Economics News : 25 Sept

September 26, 2009

Satire is cultured insolence.

 Aristotle—exercised most effectively, then as now, against the pompous.



Europeans like to believe Americans are naïve.

It used to be said that Americans didn’t understand irony.  When they mocked the pretentious, their approach was unsubtle.  It employed the bludgeon, rather than the rapier.  But that charge may no longer be valid.  In New York last week, Gordon Brown was named World Statesman of the Year!  

That satire is an exclusively old-world art form.  Not true, of course.

Presenting the Prime Minister with a silver bowl, Henry Kissinger, spokesman for the “Appeal of Conscience Foundation,” demonstrated consummate virtuosity.  He said, face and voice displaying not a trace of sarcasm, that the UK’s Prime Minister had defended freedom and human rights, had demonstrated intellectual and compassionate leadership in critical times, and had dealt expertly with financial upheavals and societal tensions!  

Brown is scorned by everybody.

Quite brilliant.  And who had previously been honoured in this way?   Nicolas Sarkozy and Angela Merkel.  So Gordon Brown was deemed by the Americans to be as distinguished as them.  More of a back-handed compliment then!

Justifiably so.  Why didn’t he sack Scotland?

Things were worse at home.  Back in London, the Attorney General was found to have broken the law.  It was a “civil” offence, she whinged, not a “criminal” one.  I was guilty only of failing to photocopy some documents. 

She’s certainly incompetent  . . .

Not so.  If her employee had been legally entitled to work in the UK, the Attorney General’s crime would indeed have been merely administrative.  But that wasn’t the case.  The employee was an illegal alien.  Her documents were either false, or weren’t inspected.  The Baroness ought to tell us which.

. . . possibly worse.

There is a suspicion, of course, that the Lady didn’t look at the papers, and that she is attempting to cover up her oversight with a falsehood about not doing the photocopying.  If so, her offence is more serious.  Possibly unpardonable.

And she’s brought the law into (even more) disrepute.

In any event, her action (and the leniency with which she was treated) must have set a precedent for the rest of society.  Anybody charged with a similar transgression will be able to claim that the error was made in “good faith.”  Anybody lacking the photocopied documentation to support his tale will have only to claim that the mistake was an “administrative lapse.”  And who will dare say that the credibility of the one malefactor is greater than that of the other. 

The last nail in the coffin?

The debacle will have rendered the legislation entirely useless, of course.  But the Attorney General will still be drawing generous emoluments and uncontested expenses!   If the country should want to re-enact the regulation, it’d have to do so in a future Parliament, peopled with less unreliable politicians.

And what of the economy?

There was no relief either on the economics front.  World activity seemed to be subsiding again and nowhere more worryingly than in Britain.  The Governor of the Bank of England gave vent to his anxieties.  He feared that Britain’s economy was “unbalanced.”  That meant, it transpired after the text’s translation into English, that he thought consumers were pre-empting resources, and thereby prejudicing the performance of exporters!

Does King really think the problem lies with consumers?

Really?   Consumers were being feather-bedded?   Which planet does the poor chap live on?   What about civil servants, local authority workers, politicians and central bankers?   Isn’t the most obvious source of economics imbalance the disparity between public and private sectors?   Apparently, the Governor thinks not.  The truth is he lacks analytical ability.  He comprehensively mis-interpreted early signs of economics and financial collapse in 2007; and he’s heroically mis-apprehended the source of imbalance in the UK in 2009.

Was the devaluation deliberate or accidental?

Unsurprisingly, his words had a dramatic impact on the value of sterling.  It was presumed that he was signalling a desire to see the currency decline, and a warning that there’d be no official support for it if it did.  Perhaps he was looking for a rerun of the events of September 1992.  That was when sterling, in another period of turmoil in the Bank and confusion in the Treasury, left the ERM.  A happy accident!   It induced rapid economics growth, improving external balances and strengthening currency.

Is he aiming for a reprise of 1992?

Will that happen again?   Possibly.  But then, the public sector was restrained; now, it’s not.  Does the Governor recognise the distinction?   If so, let him call for appropriate changes.  Let him set the ball rolling with, for instance, a cull of the Bank’s economists.

No matter; the bull run continues.

Happily, amid all the gloom, the one bright shining light is the stock market.  The indices are rising and will continue to do so.  No matter the failings of leaders, valuations are low, but set to recover.





Economics Viewpoints : 23 Sept

September 26, 2009

You furnish the Dodgy Dossier,

and I’ll furnish the War.


 William Randolph Hearst wanted to sell newspapers; Tony Blair to sell himself!



The American General is saying what everybody else already knows.

General Stanley McChrystal, commander of US and Nato troops in Afghanistan, acknowledged last week that the war is being lost.  The psychological battle (that for the hearts and minds of the Afghan people) had been conceded:  the Allies were perceived to be aggressors, the Taleban defenders.  And the military battle was going the same way:  the casualties of the one side rising; those of the other stabilising.

The tragedy of the last ten years reflects very badly on the Foreign Office.

Who’s surprised?   Nobody with any sense of history.  That excludes Blair, of course:  he was poorly educated.  But what of the Foreign Office Mandarins?   A group packed with clever people who knew all about Britain’s experiences in Afghanistan in the nineteenth century and America’s in Vietnam in the sixties.  Why weren’t warnings given?   Had Civil Servants become so pusillanimous that they’d only say what their demented Prime Minister wanted to hear?   And why didn’t Brown rethink strategy when he moved into No. 10?   Wasn’t he persuadable either?  

We can’t have both guns and butter.

The future’s going to be worse than the past:  straitened public finances will see to that.  If huge sums are to be devoted to paying for wars, support for consumers and pensioners, retailers and industrialists is bound to be undermined.  It’s no coincidence that spending on infrastructure in Scotland in connection with the forthcoming Commonwealth Games is being cut back.  It’s no coincidence either that Vauxhall in England is being treated differently from Opel in Germany.  In both cases, it’s because there’s no money in the pot.  The Treasury has wasted so much on delinquent banks and ill-conceived foreign policy that it can’t afford other, genuinely worthwhile, things.

But we ought to be able to have an Opposition.

Curiously, criticism of official spending priorities is muted.  It isn’t that voters approve; it’s more that political Oppositions don’t disapprove.  The Conservatives can’t bring themselves to recommend military withdrawal overseas, nor banking prudence at home.  Only the Liberals can and they, still stubbornly supporting the excesses of the European Union, aren’t to be taken seriously.

The focus is turning now to public spending cuts.

Perhaps a groundswell of popular discontent will arise when taxes are raised and public services cut.  The Education Secretary tested the waters last week.  He talked about shaving school budgets; sacking older teachers and freezing the pay of younger ones.  Unions were predictably appalled; colleagues ambivalently critical; but parents silently quiescent.  State school teachers, it seems, have few friends and many enemies.

There’s to be lots of pain.

What’s clear, in any event, is that public spending is going to be savaged in the period ahead.  The seven years of plenty are going to be followed by seven of famine.  And the clots who didn’t save in the past are going to come close to starving in the future.  Let’s hope that the reassessment deals also with pensions provision:  defined benefits have to be abandoned and the retirement age raised sharply.

But securities valuations will appreciate.

The economics environment is bleak; the social one worse.  But asset markets are likely to continue to make progress.  Negative inflation, negligible interest rates and satisfactory profits imply resilience in bonds and strength in equities.  Onwards and upwards!




Economics News : 18 Sept

September 18, 2009

If the Attorney General can’t meet the requirements of the law . . .

Another huge embarrassment for Gordon Brown’s Government!   It looks as if the Attorney General, Baroness Scotland, broke a law which she herself had pushed through Parliament.  The full facts are not yet known, but the charge (as yet undenied) is that she employed an illegal immigrant. 

. . . why should small and medium sized companied be expected to do so?

It remains to be seen whether the procedures prescribed in her Asylum, Immigration and Nationality Act 2006 were followed.  They called for “thorough checks” to be made of the documentation submitted by a prospective employee.  Passports and visas had to be inspected.  Copies of them had to be made and kept.  Had the Baroness fulfilled these requirements?   She chose not to say.

Parliamentarians seem to think they’re above the law.

The auguries, though, were not good.  Her initial reaction, stressing the “good faith” in which she’d acted, hinted at culpability.  A statement from Downing Street, insisting that she enjoyed the “full confidence” of the Prime Minister, made the hole she’d dug for herself that much deeper.  And a testimonial from Keith Vaz, to the effect that she was somebody of the “highest integrity,” all but buried her.

They expect to be able to help themselves to their constituents’ money . . .

Would she survive?   Probably.  The Lords Myners and Turner hadn’t departed the scene despite palpable incompetence (the one couldn’t be bothered to read the details of Goodwin’s pay-off, the other failed to see in the problems of the US mortgage sector a forewarning of potential trouble in the UK).  And Commoner Ainsworth remained Defence Secretary despite a failure to supply British soldiers in Afghanistan with appropriate equipment.  Most surprisingly of all, Lord Mandelson was still around:  he’d been disgraced on a number of occasions, but kept being forgiven and reinstated.

. . . but to be immune to the consequences of their own incompetence.

The message seemed to be that there was such a dearth of talent in the administration that even chronic offenders were not barred from office.  And nobody quit of his own accord, of course.  If the PM’s own failings were insufficient to prompt resignation, why should those of subordinates?   The team had decided to keep going to the bitter end.  Its members knew they’d never get another chance of office.  They’d be in the wilderness for a decade, possibly a generation.  They might as well, they calculated, make the most of the perks for as long as they could.

Activity is edging forward.

The economy, meanwhile, was improving, but disappointingly slowly.  It wasn’t enthusing voters, though, nor boosting tax revenues.  And the medium term outlook was particularly grim:  if things now, in the improving phase of the cycle, were barely tolerable, what’d they be like in a couple of years time, in the deteriorating one?  

But the momentum looks very vulnerable.

And what might be the consequence of any lessening of the credit stimulus?   If interest rates reduced almost to zero, coupled with unprecedented quantitative easing, had prompted negligible forwards momentum in GDP, wasn’t it possible that a monetary reversal of practically negligible proportions might send activity crashing back into decline?   The ratio of cause to effect was extreme, and getting worse.

Public spending is about to be slashed.

The debate about reductions in public expenditure had grabbed the headlines in the last couple of weeks.  But politicians were reluctant to be honest about the scale of the cuts they’d have to implement.  They didn’t want to admit they’d wasted all their fiscal firepower on the banks, and had none left therefore for more deserving causes.

The dinosaurs will growl, but they’re toothless.

It wasn’t 10% that’d be taken from the public sector budget, but 20%.  Eventually, by encouraging resources to be used in the more efficient private sector, that would lift GDP and living standards.  But the initial effects, economically and politically, would be adverse.  The TUC Conference in Liverpool last week demonstrated the phenomenon.  There was no recognition that the public sector would have to make sacrifices.  There was instead a call to arms to protect what had been gained previously.

It’ll be a test of nerve for Cameron.

Inevitably, therefore, there’d be disputation.  It’d started already, and it was almost certainly going to get worse in the final months of Brown’s term.  But the genuine test would come after the election.  How would Cameron fare?   Like Thatcher or Heath?   With resolve or without?

Asset valuations will continue to rise.

It was going to be messy, but the securities markets would probably continue to rise.  They weren’t doing so at the moment because the economy was recovering, but because profits were strong and investable funds plentiful.  That was a combination that’d persist.  The authorities wouldn’t raise interest rates for fear of provoking recession; and profits would stay strong because workers wouldn’t have the bargaining power to prevent pay moderation.   




Economics Viewpoints : 16 Sept

September 17, 2009

Accurate observation is called cynicism

by those whose acuity is defective.


 Apologies to George Bernard Shaw—the fiscal stimulus failed for Keynes and for everybody since!


Treasury officials failed to spot the crisis before it struck . . .

A year ago, when the economics and financial crisis was at its height, Government Ministers rushed to lift levels of public spending.  They did so, they claimed, to counter the forces of depression:  to raise activity, preserve employment and enhance tax revenues!  At the time, nobody questioned the policy.  The Parliamentary Opposition, the Press and the City were all shell-shocked, incapable therefore of coherent thought. 

. . . and have failed to implement sensible policies since.

Today, everybody (the public sector excepted) objects.  Why?   Not because it’s thought the therapy will be economically ineffective, but because it’s conceded it’ll be electorally unacceptable.  Opinion polls have regularly reported that voters distrust the experts.  Those who create wealth are reluctant to see it wasted by those who don’t.  Civil servants and local authority workers are deemed to be over-indulged and under-worked; their pensions benefits are outrageous and their job security unjustified. 

Parliament was quiescent; Press and City likewise.

Politicians were slow to read the runes.  For months, Tories and Liberals ignored the message.  Happy-clappily, they went along with mindless indulgence of the public sector and unconscionable support of bankers.  They barely mentioned the size of the national debt, barely considered the burden it would impose on future generations.

Not so, the man on the Clapham omnibus.

Then, a few weeks ago, they recognised reality.  Cameron and Cable both started talking of the need to be careful with taxpayers’ money.  And, noting the favourable response with which their remarks were received, each became progressively bolder.  Before long, on current trends, they’ll pass for vertebrates!

Vox populi, vox usitate dei!

Labour, albeit reluctantly, has followed suit.  First Darling, then Mandelson, and finally Brown bowed to the will of the people.  Talking to the TUC in Blackpool, the Prime Minister promised a degree of restraint.  Some of the more Jurassic delegates replied that cuts in public spending might provoke riots in the streets, but the “threat” was generally recognised to be toothless.  Direct action in support of the feckless functionary would only tip the electoral scales even more in favour of the other Parties.

Leave the money with the good guys  . . .

But why did nobody question the principle upon which the fiscal stimulus was supposed to be based?   Why did Ministers (and others) think that taking a pound from one man, and giving it to another, would lift aggregate spending?   Didn’t they see that the benefit to the one was matched by the detriment to the other?

. . . don’t give it to the bad ones.

It’s not that simple, said the Treasury’s delinquent advisers.  If the money should be taken from those who’d otherwise save it and given to those who are bound to spend it, there’ll be a net gain.  Nonsense!   If the savings of the first man should be reduced, the borrowings of somebody else (a third man) will necessarily fall correspondingly.  And that’ll reduce his spending!   Fiscal policy is a zero-sum game:  it redistributes the pie, but does not (cannot) increase it. 

Politicians lack judgment. 

Politicians love to spend other people’s money.  Their objective is not communal good, but personal prejudice.  They use the incidence of an economics crisis to promote taxpayer-financed schemes that would never otherwise see the light of day.

Don’t let them exercise it.

Let’s hope the next lot of politicians is less dishonest than the current ones.  In the meantime, the only consolation is higher asset prices.


Economics News : 11 Sept

September 11, 2009


Experience is the Comb that Nature gives us,

but only when we’re bald.


Belgian Proverb—is that why so many politicians have so much hair?


Using taxpayer funds to bail out failing companies . . .

Fiscal policy can only redistribute resources; it can’t create them.  Accordingly, when Governments extend financial support to struggling companies, they do so by denying it to other, potentially viable, ones.  Invariably, the results are disastrous.  Failing companies do not mend their ways, and survive for only a short while thereafter.  Meanwhile, those which might have succeeded are constrained by inadequate capital and taxpayers are impoverished by unconscionable public debt.

. . . always ends in tears.

Curiously, Governments don’t feel ashamed of their delinquent behaviour; typically, they distort logic to present their actions in quixotic terms.  Ministers, for instance, who approved taxpayer subsidies for obviously uncompetitive sectors in the fifties, sixties and seventies remained unrepentant for the remainder of their lives.  Did they really think that coal and steel could be made efficient by bureaucratic indulgence?   Did they think that the outrageous practices of the car, railway and docks sectors would disappear if they were condoned?

But it’s a lesson that few politicians ever learn.

It took Margaret Thatcher (and oil revenues) to turn the tide.  Dinosaur companies had either to adapt or depart.  Some went one way, some the other.  It didn’t much matter.  What was important was that those that remained should contribute resources rather than consume them.  The trick worked:  activity recovered and so did living standards. 

Thatcher did; Blair and Brown didn’t.

Sadly, the advent of Blair and Brown turned back the clock again.  Huge sums of taxpayer money were handed out to hopeless causes and, unsurprisingly, the abuses of earlier decades re-emerged.  Health, education and transport were treated exceedingly generously.  And what was the result?   That executives and administrators paid themselves ludicrous bonuses; that gross over-manning returned; but that the quality of the service extended to the taxpayer-consumer was little changed.

As a result, efficiency has been sacrificed and debt has exploded.

And what did the politicians think they were doing when they let a bunch of street-wise industrialists buy MG-Rover for a pittance?   Did they or their Civil Servants keep a watching brief on what was happening?   Did any of them imagine that the company could be turned round when the UK’s currency was rising much more quickly than its relative manufacturing productivity?   It should have been obvious to the meanest intelligence that the company was doomed.

Ministers and Civil Servants lack commercial competence.

The executives certainly knew it was.  They spend the few years they were in charge feathering their nests.  The senior ones ripped out £10m each.  But left the workers’ pension scheme almost £500m in deficit.  In the report into the affair published last week, the company’s executives were criticised, but the politicians weren’t. 

They are routinely outwitted by company executives.

It’ll be the same, of course, with the Scottish banks.  About to fail, they persuaded the halfwits in the Treasury to use public money to bail them out.  The executives, who ought probably to have been prosecuted, certainly to have been censured, were allowed to walk away with unconscionably large sums of money.  Politicians were too busy, they claimed, to notice; they hadn’t enough time to read the papers.  Civil Servants and Regulators were similarly over-burdened:  too naïve to suspect misbehaviour; too focused on knighthoods and index-linked pensions!

MG-Rover and RBS were two obvious examples of the phenomenon.

The one piece of good news is that nobody now will seriously propose using taxpayer funds to save Vauxhall.  The car company’s executives and workers will be told that survival must be dependent on efficiency rather than finance.  Will the chaps be prepared to work harder for less?   Or will they copy the behaviour patterns of sponging colliers and rascally bankers?   Probably the latter.  They’ll argue that, if Goodwin could get away with his abuses, Mandelson with his disgraces, Turner and Myners with their oversights, why not the Vauxhall workforce with their deficiencies?   Several examples of firmness must be implemented before mindsets are changed.

Will the Tories be any better?

Brown’s lot have no intention of pursuing a principled approach to business; it’s far too late to do so now.  But they will be constrained by their track record of manifestly poor business judgment and by their lack of finance.   What about Cameron’s Tories?   Will they bite the bullet?   Or prefer to hug trees?

They don’t inspire confidence.

The auguries are not good.  They’ve become slightly more responsible in recent months, but probably less because of conviction that opportunism.  Cameron hasn’t initiated the attack on public waste, but he has subscribed to it after the public made its feelings clear.

Thankfully, markets are set to rise further!

No matter.  He might be better once he’s in office.  In the meantime, asset markets will rise:  equities briskly, gilts more moderately.



Economics Viewpoints : 9 Sept

September 11, 2009

Searching for arguments to support a conclusion

reached in advance is not philosophy, but politics.


 Apologies to Bertram Russell—Così fan tutte!



It’s been another disappointing week on the economics front.  The numbers indicated that activity was still rising in the late summer, but at a rate that was slow—and getting slower.  Economies hadn’t achieved the “critical” momentum at which progress became self-sustaining.  Demand was anaemic, production faltering, and jobs scarce.  Instead of these items interacting positively, there was a risk that they’d do so negatively.  Instead of boom, there might be slump!

The key number was US personal credit.  It was reported to have fallen by $22 billions in July.  Consumers were no longer keen to borrow; nor banks to lend.  Unsurprisingly, retail sales had fallen.  And the medium term outlook was bleak.  What would happen when the tax incentives ended?   It didn’t bear thinking about.

In Europe, the picture was mixed, but the softer trend in German industrial production was disconcerting.  It had been hoped that there’d be a sustained rebuilding of inventory.  Not so apparently:  though optimistic about their personal circumstances, businessmen were pessimistic about the economy.  They thought their inventory adequate, and their capacity excessive.

Central bankers noticed the duller trend in the data, and kept pushing out their estimates of when they’d revert to “normalised” monetary policy.  A couple of months ago, it was suggested that interest rates might be raised as early as next spring.  Now, it’s suggested it’ll be summer or autumn.  A few months hence, it may be 2010.

Treasury Ministers are less perceptive, but they too are beginning to fret.  They fear they’re going to have to cut public expenditure before the recovery is fully (or even partially) established.  Tax revenues have run dry, and electorates have lost faith.  Incumbency is a recipe for unpopularity. 

The phenomenon was eloquently illustrated in Britain.  The Prime Minister and Chancellor knew that their fiscal policies last year had been ill-conceived, but they weren’t sure if now they’d be better admitting the errors or brazening them out.  The instinct of the one was to opt for outright mendacity; that of the other, for partial truth.

It was the banks that had sunk them.  If the focus had been on economics rather than politics, if the warning signs had been recognised, all might have transpired satisfactorily.  Most importantly, if the feckless had been allowed to fail, the forceful would have been able to succeed. 

The Treasury’s borrowing would have been limited; the reputations of the Prime Minister and Chancellor, partially maintained.  Public spending would still have to be cut, but not drastically.  As it is, everybody’ll come out of the episode badly.  

New Labour itself is beyond redemption.  It’ll be devastated in the next poll:  relegated to third position in swathes of constituencies; to fourth, in quite a few.  Will it be able to recover by the following election?   Possibly not.  Brown, like Major, may have condemned his colleagues to a decade in the wilderness.

The good news is that securities markets will appreciate.  It’s very encouraging that the consensus is so cautious.  The best parts of a bull market always occur while the majority is timorous.

Economics News : 4 Sept

September 4, 2009

No matter how thin you slice it,

it’s still baloney.


Alfred  E. Smith, referring to economics forecasts of course


Many forecasters wait until something’s happened . . .

Last week, the OECD updated its forecasts for the world economy in the remainder of 2009.  It noted the “mostly favourable” data published over the last couple of months and, using the logic of the driver who judges the road ahead by what he can see of it in the rear-view mirror, declared victory in the struggle against recession.  Growth would resume in the second half of the year, said the august organisation, and might return almost to normal in 2010.

. . . before saying it’s going to.  The OECD, for instance.

The public reaction to the report was muted.  The majority paid it no attention at all.  But there were two tiny minorities who showed some interest.  Incumbent politicians were delighted and actuarially-inclined economists distressed.  The one, appreciating that recession had undermined their electability, hoped for a reversal on both fronts.  The other, recognising the OECD’s dismal track-record in economics forecasting, prepared for a long hard winter.

Not all the numbers add up!

Very few were prepared to undertake a forensic examination of the data.  Nobody asked why the imports numbers for India and China had been so weak when internal demand was reportedly so strong.  Had industrial production really quickened without prompting corresponding rises in the demand for imported raw materials and capital goods?   Had real wages really grown without causing more insistent appetites for foreign consumer goods?

Employment is a particular mystery.

It wasn’t just the emerging world’s numbers that looked strange.  Germany (and much of the rest of Europe) had reported large declines in GDP, but barely perceptible reductions in employment!   Presumably, productivity had plunged.  But temporarily or permanently?   If the latter, Europe was a write-off.  If the former, there was going to be a surge in unemployment in coming months.  What price then the recovery of which the OECD spoke?

In any event, economies seem prone to debility.

It may be significant that central bankers (albeit founder members of the failed forecasters club) were somewhat less optimistic.  They realised that the “response” of the global economy relative to the “stimulus” had been very disappointing.  It had taken only a touch on the brakes to cause the vehicle to come to a halt, but an unprecedentedly wide opening of the throttle to cause it to edge forward again.  The ratio was not encouraging.

And are not responsive to treatment.

The economy seemed predisposed to anaemia.  The doctors had run out of ideas.  Fiscal therapies were an obvious waste of time and monetary ones were going the same way.  A year from now, it was possible that the world would be as untreatable as the US in the thirties, Japan in the nineties.

 The UK’s prospects are poor.

It’s a depressing outlook for virtually all countries, but particularly bleak for Britain.  The country is handicapped by an over-borrowed personal sector and an over-manned public sector.  Both will be corrected in the years ahead, but it’ll be a painful process.  When will it start?   Probably not until Brown and his scallywag Cabinet have been dismissed.

The Government clueless . . .

They’d like to survive until next summer.  But they’re so accident prone that it’s not certain that they will.  In addition to the economics crisis, they have to contend with one relating to foreign policy. 

. . . on foreign affairs as much as economics policy.

The war in Afghanistan is a running sore.  But it’s taken months of official incompetence and scores of fatalities to prompt anyone into action.  Finally, a Parliamentary Private Secretary, an old soldier, has resigned.  The first, hopefully, of many.

Afghanistan and Lockerbie!  

Concurrently, the Prime Minister and Home Secretary have found themselves wallowing in a mess of their own making in connection with the Lockerbie release.  It’s fairly clear that they (and the unspeakable Mandelson) were party to the negotiations.  It’s fairly clear also that a number of BP’s advisers (formerly employees of MI6) were involved.

Will the PLP revolt?   Of course not.

There’s a nasty smell.  The truth will eventually come out, but probably not for years.  It’s only if the PLP’s backbenchers should decide they’ve had enough, that they can’t stand the public’s contempt for them any longer, that there’ll be a near term resolution.  What’s the chance of that?   What chance that Blair’s Babes, grown middle-aged in office, will chose honour in preference to expenses?   Not a lot.

Thankfully, valuations are going to rise.

The good news is that the securities markets are likely to continue to rise.  It won’t be an entirely smooth run, but the chances are that the advances will keep coming.  Monetary expansion might not boost economies, but it’ll lift valuations.  Investors won’t be able to ignore the conjunction of negative inflation, negligible interest rates and satisfactory profits.   




Economics Views : 2 Sept

September 2, 2009


What we learn from history,

is that people never learn from history.


 Shaw, via Hegel—war, economics, stock markets and everything else !


The news from Afghanistan in recent weeks has been eerily reminiscent of that from Vietnam forty years ago:  militarily bad; politically worse.  Both initiatives proved to be public relations disasters for America.  Each caused her friends to become less supportive; her enemies to grow bolder.

In both, the original motivation for intervention might have been honourable, but was deemed subsequently to have been dishonourable.  Both idealised liberation, but promoted corruption.  In Indo-China, the Vietcong’s previously flagging popularity was boosted by war; similarly the Taliban’s in Afghanistan.  Local support for insurgency grew:  the battle for “hearts and minds” was lost.

Might there be another parallel?   Might the blame for the war be heaped on the successor of the man who started it?   Kennedy’s war destroyed Lyndon Johnson.  Will Bush’s folly do the same to Obama?

His poll ratings are slipping alarmingly.  That may be principally the consequence of recession and health care, but the war isn’t doing him any favours.  Like LBJ, he’s trapped:  damned if he withdraws; and damned if he doesn’t.  

Britain’s position is equally bad.  Brown had the opportunity, when he first became PM, to alter things.  But he chose not to.  He assessed the burden, ethical and financial, to be tolerable.  He was wrong, of course.

History will say of him that his judgment was consistently bad.  His moral compass seemed not to know up from down; his economics one was even worse.  At a time when the country was in severe recession, when resources were particularly scarce, the decision to waste so much in a pointless armed conflict was crass.  It’d ensure that the country’s economics recovery, difficult in any event, would be that much harder.

Elsewhere in the world, last week brought more news of an economics revival that was mild and cyclical.  Industrial inventories were reported to be stabilising and new orders rising.  It seemed possible that, in the next six months, production would recover a quarter of the losses incurred in the previous twelve. 

Whether the momentum would be maintained thereafter was the big question.  At the moment, the auguries were not good.  Final sales were anaemic and likely to stay so.  As unemployment rose, and as fiscal incentives were unwound, the risk was that spending would falter.   

Politicians might affect to be optimistic, but central bankers weren’t.  Overcapacity was the major threat.  If demand couldn’t be raised, employment would be cut and capital spending abandoned.  It wasn’t the next twelve months we had to worry about, but the couple of years after that.

The authorities in Beijing had a reality check last week and suddenly appreciated their longer term vulnerability.  Other centres might follow suit in the months to come.  They’d recognise that the future was going to be dull:  pedestrian growth, negative inflation, negligible interest rates and disappointing job opportunities.  

But securities markets, bonds and equities, would continue to edge ahead.  GDP might grow slowly (or even shrink), but capital’s share of it would rise at the expense of labour’s.  Investment returns would sparkle; valuations likewise.






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TV Appearances

See Roger on CNBC here. He discusses Greece's problem of being uncompetitive.