Saturday 24 July 2010

Our Giant Banking Crisis - what to Expect

Anyone with15 minutes to spare and a serious interest in the world economic crisis should read this article by Paul Krugman and Robin Wells in The New York Review, 13th May, 2010. Here are a few quotations as tasters:

...too much debt is always dangerous.

...the Depression looks much more like the product of excessive private sector debt than like the government failure of monetarist legend

...the aftermath of financial crises tends to be nasty, brutish and long.

...the long term cost of financial crises is less when countries respond with strong stimulus policies, which means that failure to do so risks damage not just this year but for years to come. (My emphasis)

...there's obviously a strong case for a return to much stricter regulation...(but)..the ideology used to justify the dismantling of regulation has proved remarkably resilient...the financial industry's political power has not gone away.

I hope you're tempted.

Thursday 22 July 2010

Out of the mouths...

When, as a result of the terrorist attack on11th September 2001, the US , with craven British support, invaded Afghanistan, our school debating society happened to be having one of its " Round Robin" discussions. One boy in the Lower VI said the Americans shouldn't be invading, but sending aid. Another commented that the appropriate action should not be a "war on terror" but a police operation to catch criminals. Since 17 year olds are a bit sensitive on these matters neither would have been pleased to be called a "babe" or a "suckling," but if young people in a relatively obscure secondary school can see these things, why can't the first class brains in the White House and Pentagon? (The President of the time may not have had a first class brain, but then and now there should be plenty among the presidential advisers.)

Now the British Government has decided to increase aid to Afghanistan by 40%. Whilst this is to be welcomed it is clear that the purpose of the increase is primarily military rather than humanitarian - a ploy to facilitate the withdrawal of British troops. As such the money should come from the defence budget rather than the aid budget. It is wrong that the poor in Africa and Asia should be deprived in order to extricate the British government from a mess of its own making.

Be that as it may, a massive point in Cameron's favour is that he shows far more determination that either Blair or Brown to get British troops out.

Tuesday 20 July 2010

A sinner that repenteth

There's an excellent article by Ed Balls in yesterday's Guardian which clearly states the Keynesian position. If you're not yet convinced it is well worth a read. Just a pity that Balls wasn't quite so openly enthusiastic about it when he was an influential part of the government.

Saying one thing in government, than another in opposition (or vice versa in the case of the Liberal Democrats) does little to enhance the reputation of politicians or increase respect for the democratic process. It is now nearly three months since the election, but there is as yet little sign of the promised "new politics" - alas, just the mixture as before.

Monday 19 July 2010

No graduation without taxation?

I first came across the idea of a graduate tax during a short "updating course" for teachers of economics held at the University of Bath in the late 60s. Note that this was a "course": the term "in-serice training" had not yet been invented, still less the ugly diminutive INSET. Furthermore the course was content based and therefore valuable. No one presumed to tell us how to teach: we were assumed to know that.

The idea of a graduate tax was floated by a Professor Sandford and interested me so much that I made a little speech about it at a meeting of the then Liberal Party Council. (In those days there was at least the illusion that the views of activists were of interest to the great and good in the party.) Now, thanks to the urging of Vince Cable, some forty years later the concept is to be given serious consideration by the government.

The great advantage of the graduate tax is that it does not burden the student with the burden of a great debt hanging round his or her neck. If the student earns little or no pecuniary reward as a result of higher education, by devoting his or her life to being a super parent, building a home and looking after children, or becoming a missionary priest, social worker or other low paid occupation, then little or nothing is paid. If however, the graduate does gain a pecuniary profit from higher education (and on average we do, to the tune of £100 000 in a lifetime, at today's values) then something is paid to finance future higher education.

The concept of a graduate tax does, however, raise several question,to none of which does there seem to be an obvious answer. Here is my selection:-

1. Should the tax relate to the cost of the education as well as the future earnings? Three year history degrees are relatively cheap as they don't require any equipment other than books. Three year physics degrees are more expensive because they require lots of fancy equipment. Five year courses for medical students are very expensive indeed. And what do we do about post graduate certificates and diplomas, masters' degrees and doctorates?

2. Do we draw a line between Higher and Further Education qualifications which also cost money and lead to higher future earnings.

3. Graduate taxes will produce a stream of income in the future, but the Universities (and HE Colleges?) need money now. The NUS, who support the idea, suggests that bonds should be sold now, backed by the stream of income from the tax in the future.

5. How do we ensure that the stream of income in the future actually goes to the universities (and colleges?) and not just into the Treasury pot?

6. How do we cater for EU students, who I believe have equivalent rights of access to British universities as British students?

7. How do we cope with high fliers who may evade the tax by going to lucrative employment abroad?

I'd be grateful if readers with any views on the above would air them in the comments, and also pose any other problems that occur to them.

The situation is so complex that I can't help wondering if the good old system of free tuition and means tested maintenance grants isn't the best. I know that three or four times as many students go to university today as when Vince Cable did, but then the country is now three or four times richer. If we could afford it then, why not now?

Saturday 17 July 2010

Wisdom from Abroad

With the possible exception of the New Statesman the entire British media, including the BBC, seems to have accepted as fact that the British economy is in a parlous state, that "savage cuts" are necessary. that the coalition is right to boast of its courageous "tough decisions" and that we must all (actually mainly the bottom 20%) suffer for the greater good in the future. Those of us who believe otherwise are beginning to feel like the odd man out in John Stuart Mill's celebrated "all mankind minus one."

Fortunately there are still some sane voices. On the 8th July the New York Times published an editorial which, whilst generally favourable towards our coalition, describes George Osborne's budget as "misguided." The budget, it continues,"aims to cut too much too soon in pursuit of a pointless structural surplus by 2015. Its real achievements are far more likely to be drastically downsized public services and, if the fiscal austerity backfires , as well it might, a contribution to years of stagnation or worse in Britain and the rest of Europe." It goes on to say that "Britain isn't Greece" and that "recovery would eventually have wiped out much of that red ink."

It is galling to hear Danny Alexander et al defending this folly and blaming it on the alleged "mess" left behind by Labour. Whilst as junior partners in the coalition we cannot prevent Tory policies, we should not pretend to support them.

Friday 16 July 2010

Sound and Fury Signifying Commerce

There have been no posts for a while as I've been away for a few days, principally to see Henry IV Part 1 at Shakespeare's Globe in London. Anyone who thinks Shakespeare boring should go to the Globe, which presents generally brilliant performances of the plays in a setting as near as possible to the original. You do, however, need the strength to stand for the period of the production, or a backside inured to the discomforts of a hard wooden bench.

The performance was splendidly riveting and the King, played by Oliver Cotton, had an uncanny resemblance to my MP, Mike Wood, though Mr Wood, unlike Henry Bolingbroke, is happily more motivated by values than ambition.

The Globe is open to the skies, hence not insulated from extraneous noise. The sounds of revelers on the South Bank add to the ambience - that would have happened in Shakespeare's day. However, the Elizabethan audience would not have had to put up with the intrusive racket of jets flying overhead. The Globe offers one of the most amazing cultural experiences in the world. Surely it would not be asking too much for flight paths to be diverted a few miles on either side during the short summer season when performances are presented. Even London, commercial capital of the world (or so it likes to think) needs to put commercial values in their place from time to time.

Friday 9 July 2010

Unbuilt Schools

Reaction to Michael Gove's announcement that the coalition is to abandon over 700 school building projects first centred on the pupils and teachers who will continue to work in sub-standard conditions. It then switched to anger from the users of the 25 or so schools which were not on the list, so thought they had escaped the axe, only to discover that they had been left off by mistake.

One really does wonder about the competence of civil servants who can't even put together an accurate list. What has happened to these "mandarins" who used to have the reputation of running the Rolls Royce of administrations? They have first class degrees from swanky universities and have survived the latest in scientific selection procedures. How is it that they can't do a simple job like this? I suspect that too much emphasis is placed on interview skills and not enough on the ability actually to do the job to which they are appointed. Today we are too prone to appoint and promote the glib who can best spout the latest fashionable jargon rather than those with a proven recored of competence.

However, what has received much less attention are the economic consequences of abandoning these projects. The building industry has long been regarded by economists as a "bell-wether" industry: the first to feel the pinch in a recession and the first to perk up at the start of a recovery. The abandoned projects will lead to unemployed builders, carpenters, brick and concrete makers, plumbers, manufacturers of lavatories etc etc and perhaps some bankruptcies. The famous Keynesian multiplier will kick in as these unemployed cut back on their own expenditure, leading to further decreases in demand and further unemployment, as every school boy or girl who has ever studied economics knows full well.

In other words, school buildings are a classic example of the "pump priming" Keynes advocated for avoiding or ameliorating recessions. In the present precarious circumstances we should be expanding programmes of public works, not cutting them back.

Tuesday 6 July 2010

One and a half cheers

It would be nice to be able to give three unqualified cheers for one of the achievements of the Liberal Democrats in the coalition, but yesterday's announcement by Nick Clegg of the referendum on AV leaves me with many reservations. To name but three:
1. It is to be on AV, which is not proportional, and, equally importantly, will do little to abolish safe seats. To revive our democracy we need an electoral system which makes it worthwhile for everyone to vote. Under AV elections will still be decided in a handful of marginals.
2. It is to be allied to a reduction in the number of MPs to 600. I suspect Liberal Democrats initially proposed this as a rather facile knee-jerk reaction to the expenses scandal. "Let's punish MPs and save money..." Reducing the number of the people's representatives is hardly a step towards improving our democracy, and it is not compatible with obtaining the reasonably-sized multi-member constituencies necessary for STV. It is hard to dismiss Labour's claim that this is really a gerrymandering trick by the Tories.
3. The referendum is to take place on the same day as the elections for the Scottish Parliament, the Welsh Assembly and some English councils. As I've argued before, all these institutions and their candidates deserve their day in the spotlight, not overshadowed by some other issue.

So one and a half cheers at the most.

On a brighter note, three of the four Radio 4 "Any Questions" panelists last Friday were in favour of the proposal. The one against was the Marks and Spencer boss, Sir Stuart Rose, whose arguments seemed strangely illogical (perhaps I would think that.) The audience too were overwhelmingly in favour. so the battle might not be as up-hill as some people think. However, as the Liberal Democrat representative , Olly Grender, pointed out, the right-wing press have not yet got out their knives, as they undoubtedly will.

Sunday 4 July 2010

Lofty Conncetions

My house overlooks the Parish Church and Graveyard of St Peter, Birstall, though you can't see much of either at the moment because the trees are in full leaf. I was baptised in the church on the 3rd October 1937 by the then vicar, Canon Harry Taverner Robinson. According to a genealogist called Roy Stockhill, who runs a website called "Findmypast", Nick Clegg's great-great-great-great-grandfather, Christopher Clegg, was baptised there on the 12th February, 1775, probably using the same font, which goes back, I believe to the 17th Century, though probably not by Canon Robinson. Like one of my grandfathers, Christoper Clegg was a collier. He died in 1894, aged 74, and is buried in St Peter's Graveyard along with over 100 other Cleggs and my four grandparents.

So Daily Mail readers need not be alarmed. Nick Clegg may have some exotic blood, but he is really of solid West Riding stock.

Friday 2 July 2010

Two Questions of Perception

Polly Toynbee has an excellent analogy to describe that aspect of our society which really is broken - the fact that some 20% of our fellow citizens are getting left further and further behind. Toynbee compares this to a caravan in the desert. First the rear 20% lag behind but are still part of the same caravan. If they get too far behind they become a separate caravan. This is what is happening to our "underclass" today.

Until I read the Guardian's leader last Monday, ("Bending the yardstick" (28th June, 2010) I had supposed that Toynbee's excellent image was of a caravan composed of camels. The Guardian, who presumably know best, referred firmly to trucks, which in my view are not nearly so picturesque.

The leader is well worth a read, but one dangerous proposal it doesn't mention is a move to change the measurement of poverty from the present comparative definition of, I believe, less than 60% of median income, to some arbitrary absolute level of income.

Poverty is the inability to participate at least to some extent in what is regarded as "normal" by society. Hence a child without access to television in the home or an indoor bathroom and lavatory would today be regarded as poor, whereas these and much else that we take for granted today (telephones, refrigerators, regular holidays) were available only to the better off sixty years ago. Very few people in Britain today are poor in the absolute, Third World, sense of lacking the basic necessities for survival. Even those on relatively modest incomes live in the lap of luxury compared with the lifestyles of our grandparents.

A redefinition of poverty to an absolute level of income would mean that the rear 20% of the Toynbee's caravan, camels or trucks, would fall further and further behind without our noticing, a retrograde step in the progress towards the coalition's stated aim of a fairer and more equal society

Thursday 1 July 2010

Bad Behaviour

An optimist about human nature, and most Liberals are, would quarrel with Douglas Hurd's famous admission that prison is "an expensive way of making bad people worse." Rather it's an expensive way of making badly behaved people worse behaved. It is nevertheless refreshing, if somewhat of a surprise, that it's a Tory justice minister, Ken Clarke, who aims to put an end to the competition to appear tougher on crime than the other lot, and to use more intelligent and effective ways of changing the behaviour of criminals.

However, we have to ask how this squares with the promised cuts in the public services, not least the threatened 25% cut in the budget of the Home Office. The Probation Service is already grossly understaffed, the vital Prison Education Service already desperately underfunded, and at present there are often insufficient prison officers to allow prisoners to be let out of their cells to attend classes.

The circle could be squared if fewer people are put in prison (at a cost of £38 000 a year, more than the school fees at Eton), the present plans to build more prisons abandoned, and the money released put into these more productive avenues. But that would transfer public money, not cut it. There is a need for "joined up thinking" here.