Economics Viewpoints : 29 April

April 29, 2009

Government is the trick by which one group

lives at the expense of another

Frédéric Bastiat, Essays on Political Economy



Psephology is mostly a matter of economics.  When people’s living standards exceed expec­tations, incumbent Governments are praised.  When the one are straitened, the other are blamed.

At the moment, in the midst of what is certainly a severe recession, and is possibly the onset of a depression, incumbents (unless very recently elected) are hugely unpopular.  They are Oppositions in Wait­ing; their early dismissal a forgone conclusion.  What’s currently at stake, therefore, is not the next elec­tion, but the one after that.  And there’s a threat that those who perform poorly in the “dog days” of debility may be excluded from power for a decade or more. 

The Labour Party in Britain risks such an outcome.  It knows it should have passed on the baton as soon as the extent of the economy’s weakness emerged.  If the Conservatives had come to office a year ago, even six months ago, they would by now be somewhat associated with economics failure.  Labour would stand a reasonable chance of winning a poll in 2012/13.

But egos intervened.  Taking the small hit sooner rather than the big one later was a strategy suited to the Party, but not its Leaders.  Gordon Brown (and a number of senior colleagues) knew that, by the time the pendulum had swung back to the Left, they’d be deemed too old for the top jobs.  They had to have them now, or not at all.  Predictably selfish, they chose to sol­dier on.  The downside was only that the next tranche of politicians, those ten years younger, would per­manently miss out!   Serve the brats right, said some.

The Conservatives couldn’t believe their good fortune.  Everything had fallen fortuitously into place.  But they were desperate not to be seen to gloat and only occasionally did the mask slip.  For the most part, they appeared compassionate in regard to others, disinterested in regard to themselves.  Their problem was not the present but the future.  It was satisfactory in opposition not to reveal policies, but not in office to have none.

Europe poses a major challenge for them.  They said last week that, on taking office, they’d hold an immediate refer­en­dum on the Constitution—so long as Europe as a whole hadn’t ratified it by then.  Why the qualification?   Why were others in Europe to decide whether we should be allowed to vote?   Was this the sort of thing we’d have to endure when the Tories came to power?

What, moreover, were they to do about public expenditure?   To cut it severely or not?   And the iniquity of public sector pensions?   To be continued or halted?   Most people thought answers were obvious enough, but Conservatives, playing safe, stuck to platitudes.

It was much the same in relation to Regulation.  Was it to be increased or reduced?   Was the FSA a boon or a bane?   The Hedge Fund sector might be the litmus test.  The European Commissioners planned a scorched earth policy.  They wanted the sector stifled and destroyed.  How would the Tories react?

Didn’t they concede that Hedge Funds, almost alone in the financial community, had played no part in the current troubles?   Shouldn’t the regulators look more carefully at the trouble makers?   The mistakes were made in Central Banks, in Treasuries and in Cabinets.  Expose the rascals please, Mr Cameron.

In the meantime, if the Tories were to want to appeal to voters across the spectrum, they should propose cutting their own packages.  In the early thirties, MP’s agreed unanimously to reduce their salaries by 10%.  Let them do so again; this time taking 25% off expenses as well!




Economics News : 24 April

April 25, 2009

Having to pay for earlier misjudgements, the Chancellor had few options.

There were few surprises in the Budget.  It had been expected that the news would be bad.  And so it was.  Levels of public sector borrowing were already horrific, said the Chancellor, but they’d get much worse in the next year or.  It would take a decade of austerity, possibly two, to return the country’s finances to a satisfactory state. 

He chose to cross his fingers and hoped for the best.

Was that a price worth paying?   Alistair Darling thought so.  It would reactivate the economy, he claimed.  The rest of us fretted it wouldn’t.  Comparable measures, when they’d been tried here in the thirties and in Japan in the nineties, hadn’t worked.  And the anxiety was that the delinquent officials in an accident-prone Treasury had repeated the mistaken prescription of earlier periods.  Not understanding the louring signs of depression, not knowing how to improve things, they’d opted merely to prop up the failing Scottish banks. 

The irretrievable mistake was bailing out the bankers.

The downside to that decision was not principally the financial cost, but the associated degradation of the gene pool.  Contrary to Schumpeter’s recommendations, the feckless had not been eliminated, but preserved.  It was as if the farmer had chosen to use the runts in the litter, beasts that were physically deformed and mentally handicapped, as breeding stock!   Defective DNA would survive in the community for an indefinite period!

He’ll not have the opportunity to make many more.

Optimists pointed out that the capacity of the Brown-Darling duo to make misjudgements was soon to cease.  There’d be an election shortly, and things would change as a result.  Fiscal incontinence would end; likewise, constitutional backsliding; military misadventures would be discontinued; and foreign policy immorality halted. 

The Tories will take over!   Will they be different?

Some hope!   The Tories seem to want to continue on the current path.  They appear to be fond of bad banks; but not keen to end bad wars; they are only ambivalent about harsh interrogation; and they won’t even commit themselves to a referendum on the European Constitution.  The sad truth is that Tweddledum will be replaced by Tweddledee, but that nothing else will change.

Is there a risk that Copycat Cameron . . . 

The Budget’s specific measures may have owed more to class politics than economics logic.  Why did the Chancellor lift the top rate of income tax to 50% for those who are moderately rich, and why did he go to extravagant lengths to penalise their personal allowances and pensions contributions?   These measures won’t raise a significant amount of money.  They might, on the contrary, if a small part of the City were to relocate overseas, cause revenues to fall.

. . . will opt also to raise personal taxation?

Of course, it probably wasn’t Darling’s decision.  It was more likely to have been Brown’s.  The Prime Minister is an obsessive fiscal tinkerer.  He genuinely believes his initiatives in the past (when he was Chancellor) were a valuable spur to economics efficiency, and doubtless he sees his latest pensions provisions in the same light!  

Brown has misjudged many things.

His intervention in the row over Members’ housing allowances is fascinating.  He’s managed to understand that the voting public is unhappy, but seems to imagine that the unhappiness is the result of the particular form that the allowances take, not their overall value.  He proposes that the one be changed, but that the other be left substantially as it is!

The most recent example:  housing allowances.

What a clot!   The electorate doesn’t care whether the snouts are buried in the housing trough or the attendance one.  It’s the same difference.  What exercises the general public is the perception that MP’s are thorough-going scoundrels; over-paid and under-worked.  Most particularly, the criticism of them is that they don’t respond to voters’ anxieties.

The strain on him is telling.

Did the Prime Minister really think that his proposals would lance the boil?   Did he imagine that serial expenses cheats would become suddenly popular?   If so, he must be much more out of touch than even his fiercest detractors thought.  The poor chap needs a long rest.  Not in a year’s time, but immediately.

Equities, meanwhile, are benefiting from favourable fundamentals.

The one piece of good news is that equity markets are looking more attractive.  Valuations are not rising at all rapidly, but profits are creeping up and so are dividends.  Set that in the context of negligible interest rates and we have a recipe for longer term appreciation.  It may take a few more months before the momentum builds up, but, when investors looking for income reassess the risks and rewards, a rally will begin.



Economics Viewpoints : 22 April

April 22, 2009

The Mindless are rarely Wordless,

Nor the Reckless, nor the Shameless.

Gordon Brown and his Spinners, qualifying on all three fronts, demonstrate the truism.




Words are slippery items.  Their meanings shift subtly in the mind of the beholder—changeable taffetas and very opals.  To the wordsmith assassin, that renders them powerful weapons.  The rogue who wishes to deceive makes extensive use of verbal double-dealing.  In the mouth of the politician or the press release of the spin doctor, for instance, values are intentionally debased, interpretations deliberately subverted:  the objective is not to elucidate but confuse.

The Damian McBride episode illustrates the phenomenon.  What did Gordon Brown mean when he said he took “full responsibility” for the affair?   Was he admitting that he had orchestrated the libel and approved its implementation?   Certainly not.  His “words” might have been ambiguous but his “body language” wasn’t.  He intended himself to be thought generous on the one hand, resolute on the other.  He wanted to be perceived to be taking onto his shoulders the burden that should properly have been borne by lesser creatures.  There was a distinction, he wished it to be known, between the disreputable servant and his blameless master.  His own moral compass was in good working order; it pointed him unerringly towards truth and virtue!!!

What, anyway, was the extent of his failing?   Merely that he had recruited the dreadful reprobate, McBride, and trusted him too much.  There was in the PM’s words a plaintive reference to Lear rather than Orsino.  He saw himself as a man more sinned against than sinning. 

Though modesty forbad him explicitly to say so, he was a colossus bestriding the narrow world.  Others—whether politicians, journalists or businessmen—were petty creatures, creeping about under his legs, criticising what they couldn’t understand.  They fretted about his failure to keep public spending within sensible limits; complained about his ill-timed gold sales; whinged about the devastation heaped on the pension funds!   Mean-spirited wimps all of them.  Didn’t they know greatness when they saw it?

True to form, Peter Mandelson added his two-pennyworth.   The issue, said the ignoble Lord last week, “is resolved.”  Ministers ought to focus on other matters.  Resolved?   What did he mean?   Did he suppose that the Prime Minister’s statement would allay suspicious?   Would the spineless Press, bullied for years by No.10’s attack dogs, be silent now that they’d finally bitten the ear of one of their tormentors?

It’s the end game.  New Labour is in meltdown, and would be a good deal more than 20% behind in the polls if the Conservatives were to opt for policies that distinguished them from their rivals.  The European elections next month will be interesting.  How big a vote will UKIP get?   Will it be second largest?   What message then for Brown?   And what for Cameron?

Securities markets, meanwhile, are edging ahead.  Economies are not sprouting green shoots, but equity valuations are.  Despite horrific declines in real activity, corporate profits are holding up quite well; and despite astronomic increases in money supply, inflation is continuing to decline.  It’s a favourable picture for the markets.  They’ll likely perform well for years.




Economics News : 17 April

April 17, 2009

What statistics reveal is suggestive;

What they conceal, vital.

Levenstein, drawing the parallel with the bikini.


Lies, damned lies, and economics!

In the last eighteen months, while economics activity in most of the rest of the world has crashed into recession, that in China is reported merely to have moderated.  Conditions in North America, Western Europe and Japan are currently desperate—the worst since the early thirties.  But, in the PRC, they seem still to be highly satisfactory—growth running in the first quarter of 2009 at 6% per annum!  

Are the Chinese still flying?   Or do they just want us to believe they are?

Is that figure credible?   Not really.  The numbers add up, but the logic doesn’t.  The proposition, for instance, that domestic demand picked up just as export sales started to fall away is a little hard to swallow.  It’s rather more likely that workers, newly anxious about job security, would have cut their consumption.  And it’s probable also that companies, noting the slower throughput and duller profits, would have reduced investment programmes. 

Forensic economists are unimpressed.

What, moreover, is the economist to make of the imports data?   How likely is it that tastes for foreign goods would have been severely depressed when general appetites were reasonably robust?   Could the higher personal consumption have been restricted to domestically produced goods?   Did the surge in industrial production require no extra raw materials?   Hmph.

Too much wishful thinking.  Shades of the Met!

Official data are error-prone—sometimes accidentally, sometimes deliberately.  If the authorities let it be known that they’d like certain phenomena to be illustrated, it’s quite often the case that they are.  Britain’s crime figures tend magically to conform to official targets.  So do school examination results and hospital waiting lists.  Perhaps similar pressures manifested themselves in China in relation to economics reports in the last nine months.

How weak might things be genuinely?

Exactly how strange are China’s numbers?   Not outrageously.  But, if developments had conformed to “normal” patterns, if personal and company spending had been “ordinarily” subdued, the effect on GDP would have been quite sizeable.  In the first quarter of 2009, it would have grown by just 4% in comparison with the equivalent period of the previous year; and it would have contracted at an annual rate of 3% in comparison with the prior quarter!

Will the truth out?

Might we see some revisions, therefore, in the months that lie ahead?   Possibly.  It all depends on the behaviour of the world economy.  If it should revive strongly, China will soon follow suit and the “errors” relating to early 2009 will be buried forever.  But if the global slump should continue, that’ll not be possible:  the pretence of resilience will not be sustainable.

It depends largely on economies elsewhere.

So is there any prospect of near term regeneration?   Many commentators seem to think there is.  Obama is cautiously optimistic about the US economy and Bernanke not wholly gloomy.  Additionally, a number of European Commissioners are said also to have spotted early signs of recovery in their countries.  For investors, investment bankers in particular, the most telling development is the rising equity market. 

Are there any green shoots?

The story is not particularly convincing, though.  There is confusion, some of it deliberate, between conditions that are improving and those that are deteriorating less quickly.  And there is comparable ambiguity about asset valuations on the one hand and economics progress on the other.   But what worries most economists is the outlook for the labour market.  Many fret that, in the remainder of 2009, there will be huge swathes of redundancies—amounting, in some countries, to 5% of the existing workforce.  What price then an uptick in personal psychology, and a revival in consumer spending?  

Probably not.

Corporate profits are likely to carry on rising, though.  Margins will soar by up to 5% immediately and possibly continue to expand thereafter.   Why?   Because, under the impact of higher unemployment, pay settlements will moderate.  If the picture were to be similar to that in the thirties, margins would rise so long as the depression deepened!

No time to be an incumbent politician!

Banks will be embarrassingly large winners.  Borrowing cheaply and lending extortionately, their profits will be almost uncontainable.  Competition will have been suppressed: Governments having been duped into winking at cartels and encouraging exploitation.

The reckoning will be swift and final.

But voters will be furious.  It’ll be maintained that Governments misjudged the situation.  They helped the wrong people.  It’ll be all right perhaps if by then the economy is back on an even keel.  But if activity is still depressed, unemployment still high, there’ll be no mercy.  Rightly so.  Sic semper fatuis.



Economics Viewpoints : 15 April

April 15, 2009

Since light travels faster than sound,

people appear bright until you hear them speak.

Economists or Politicians?   Both, of course.


Responding last week to criticism of his administration’s fiscal policy, President Obama noted that history had shown repeatedly that nations not taking early and aggressive action of the sort he was recommending had suffered as a result.  The crises afflicting their economies had lasted for years and years, rather than months and months.  His analysis was right, of course.  But history had also shown that those nations pursuing the alternative therapy, of spending freely and quickly, had done no better.  Their economies had been blighted for just as long.


Unsurprisingly so.  Fiscal policy merely transfers resources from one group to another.  It’s a zero-sum exercise.  There are individual winners and losers, but no general benefit.  The procedure does not, it cannot, boost activity as a whole.  If interested parties affect to believe otherwise, it’s probably because they have alternative agendas.  They may want to re-organise society; they may seek political rather than economics gratification.

That’s the criticism properly to be levelled at Obama in the States and, a fortiori, at Brown in Britain.  Both seem to have used the excuse of impending depression to implement fiscal policies designed for social reasons.  It’s Roosevelt revisited:  the thirty-second President spent furiously and was electorally popular while he did so.  The economy may have stayed dull throughout his tenure, but the man won four elections, and a fifth was on the cards before mortality intervened!   What wouldn’t Obama and Brown give to be as popular!

But the parallel isn’t perfect.  Roosevelt didn’t bail out the banks.  Obama and Brown, on the other hand, have accorded them unprecedented help.  Bankers have been molly­coddled; retailers, manufacturers and pensioners fleeced.  The former have been protected from the consequences of their mistakes; the latter have been forced to pay for them. 

Why?   Does either of the political leaders believe the proposition that banks are special?   Does either think the “money transmission mechanism” to be of so great a significance to the general economy that banks should never be allowed to fail?   If so, they must be too important to be left in the private sector.  They ought—like the civil service and army—to be publicly owned, and denied the right to control fund managers, prop desks, brokerages etc. 

Neither Obama nor Brown wants to make this case.  But that is going to expose each to the charge of poor judgment.  As High Streets are denuded of shops, as Industry is hollowed out, as Pension Funds are bankrupted, voters will ask why their taxes were channelled so generously to loathsome banks.  Weren’t they the cause of the problem?   Shouldn’t they have been punished, not rewarded?  The deployment of taxes will be deemed not to have been salutary but wasteful; those who proposed it, not insightful but wrongheaded.

If, contemporaneously, miscreant bankers are to be seen to be using public funds to pay themselves huge bonuses and unconscionable pensions, voter anger will be intensified.  The politicians deemed to be responsible will be dismissed.  Less gullible alternates will be installed.   



There’s none so blind . . .

April 14, 2009

They defend their errors,

as if defending their inheritance.

Edmund Burke:  Politicians are bad, Central Bankers worse.



Pity the poor Europeans!   They’d thought it was payback time at last:  they’d thought they were finally to get even with those sneering, supercilious Anglo-Saxons.  They’d pictured the virtuous coming unscathed through the economics setback, the debauched being humbled and humiliated by it. 

It wasn’t only the Europeans who saw things thus.  A number of other serially inaccurate forecasters—the OECD, the IMF and the World Bank, for instance—concurred.  Activity that was built on dubious financial services was unsound, they warned.  If debts became too large to be repaid, they gloated, the denouement would be protracted misery. 

Accordingly, when the credit bubble burst early in 2007, many Europeans licked their lips and settled into ring­side seats in pleasurable anticipation of the agonies shortly to be meted out to their adversaries.  And, for a while, things went to schedule.  The housing sectors in the US and UK, burdened by huge debts and a degree of criminality, began to unravel.  Later, the investment banks, somewhat similarly handicapped, went into slow-motion liquidation.

Excellent, salivated the Commissioners.  Salutary, drooled the ECB.  Fiat vastatio, they cried in unison.  The world order must change; Europeans must run things in future.  Le dollar est mort; vive l’euro!   

But the gods of economics are jealous creatures.  They do not like to be taken for granted.  So, just when it looked as if the US and UK were in terminal decline, the playing field was tilted.  Suddenly, late in 2008, it was the smug Europeans who were found to be most in trouble; the chastened Anglos least.  

What had happened?   How could the upright be condemned and the dissolute reprieved?   It was a bitter pill for the Eu­ro­pe­ans to swallow.  Many of them, their psychologies those of the functionary, do not respond well to adversity.  Forsaken by mammon’s deities, disoriented, they descended into catatonic denial.  At conferences, the Trichets and the Alumnias ignored the published data and spoke as if progress were satisfactory.  When challenged, their mental strain showing, they stormed off.

It was not just the political fraternity that was reluctant to concede the European problem.  Professional economists were no less bemused.  They had forecast EZ resilience in the face of global debility, and were reluctant to concede their error.  Fully nine months after the data indicated disaster, the consensus still affected to believe otherwise.

Germany, though unambiguously the most efficient of Europe’s economies, nevertheless saw its GDP falling at an annual rate of 8% in the last quarter of 2008; the equivalent figure for the first one of 2009 headed for something in excess of 10%.  Industrial production, the country’s speciality, had been contracting in these periods at annualised rates in excess of 50%!

In Spain and Portugal, Ireland and Greece, meanwhile, the numbers were worse.  Activity had slumped and finance imploded.  Recently, it’d been all but impossible for their Governments to finance borrowing requirements through the issuance of bonds.  Investors, less romantic than politicians or economists, made it clear that they regarded the obligations of the weaker of Europe’s Treasuries as so much junk! 

In Eastern parts of the Continent, the problems were particularly severe.  The Warsaw pact countries had rushed, unthinkingly, into EU membership and had signed up, mindlessly, to the EZ!   Believing themselves to be safe and secure under the Commission’s protective wing, they had thrown caution to the winds as they hastened to emulate the failed economies of Western Europe.  For several years, the recipe seemed to work.  Then, as depression took hold, the skies fell!  

For a while, fortuitously, unemployment was relatively slow to rise.  Not for much longer, probably.  Within weeks, months at the most, jobless totals will rise stratospherically.  When that happens, politics will take a turn for the worse, reinforcing and exacerbating the already desperate economics outlook.

Will the misery afflict Anglo-Saxons as well?   Yes.  But, if recent numbers are to be trusted, it’ll do so to a lesser degree.  Activity in the US and UK is unambiguously holding up better than that in the EZ.  Retail sales are considerably better; likewise industrial production; likewise even financial services!   Unemployment may have risen more, but only because of faster response times; not because of smaller imbalances.

So what happens next?   Timing is difficult, but, at some stage, Europeans will be forced to acknowledge the error of their ways.  What has differentiated the weak from the strong, the unsuccessful from the successful, has been the different approaches of the Regulatory and Monetary Authorities:  poor in the US and UK, but uncompromisingly bad in Europe!

The first step to salvation is, as always, recog­nition of past mistakes; the second, the adoption of new procedures.  For Europe, that means that the mindset of those in charge of the Commission has to be reviewed; likewise that of those at the helm of the ECB.  A moderately high IQ would help; some understanding of economics would be a definite advantage.

Specifically, the EZ’s prescriptive regulation has to be abandoned and its monetary conditions relaxed.  Downsizing the establishment of Brussels bureaucrats (by 50% say) would be a good start.  Cutting interest rates to zero, and reducing the value of the euro by a half (vis-à-vis that of Asian units) would be of considerable benefit. 





Economics News : 9 April

April 9, 2009

It’s not reality that bites,

but the perception of it that does.

Anthony J. D’Angelo, economists have trouble distinguishing between the two concepts.


Mathematicians are irritatingly precise; economists, insufferably imprecise.

Economists lack intellectual rigour.  There’s a tendency for their pronouncements to be more heavily influenced by wishful thinking than dispassionate analysis.  Last week, demonstrating the phenomenon, many started talking about a revival in activity.    

The one group understands differentials, the other doesn’t.

Their problem was a muddling of “levels” and “growth;” of “first” and “second” differentials.  The scribblers had spotted the one and interpreted it as the other:  they’d perceived a moderation in the rate of deterioration to be an improvement.  The reality (probably) was otherwise.  While it was possible that the former had occurred, it was almost certain that the latter hadn’t.

Economies are contracting less quickly; they’re not growing!

Bank lending, industrial production and retail sales seemed all to be contracting less quickly than hitherto, but there was no hint of a reversion to growth.  Instead, it looked as if there’d be an ongoing phase of decline.  Indeed, there was an anxiety that, if the thirties were anything to go by, the debility would last for a decade, possibly a generation.  And, even when output eventually started to grow again, the advance might be anaemic—insufficient, therefore, to keep employment at satisfactory levels.

And unemployment means they won’t be for some time.

It was the labour market that most worried the authorities.  In Europe and Asia, the outlook was particularly poor.  Layoffs hitherto had been minimal.  Employers had been hoping that a revival in demand would make redundancies unnecessary.  But, with activity still softening, albeit at a slower pace, it could only be a matter of weeks before the dams burst and unemployment surged.

Depression is more likely than recovery.

When that happened, sentiment would plunge and spending collapse.  Economies would enter upon a vicious circle of deterioration:  supply being cut to match inadequate demand; employment falling in consequence; softer sales the inevitable result.      

Governments are impotent.

In such circumstances, the authorities would be powerless.  Lower interest rates would be of limited value:  the cost of finance reduced, but the fear of unemployment remaining.  And higher public spending ineffective:  tax revenues scarce, and the appetite for government debt non-existent. 

Especially those that have wasted their resources on rascally bankers!

Worst of all, pensions provision would be a catastrophe.  In Britain, in the eye of the economics storm, the Treasury had misapprehended the situation so thoroughly that they’d chosen to bail out good-for-nothing Scottish bankers at the expense of virtuous English taxpayers.   The one group was now luxuriating in limitless indolence while the other was fretting about perpetual penury.  A whole generation of pensioners had been devastated.  What the unspeakable Brown started with his raid on superannuation schemes ten years ago, he’d finished with his recent indulgence of compatriot bankers.  The man had a great deal for which to answer.  History would judge him harshly; so would the electorate.

Europe and Japan look more vulnerable than the UK.

Curiously, bad as things are in the UK, they seem to be even worse in much of the rest of the world.  That’s not the way the forecasters had envisaged things.  The IMF, the OECD, the EU and virtually the whole of the Investment Banking community had reckoned that Britain’s delinquent credit behaviour in the past would traumatise its growth in the future.  But the data, thus far, say otherwise. 

Likewise, Commodity Producers and Emergers.

It’s Germany and Japan, their industrial virtuosity notwithstanding, that have been devastated by the inventory correction.  It’s Ireland and Spain and Iceland that have paid the price for monetary excesses; Brazil and Canada and Australia that have had their living standards undermined by deteriorating terms of trade; India and China, superstars when world trade was growing briskly, that have found themselves exposed and vulnerable under the threat of proto-protectionism.

Weak currencies have boosted activity.

Arguably, it’s been the slightly less awful performance of the British economy that accounts for the slightly less awful performance of London’s securities markets this year.  Elsewhere, there’s been unqualified gloom; in the Sceptr’d Isle, comparative resilience. 

Vide the US and UK.

Why?   The currency.  A 25% devaluation, unmatched by faster inflation, has worked wonders for competitiveness.  Industry has been boosted a little; finance and tourism have declined only moderately; and education has been a big winner.  

Time for the euro to fall again?

Will the benefit persist?   Only as long as the currency differential does.  The probability is therefore that the trend will reverse.  The euro, in particular, looks set to fall.  It may be that the scales fall from Trichet’s eyes and that he’ll deliberately undermine the currency.  But it’s more likely that the market will do what has to be done, Trichet resisting to the last.  In any event, a 35% correction would be justified.



Blair’s legacy lives on

April 8, 2009

Ere man’s corruptions made him wretched, he

Was born most noble that was born most free

Otway, Don Carlos—ignoble and enslaved now


The public sector in Britain is out of control.  It’s not just the Scottish banks, now Treasury owned, that are proving to be bottomless pits of expense, but MP’s, EMP’s, Railtrack Executives, Local Authority Chiefs and even State School Headmasters!   All have their snouts in the trough.  All are enriching themselves at the expense of the poor taxpayer.

Does Gordon Brown care?   Apparently not.  He says he’s focusing on the big picture, not minor distractions; fighting world depression, not personal impropriety.  That’s probably going to count as another of his misjudgements.  The reality is that voters care most about things they understand best.  Accordingly, they judge personal corruption more seriously monetary misanalysis. 

Perhaps it’s because they’ve taken their cue from the Prime Minister’s insouciance that most public sector miscreants seem not yet to appreciate the antagonism they’ve evoked amongst voters.  Jacqui Smith demonstrated the phenomenon in a television interview last week—she’d probably have been better off watching her husband’s videos.  If she had thought that her performance in front of the cameras would improve her poll ratings, her judgment was as faulty as Gordon Brown’s.

She apologised for charging pornography to the taxpayer, but not the furniture and scatter cushions she’d bought for her second (or was it her third?) home.  She admitted that she didn’t read the claims form that she’d signed, but was reluctant to say how many other documents were also signed unread.  Indeed, she got irritated when pressed by the interviewer about the generality of expenses abuse.  She declared that there were certain questions she wasn’t prepared to answer!   She didn’t say why; and wasn’t asked.  But, to most of the audience, it looked like an own goal!

By the standards set by Railtrack’s executives, of course, Jacqui Smith’s taxpayer-financed emoluments may have been modest.  The former, delivering a consistently poor service at a consistently high price, ought to have been censured for their failings.  But, incredibly, they were granted enormous bonuses!   Why?   What would they have received if their performance had been satisfactory?   The mind boggles.

And then there’s the Local Authorities.  They no longer mend potholes, nor sweep pavements; they close libraries and sell-off playing fields; their housing departments are a disgrace and their school standards shameful!   Do they therefore deserve gigantic salaries and unconscionably generous pensions?   They think so.  And, while Treasury Officials and Elected Councillors were looking the other way, they secured them!

Now it transpires, even headmasters are part of the boondoggle.  Hundreds of thousands of pounds are being paid out to those who run the new-fangled Academies.  No matter that education is non-existent, that gang warfare is rife, rewards for Executives are huge.

It won’t last forever.  At some stage, the private sector taxpayer who creates the wealth that the public sector employee abuses will have had enough.  There’ll be a revolution.  Let’s hope it’s soon.   




Topless Towers of Ilium

April 7, 2009

Was this the face that launch’d a thousand ships,
And burnt the topless towers of Ilium?

Marlowe:  is Barack to be compared to Helen?  personable but fatal?


Is Obama’s halo slipping?   At home, he’s lost some of his early popularity, and the process may have started in Europe also.  In London (at the G20 meeting) and in Strasbourg (at the Nato summit) he charmed the crowds, but not necessarily the politicians («il séduit ses interlocuteurs, son style a conquis; mais l’avenir de la relation entre les Européens et M Obama sera testé sur les dossiers,» intoned Le Monde.  Rightly so.  To many, the decision to fight on in Afghanistan was ill-advised, and the request for help from Europeans naïve.  The biggest misjudgement of all, though, might have been his comment on EU membership.  The recommendation that Turkey be allowed to join the EU was bound to ruffle feathers!

Did he not know how his words would be greeted in Paris and Berlin, Athens and Vienna?   If he (and his advisers) didn’t, the charge is one of regrettable incompetence.  If he (they) did, it’s one of admirable bravado.  In either event, though, it’s going to make future relations a little difficult.  In discussions in months to come, he’ll have to rely more on substance and less on allure.

The Brits, happily, don’t care about Turkish membership.  They think that any country wishing to be a member of the EU must be psychologically demented and economically defeatist.  If the Turks were genuinely an industrial and commercial force to be reckoned with, they’d be horrified by the thought of joining an association of has-beens.  Like the Asian Tigers in their heyday, like China now, they’d be assertively independent.

But the Turks seem not to be interested in earning success; they wanted it given to them.  And they are prepared, like the East Europeans, to enter into the Faustian contract to get it.  They’ll happily swap the right to think for cosy security:  fiscal handouts from English and German taxpayers in exchange for mindless instruction from unelected Commissioners in Brussels. 

Does Obama think that a good deal?   Would he recommend something similar for his own people?    Let’s hope not.  And let’s hope that Turkey rethinks its position.  Let’s hope it’s able to thrive outside the EU rather than suffocate inside it.

No more Camelots please

April 4, 2009

Ignorance of History makes Men libel their own times.

Flaubert, true of everybody?  or just the naïve?


Does Obama really think the war in Afghanistan can be won?   Many observers don’t—and the more they know about the place, they greater their doubts.  If the Americans had an absolute commitment to the struggle, if politicians and people thought the future of their society depended crucially upon it, victory might be possible.  But if, as seems to be the case, the resolve is half-hearted, the priority attached to success low, comparable to that with which the Vietnam War was waged in the sixties and seventies, the most likely consequence is defeat and humiliation.   

Sadly, it looks as if Obama and his administration have no greater sense of history than Bush and his.  Officials seem to know nothing of the character of the Afghan people, nothing of the topography of their country.  The reality is that these things make a decisive result exceedingly difficult, almost impossible.  The Brits couldn’t resolve the issue in the nineteenth century, nor the Russians in the twentieth.  Who thinks the Americans will be different in the twenty-first?

Neutral Afghans are driven to support the Taliban by the insensitivities of the Westerners, now seen almost universally, not as liberators but invaders.  Even if a military victory could be secured, it’d only be temporary.  The Taliban would melt into the countryside to emerge again when the Outsiders had lost patience and withdrawn.  It’s essentially Vietnam all over again.

The whole of the Muslim world sees the Americans as aggressors; and, increasingly, so does Europe, Africa, Latin America etc.  As such, the moral contest has already been lost.  After the attack on the World Trade Centre, the sympathies of the non-committed were all with the Americans.  No longer.  The adolescent antics of George W and the misbehaviour of the American troops in Iraq have caused the pendulum to swing the other way. 

The hope had been that the new President would recognise reality, bite the bullet, and withdraw as gracefully as possible.  Nixon did so in relation to Vietnam in the early seventies, while claiming (initially at least) not to be.  The big question was, and still is, “will Obama repeat the procedure?”  

His public stance is that he is preparing for the long haul, that he’ll do whatever’s necessary for success.  To that end, he’s asking Europe to help.  The response he gets will be interesting.  Brown, of course, will co-operate.  He’s willing to repay, with electors’ money and lives, the favours he extracted from the President in the run-up to the G20 meeting.  And Cameron, when he’s elected next year, will do likewise.  The poor chap’s never had an original thought in his life, and can’t be expected to start having them now.

But what of the Europeans?   Will they take out their pocket books and make a meaningful contribution?   Probably not.  They don’t want to offend Obama, but they don’t want either to fight a cause that’s already lost.  Sending troops to a war zone would be fiscally expensive and electorally unpopular:  incumbent politicians feel they can afford neither.  The chances are, therefore, that they’ll talk a lot but do nothing. 

It’ll be the Brits who, amongst America’s allies, do most of the heavy lifting.  Poor us!   Stretched financially, militarily and morally, our society will polarise and fracture.  Muslims, feeling rejected by the establishment, will opt for radicalism.  Trust will evaporate.  The Blair creature, the source of all our woes, has a lot for which to answer.



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