Wednesday, 3 August 2016

John Lanchester's "Brexit Blues."


 John Lanchester is a restaurant critic, journalist  and novelist ( his novel "Capital" is the best page- turner that I've come across in years) who has turned his hand to explaining economics to the general reader, and does it very successfully..

His recent article on Brexit in the London Review of Books is, in my view, exceptionally perceptive.  Read it at:

http://www.lrb.co.uk/v38/n15/john-lanchester/brexit-blues.

but here are a few mots justes to whet your appetite

"Billionaire James Goldsmith founded the Referendum party in 1994 and stood  against David Mellor in Putney in the 1997 General  Election, coming fourth with only 1518 votes.

What was self-evidently ridiculous  in 1997 came to be a reality in 2016.

Boris Johnson was a man known not to be in favour of his own arguments.  [Lanchester doesn't] think there's ever been  a time in British politics when so many people in public life [have] spent so much time loudly declaring things they knew not to be true.

We're used to political analysis based on class . . . [but now] the primary reality in modern Britain is not so much class as geography.  Geography is destiny.  And for much of the country not a happy destiny.

In general there's no shortage of jobs and the labour force participation rate is the highest it has ever been . . .  .but it's unsatisfying, insecure and low paid.  This new work doesn't do what the old work did: it doesn't offer a sense of identity or community  or self worth.

 The reality of the modern British economy is that the thriving sectors raise the taxes which pay for the rest


UK manufacturing  is now a high skill, high value industry; we don't make cars and fridges and washing machines and phones and things that everybody notices, but we do make high-technology components and industrial devices of a sort that nobody ever thinks about.

The Labour government  offered more social protection but did so largely by stealth  and without explaining and arguing for its actions.  .  There was [under Labour, 1997 - 2010] no strategy to replace the lost industry: that was left to the free market.  With these policies, parts of the country have simply been left behind.  The the white working class  is correct to feel abandoned: it has been.

. . . most people in the UK receive more from the state, in direct cash transfers and in benefits such as health and education, than they contribute to it.  The numbers are eerily similar to the referendum outcome: 48% net contributors, 52% net recipients.  It's a system bitterly resented  both by the beneficiaries and by the suppliers of the largesse.

. . . young people in particular feel they are living in an economic system  rather than a political one.

Whoever came up with [the slogan"take back control"] had spent more time listening than talking.  The Remain campaign failed to do that.

. . . most of the people  who appear as immigrants in the immigration statistics are students . . . Of the
330 000 net arrivals in the latest numbers, 169 000 are students.  Do you consider students to be migrants?  Personally I don't.*

. . . the referendum has exposed splits in society which aren't mapped by the political parties as they are currently constituted . . . To simplify, the Tories are a coalition of nationalists, who voted out, and business interests, who voted in; Labour is a coalition of urban liberals, who voted in, and the working class, who voted out.

Leave's arguments were based on lies . . . the fact that so many prominent Brexiters started rowing backwards on the day after the vote is a sign that they knew it all along.

. . . Continental elites feel just as strongly  about the continued existence of the EU as the Leavers feel about Brexit.  For the EU to survive, it will be important for the UK to be seen to pay a high price for leaving.

The mendacity of the Leave campaign may represent a recalibration of our system along American lines, where voters only listen to people whom they already believe, and there are no penalties for falsehood, especially not on the political right

The second toxic legacy  of the campaign concerns the shamelessly xenophobic nature of the leave campaign.

. . . if we want to keep our healthcare system, pensions  and welfare states [T]he Office of Budget Responsibility  puts the necessary level of immigration at 140 000 a year.

The campaign's dual legacy is the end of the idea  that politics is based on rational argument, and a new permission to hate immigrants.

. . . the weakened pound is a good thing.**

Nobody outside the City loves the City, but the tax revenues  raised by London's global financial services are very important to the UK.

A reduction of the dominance of finance might be a net positive; we should have a smaller GDP, probably, but the country wouldn't be bent out of shape - or at least not to the same degree.

The City is creative, opportunistic, experienced and amoral; if any entity has the right 'skill set' to benefit from the post-Brexit world, it is the City of London.

* Neither do I. They provide me with my one remaining source of paid employment.  I act as a tutor on a post-graduate course at a local university.  Most of the students are from overseas, with richly varied backgrounds and great fun to teach. They are business-studies students and I believe most of them leave with an enhanced love and respect for our neck of Yorkshire (and sometimes promises to set up a branch here when they are successful tycoons in their own countries.)

** I don't agree.  True the economy grew quickly after the depreciation which followed our expulsion from the ERM in 1992.   But devaluation or depreciation of the currency is the cowards' way out.  It means that future generations, about whom Tories in particular are so anxious not to "burden" with debt, have to work all the harder or longer to earn the foreign currencies necessary to pay for the imports they need. That's a real burden.

14 comments:

  1. But devaluation or depreciation[...] means that future generations, about whom Tories in particular are so anxious not to "burden" with debt, have to work all the harder or longer to earn the foreign currencies necessary to pay for the imports they need

    But on the other hand the things they make (or services they perform) for export are more competitive, which means they need to work less as they sell more of them relative to our competitors with higher-valued currencies.

    It evens out.

    And anyway, a bit of hard work never hurt anybody.

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    1. I think you're mistaken: it doesn't "even out."

      In my childhood one pounds-worth of British exports would buy four dollars-worth - actually $4.03 - of American products (or products from anywhere-else, the $US was the international currency.) That's why we referred to 5/- as a "dollar" and half-a-crown - 2/6d - as half-a-dollar.

      Admittedly Britain had difficulty in selling its exports at that exchange rate and the £ was devalued to $2.80 in 1949 and, again to £2.40 in 1967. Since then it has floated downwards, or depreciated, and today's rate is £1 = $1.33

      This is hardly the history of a successful economy or a successful political system. It means that our exporters must now sell three times as much "stuff" abroad to buy the same value that would have been necessary in the late '40s.
      If the £ depreciates further , probably to parity (ie £1 = $1) that that will mean four times as much.

      The best way to improve our international competitiveness is to increase our productivity, something on which our governments over the years have a lamentable record.

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  2. This is hardly the history of a successful economy or a successful political system

    I don't think you measure a political system by the value of its currency! You really think that the higher a currency, the better the system? If so, why has Germany been so desperate to keep its currency low by staying in a currency union with basket cases like Greece, in order to keep its exports more competitive than they would otherwise be?

    The aim of having a floating currency is not to have the highest-valued currency in the world, which by your logic seems to be what you think the goal of a successful political system would be! The aim of having a floating currency is so that its value can change to suit your circumstances, so that if you need to boost exports, the currency can devalue thus making you more competitive than your competitors and neighbours.

    The idea that having a high currency is the mark of a successful currency... it's like saying the most successful company is the one which has the highest prices! No, what matters is how much money you make, and if you can make more money by having lower prices / a lower-valued currency, because you sell more than enough volume than to make up the difference, then you absolutely do that.

    (I am pretty sure this is the case, and that we do in fact export far more value now than we did in your childhood, even taking account shifting currency values, but over forty years the calculations would have to take into account not just currency values but the different inflation values for different currencies (ie, not only the different rates 1955$/1955£ and 2016$/2016£, but also the fact that the ratio 1955$/2016$ is not the same as 1955£/2016£ so you'd have to work out how much we export now in 2016£ adjusted for inflation to 1955£ translated to 2016$ adjusted for inflation to 1955$) and frankly that's getting too complicated for me to bother working it out — you feel free to, though, I'm sure you'll find I'm right.)

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    1. Having to sell more of your own stuff to buy the same amount of someone else's stuff still seems to me like a retrograde step.

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    2. Having to sell more of your own stuff to buy the same amount of someone else's stuff still seems to me like a retrograde step

      So if you were running a company, and you had overheads of £100 and a per-unit cost of £1, you would rather sell 200 units at £5 and make £700 profit, than 1500 units at £2 and make £1400 profit?

      After all you seem to be saying that selling more stuff is a retrograde step, if you lower prices to do it?

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    3. Think of it this way. If I have to work 35 hours a week to earn enough to meet my needs, then my wages fall, so I have to work 40 hours to earn enough to meet the unchanged needs, that's retrograde.

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  3. If I have to work 35 hours a week to earn enough to meet my needs, then my wages fall, so I have to work 40 hours to earn enough to meet the unchanged needs, that's retrograde

    But that's only looking at one variable in isolation, and the reality is more complicated because these things are not independent.

    It's more like, you work 35 hours a week to make enough to meet your needs; then the prices of the things you make fall, but that results in greater demand for them.

    So yes, you end up having to work longer hours to make more things, but you end up making more money in total too because you sell more of them.

    End result is you have to work more but at the end of it you can afford a better standard of living than you could when you worked less.

    So you have to work more hours but you end up better off because of it: a successful trade-off, in other words.

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  4. I'm not sure that we necessarily end up better off by working longer, but the point is that by devaluation we have to sell more of our own stuff to obtain the same value of others' stuff. Not a good trade-off.

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    1. the point is that by devaluation we have to sell more of our own stuff to obtain the same value of others' stuff. Not a good trade-off

      The point is that by devaluation our stuff becomes more desirable to others, because it's cheaper, so we do sell more of it.

      I seem to remember you going on about the balance of trade; devaluation can only help that balance, as it boosts exports while suppressing imports (because they become more expensive, so people will substitute cheaper domestic goods — eg, using traditional British vegetables rather than exotic imported ones). You should be celebrating it, if you care about the balance of trade!

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    2. Also, I seem to recall you wanting tariffs put on Chinese steel. So in that case you were in favour of making imports more expensive, now you're against it. Make up your mind! Which is it — is it good to import things cheaply, or bad?

      (Me, I think tariffs are always and only bad because they raise the price of imports without any compensating benefits; whereas a currency devaluation has both good and bad points, as it raises the price of imports (bad) while making our exports more competitive (good), which more-or-less balance out).

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    3. re devaluation: better to make our products more competitive by improving productivity rather than devaluing the currency.

      re Chinese steel, I supported tariffs to prevent dumping, an example of unfair competition.

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    4. better to make our products more competitive by improving productivity rather than devaluing the currency

      Why is it an either/or?

      I supported tariffs to prevent dumping

      Well, this is an old argument, but what's wrong with dumping? If the Chinese have been so stupid as to over-produce steel to the extent that they have to unload it onto us at a loss, how is that anything but bad for them (they lose money) and good for us (we get cheap steel)?

      Indeed this would be an example of the 'increasing productivity' you were talking about: if productivity is defined as the ratio between amount produced and cost of inputs (whether those inputs are labour time, or raw materials) then taking advantage of the Chinese government's mistake is a good way to increase productivity by reducing the cost of raw materials, isn't it?

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    5. Sorry for the tardy response: I've been away on holiday.

      Re devaluation/improved productivity. Improved productivity means that the value of exports can be increased without increasing the cost of imports.

      Re dumping: to be of benefit to all international trade must be rules-based. Dumping is against the rules.

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