act together but finally settled on an articulate and telegenic leader just as Labour's political strategy started to fall apart. So, they should be winning. The latest polls from UK Polling Report give the Tories about 34-5%, Labour and Lib Dems around 28-30%, leaving the Conservatives 61 seats short of a majority (assuming uniform swing, which is the only assumption we have available).

This is not the first time the third party has made an impact - in 1983 the Liberal-SDP alliance got 26% and nearly pushed Labour into third place. But Thatcher's Conservatives won about 42%, and a big majority. This time, the third party is taking votes off both the 'major' parties. David Owen and the other SDP leaders talked of 'breaking the mould of British politics' - they did, but in parliamentary terms nobody noticed. But this time it's different, as they say. The Conservatives are penalized by the constituency boundaries we currently have, so they need way over 40% to be sure of a majority. They haven't had those kind of numbers since well before the campaign started.

Why aren't they winning? Well, two main problems. The first, they do not have a credible response to the economic crisis. The Tories are the party of the City, and therefore not well placed to benefit from the popular backlash against the banks and the wealthy in general. After all, their leadership is a bunch of very well-heeled and wealthy public schoolboys. Why should they sort out the City? It's their old schoolfriends.

Second, Cameron tried to make the Tories look more appealing, but they remain unappealing, so the only workable strategy is to pretend to be something they are not. Young, liberal, colour-blind, open-minded about sexual preference, concerned about the poor. It's just not credible - anybody with these views would not join the Conservative party.

So, rather than Tony Blair, Cameron is really Neil Kinnock. He's done the spadework to make the party electable, but doubts remain. But they probably won't get another chance. If the Conservatives don't win a majority, electoral reform will put one beyond them forever. I hope.

Saturday, April 24, 2010

It was fun while it lasted

Hull City 0 Sunderland 1

Well, that's it now. To be honest, it's a blessed relief. Watching them struggling even against the weakest teams in the Premiership is no longer fun after a while. There was no real quality in the squad, despite money being spent. So, back to the Coca Cola Championship, and avoiding a winding up order.

Thursday, April 22, 2010

Two entirely unrelated stories

Yesterday, Lloyd Blankfeld of Goldman Sachs made a lot of noise about the SEC investigation of Goldman betting againsts its clients' investments.
Today, we learnt that SEC staffers sometimes misuse their networked computers.
Financial reform is going to be a bumpy ride.

Saturday, April 17, 2010

Cameron clegged

While I've been trapped in Canada by a cloud of volcanic ash (I never thought I'd say that) the British election campaign has been turned upside down. Nick Clegg stormed the first TV debate, and the Lib Dems have gained 8-10% in the polls, almost all at the expense of the Tories. The latest poll on the UK Polling Report site even puts them ahead: Cons 31 Lab 28 LD 32. This is truly amazing.

If this Lib Dem surge is maintained, British politics is going to be transformed. And if I wanted to minimax my losses, the flimsy nature of Conservative support looks like very good news. Over and above my natural disinclination to get the Conservatives any credit, Cameron is a genuinely superficial and vacuous politician, with no real policy proposals to speak of. The strategy of allowing Labour to lose the election rather than doing the spadework to win is clearly misfiring.

Not that that gets me home any earlier.

Globalization: A volcano-free world

Just a thought. Free trade assumes low transport costs, and also, little disruption due to natural phenomena. An Icelandic volcanic eruption is not a rare event in fact, and yet our civilization can barely cope with it.

Funny how Iceland seems determined to show us all the bits of globalization that don't work.

Sunday, April 11, 2010

We're not paying!

Yes, the message from our business leaders is as follows: we may have thought financial market liberalization was a splendid idea and complained about government regulation whenever we could, but we're ****ed if we're going to help clean up this mess.

It's good to know these people are going to be back in charge soon.

Saturday, April 10, 2010

It's getting better...

Yes, I'm definitely starting to like the Lib Dem leadership.

After Vince Cable pointed out what everyone thinks but no politician dare say - that billionaire businessmen are not the best judge of what is in the public interest - now Nick Clegg has correctly added that the Conservative proposal to give married couples tax giveaways is 'patronising drivel'.

Good stuff. At this rate we might even get someone admitting that efficiency gains are basically redundancies and that house price inflation isn't a pension policy.

It's all over

Hull City 1 Burnley 4

I think I just became a Liberal Democrat

Vince Cable attacks 'nauseating' businessmen over NI letter

Why can't Gordon Brown say something like that?

Friday, April 9, 2010

How to miss the point completely, part 1

By the Economist.
The Economist's editorial on the election manages to be bland and completely misleading all at the same time.

First, they suggest that British 'voters deserve better' than what the parties are offering. On what grounds? Why do we think the parties are offering what they are offering? Because to come up with a 'radical vision' along the lines the Economist wants would lose votes. It seems to me that British voters are getting exactly what they want - obfuscation. Then I suppose they will complain afterwards that 'nobody said VAT would go up'.

Second, they talk at great length about our fiscal crisis without once mentioning the main reason for the crisis - the collapse of the financial sector. The crisis is mainly down to the collapse of City earnings that used to raise a big pile of tax revenue, and the need to bail out several institutions with huge amounts of public money. Not to mention the collapse in economic activity due to consumers belatedly figuring out that they shouldn't have borrowed all of that money that the banks were throwing at them.

No, the Economist didn't notice this. Instead, the deficit is all about 'sloppy, bloated benefits rolls' and wasteful spending on public services. Well, until the crisis the amount spent on welfare had gone down by quite a lot from the levels we got used to in the 1980s and 1990s. The money, in fact, goes on health, education, pensions and defence for the most part. And, sure, 'how much is spent matters less than how it is spent'. Efficiency could indeed improve. But to imagine that serious cuts can coexist with improved services is totally ridiculous.

In fact, cuts will lower quality, although probably by less than the amount saved in the short term. Just like in the 1980s. But in the long run, quality will decline, and by the time we've reduced our debt levels we'll probably want to start spending on health and education again.

In the meantime, the bankers have got away with it. A whole editorial on our fiscal crisis, and no mention that it was largely caused by the stupid behaviour of the richest people in the country.

Thursday, April 8, 2010

When is a public spending cut not a public spending cut?

When it's an efficiency saving.

A big row has blown up over what to do with the budget deficit, and in effect we are now seeing a clear difference between the parties. Labour would rather raise tax (NI) in order to preserve higher levels of public spending. The Conservatives would prefer cut public spending in order not to have to raise tax.

The reality is that they are both actually stating their position as honestly as an election campaign can allow. But this reality is muddied by the insistence on cuts being about 'efficiency'. Efficiency savings are still cuts on public spending - the claim is that you can spend less, and deliver the same quality service. In the long run, there is a debate to be had, but in the short term it basically means firing people, so it's a bit dishonest to complain about NI being a 'tax on jobs' when your plan its to fire public sector workers. And to claim that private sector businessmen are the best people to pronounce on this is silly - of course they would rather cut public spending than have to increase their payroll contributions.

In any case, why should we think  that businessmen have some kind of magical ability to identify what is best for the economy? Their job is to make a profit (preferably without the help of the taxpayer), and they are happy to do that at everyone else's expense if we let them. The Tories' efficiencies guru is in the private healthcare business, whose market share has shrunk over the last few years because of Labour's huge increase in health spending, which has cut waiting times enough for private insurance to seem a bit of waste of money. If we 'cut inefficiencies' in the health service, the chances are private insurance will become more attractive. Is this in our interest or Peter Gershon's?

Wednesday, April 7, 2010

And they're off!

The election campaign has started!
And what a miserable campaign it's going to be. Cameron claims that by raising National Insurance, Labour will be placing a TAX ON JOBS! And everyone knows, that a tax on jobs is A BAD THING.
Labour is on the defensive over this, and it reminds me a bit of the Tories fantastic idea to abolish inheritance tax, which Labour was also incapable of contesting.

Of course, this exchange reveals that nobody is going to be honest about the big fiscal issues. The Conservatives, until last week, were convinced Labour was too soft on the deficit. Now, they are proposing to drop one of the only real deficit-reducing measures anyone has put forward up to now. So, how is this going to be paid for? By cutting waste, obviously.

Nobody appears to notice that cutting this waste might also reduce employment - it will involve either sacking public sector workers, or cutting public sector spending on things that someone else is supplying. So any big employment gains from the NI cut will be at best cancelled out by the public sector squeeze. And who is to say any of the money saved by employers will be used to create jobs, rather than pay off debt or raise profits?

Anyway, at least we've learnt something today. The Tories like cutting taxes, Labour prefers to maintain public spending. We kind of knew that already, but it's nice to be clear about it.

Saturday, April 3, 2010

I never knew...

.. that Warren Buffett once said this:

There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning.
  • New York Times, November 26, 2006.
Quite a statement.

Hull City 0 Russell Bartlett 4 (million quid)

Stoke City 2 Hull City 0

Predictable defeat at the Britannia Stadium where George Boateng again leaves us reduced to 10 men, this time by fearlessly headbutting Tuncay's boot and getting knocked out.
Meanwhile this week we learn that 'property developer' Russell Bartlett bought Hull City with the help of a loan from .... Hull City. Yes, in the wonderful world of Anglo-Saxon capitalism applied to football, you can buy a club by getting said club to give you some money which you then use to pay off the previous owners. I think I'll see if I can use that strategy to buy myself a new house.

Thursday, April 1, 2010

Broken, bankrupt Britain is all our fault, admits Cameron

Close observers of the UK election campaign were shocked yesterday as David Cameron made an audacious pitch to the British people, admitting that most of the country's problems were ultimately his party's fault.

'It's time to come clean', he announced to a packed press conference at Millbank. 'An explosion of personal debt, the catastrophic deregulation of the financial sector, the decimation of British manufacturing, the collapse of the education system, a gridlocked transport system, social decay and disaffected youth - what a mess this country is in. But our people want honesty in politics. For that reason, I'm going to admit today, that it's all our fault'.

Cameron went on 'if we hadn't crushed manufacturing with a brutal monetarist squeeze in order to destroy the unions in the 1980s, we might not have needed to rely on a free-for-all in an unregulated financial sector, nor would we have presided over a decade and a half of mass unemployment, destroying the social fabric in the very areas we now describe as "broken Britain"'.

He added 'even our crappy education system, that's our fault too - years of pointless initiatives and targets, and casual criticism of the teaching profession, demoralized the sector and turned it into a bureaucratic, jargon-ridden nightmare, where nobody learns anything. Well, at least Eton's still alright'.

Cameron concluded, before the gaping mouths of shocked journalists and party hacks, 'that's why I'm asking the British people, give us one more chance to finish this country off once and for all. We'll squeeze the public sector until people get sick of its poor standards and then we can privatize everything. Apart from the banks, we all know they can't survive out there in the market'.

David Cameron is 42 and a half.