A Closer Look at the Markets

December 22, 2010

CNBC Television

17 December 2010

Roger Nightingale, economist,  joined CNBC on Friday to take a closer look at the markets.

The English taxpayers’ burden

November 16, 2010

The most alluring prospect a Scotchman ever sees: the highroad to an English public sector job.

Darling and Brown are first generation examples. Cameron, the result of an earlier displacement. Isn’t it time for a reversal?

The majority isn’t always right . . .
In economics and politics, the instincts of the ignorant-many usually turn out to be better than the analyses of the educated-few. Take the issue of European integration, for instance. For almost half a century, governed-majority in Britain has been wisely suspicious, but its governing-minority credulously complacent.

. . . but it is more often than the minority.
Mandarins in the upper echelons of the Civil Service, for instance, have found nothing unpalatable in the elitism of EU governance. Nor have politicians: Liberal Democrats being wholly in favour of unrepresentative rule; Labourites substantially persuaded by it; and Tories quite willing to bend with the wind. Nor have the Media objected: the BBC and Financial Times have, on the contrary, competed for the role of Chief Propagandist; doing for the Commission in Brussels what Pravda used to do for the Praesidium in Moscow.

People distrust “expertise.” It prompted wars in Iraq and Afghanistan!
The People, on the other hand, though denied a platform, though disparaged whenever they expressed dissent, stuck to their guns. Their scepticism was characterised by frustration rather than rage. They were agnostic: not sure they knew the answers, but fairly certain their leaders didn’t. Opinion polls showed the public to be consistently distrustful of the European Project and those who supported it.

And it’s united Europe in economics misery.
Who was right? Not those in the top drawer, but the bottom one. Not the self-assured crème de la crème, but the self-doubting dregs of the dregs! The European Monetary System turned out to be nothing more than political vanity. It ought never to have seen the light of day. Sadly, it did; spreading des¬titution across the region it was designed to help.

Poor Greece is being sacrificed on the altar of the EMS
Greece demonstrates the phenomenon: its economy in disarray and its democracy suspended. Living standards have fallen sharply and will continue to do so for years, possibly decades, to come. Meanwhile, elected Ministers in Athens are emasculated, their powers passed to un-elected Commissioners in Brussels. A similar destiny probably awaits Ireland and Portugal, possibly Spain and Italy, conceivably Belgium and France.

It’s her costs that need to be reduced, not her borrowings.
The problem for these countries is not their fiscal deficit but their uncompetitiveness. Cuts in public spending and hikes in taxation are no solution; they attack a largely irrelevant problem. It’s the level of the exchange rate and the extent of labour market regulation that need to be lowered.

The EU Commission knows it’s failed.
The European authorities, predictably, don’t agree. They think that fiscal orthodoxy will work miracles; lifting productivity and lowering costs. There’ll be a near-term reversion to economics balance, and no disintegration of the EMS!

And is looking for a scapegoat.
If there are anxieties in financial markets, they’re the responsibility of Hedge Funds! Commissioners have, of course, long wanted to regulate these troublesome irritants out of business. Now perhaps is the time to do so. Paris and Brussels are busily working on the blueprints.

It’s selected the City of London. Darling approved; Cameron doesn’t disapprove!
If that should turn out not to be sufficient to keep the system going, temporary loans would be supplied to embarrassed countries. And who’d supply the funds? The rest of the EU; including, incredibly, Britain! Cheekily, the Commission asked for help earlier this year. And, outra-geously, in the face of universal British disapproval, Alistair Darling agreed!!!

The Case Against China

January 19, 2010

For the last couple of decades, China has been the best performing economy in the world.  Over these years, its per capita growth has been approximately 7% per annum faster than the average of all other countries.  China has already quadrupled its share of global GDP, and looks set, so long as other things remain equal, to double up again by 2020.

But will things remain equal?   Or will unequal ones interrupt the straight line progress?   Recall that Japan looked an unstoppable behemoth until, in 1990, it came grinding to a halt.  Remember also that Argentina, in 1929, was thought likely to continue to be the world’s richest (per capita) country.

Things do change, usually without warning, and always without having been forecast to do so.  The reasons for Japan’s hiccup are as obscure today as they were then.  Argentina’s problem at the onset of depression is more easily understood.  The country was outrageously competitive.  It could produce wheat and beef and timber at 60% of the US’s costs, 50% of France’s.  As a consequence, it was able to sell whatever it wanted to produce at a huge margin.  Doing so, it enriched its Population and adorned its Capital.

The depression changed all that.  It provoked protectionism.  The US denied Argentina access to its markets:  “they’re not large enough for our own farmers, let alone for yours as well,” said the politicians.  The Europeans did likewise.  And Britain, previously Argentina’s largest market, felt it had to reserve sales for Commonwealth countries.

The price Argentina could obtain for its product collapsed.  The country went overnight from rich to fairly poor.  There was a political revolution; the country turned in on itself; and the economics debility was intensified.  Today, GDP per capita is still depressed.  It ought to be at least as high as Australia’s.  It isn’t. 

Is there a parallel here with China?   Might depression cause the US and Europe and Japan to opt for protectionism?   Yes.  It’s already happened to some modest degree and the measures would doubtless be intensified if the economics were to deteriorate. 

Could China retaliate?   Could it threaten to do things that stayed the hand of protectionists in other countries?   No.  It’s the small but fast-growing ones that always prove to be the more vulnerable.  They have no big stick (other possibly than the threat of war) to wave at the large slowly-growing ones. 

China’s medium-term success, therefore, depends crucially on world activity remaining fairly strong.  Were it not to do so, the economy would (at least temporarily) crash and the value of its securities (especially to protectionist foreigners) follow suit.  It may be thought to be a fairly low probability outcome, but a devastating one nevertheless.

What’s required for the investor in such circumstances is a degree of protection if things go awry, but a reasonable measure of participation if they don’t.  There are a number of ways of achieving the result for the small and medium sized fund.  But one of the best may be to put the bulk of the portfolio into a western-domiciled hedge operation, and to buy an appropriate amount of warrants and calls on the Chinese market:  limited downside, but (so long as the counterparties honour their obligations) lots of upside!

What’s a euro worth? Depends whether it’s Greek or German!

December 16, 2009

In order to make correct decisions in the future,
it is essential to acknowledge grievous errors in the past.

Fund managers hold this truth to be self evident; politicians, especially those in Europe, don’t.

Investors are not like politicians.
Investors tend to be a little credulous. They’ll believe what those in authority tell them until there’s good reason not to. But the other side of the coin is that their trust, once lost, is not easily restored. After disenchantment has gone beyond a critical point, they’ll be reluctant to accept anything at all.
The former learn from their mistakes; the latter don’t.
The European Currency Union illustrates the syndrome. In years gone by, investors were largely sympathetic to the claims of the Commission: monetary integration was an historical inevitability; economics and political convergence were unstoppable. Such hubris! Only Europe’s politicians and bureaucrats, untainted by experience of the real world, could have made the assertions.
Monetary Union is a case in point.
Investors were gullible perhaps, but also open-minded. They noted that the process of convergence seemed to come to a halt before it was complete. They noted, more worryingly, that divergence thereafter became the norm. Official denials of a problem merely made matters worse; encouraging the thought that the euro mightn’t survive in its current form.
The EZ’s euro is subject to the same strains now . . .
There are parallels with the attempt in the nineties to link the currency of Argentina to that of the United States. Initially, things went well; but subsequently badly. As the economies of the two countries stopped converging and started diverging, investors lost faith. Petulant claims, made by the authorities in Buenos Aires, that the peso and dollar would be locked in unity forever were ignored. Interest rate differentials widened sharply. Argentine businesses and local authorities were starved of reasonably priced credit; and their erstwhile workers rendered redundant. Life became intolerable. Finally, in the midst of political and economics crisis, the currency linkage was unceremoniously abandoned.
. . . as Argenina’s peso in an earlier decade.
Will the same pattern be followed within the EuroZone? Possibly so. Economics convergence is long over. The inflation differential between Germany and Greece, for instance, is significant and widening. Likewise GDP growth. Likewise also the balance of payments and fiscal deficits.
There’s a political dimension to the dilemma.
The authorities in Athens find themselves in a dilemma: Brussels Commissioners, acting as the ECB’s mouthpiece, demand that deflationary policies be implemented; Greece’s voters insist that they not. Who’ll triumph? People or Officials? Democracy or Authoritarianism?
For the Greek authorities, there’s no acceptable solution.
For a while, of course, politicians being politicians, there’ll be a fudge. The Government in Athens will say one thing to the people and another to the ECB. That will just make markets and investors even more suspicious; the interest rate gap will widen horribly.
To stay in the euro means economics privation.
Investors will shun Greek assets and start to inspect their legal position. Is a euro, it’ll be asked, with Greece included, the same as one with it excluded? Of course not, the man on the Clapham omnibus will say: apples in the one case; pears in the other.
To leave, humiliation.
In that case, it might be concluded, contracts denominated in euros would have been “changed” by Greece’s departure! Would they still be valid? Who’s to say? But what is certain is that lawyers would have a field day, and business confidence, especially in Europe, would be knocked.
Greece is not alone. Speculators are queueing up to attack other units.
And, once one country had succumbed, others would be deemed more vulnerable. A shadow would be cast over the whole of Eastern Europe, and perhaps over Ireland, Portugal and Spain as well. Their economics prospects would certainly be prejudiced: interest rates rising and credit availability drying up when savage spending cuts were being implemented.
A bas les aristocrats!
And the response of the people? Would they bow the knee to the foreign autocrat or man the barricades? In the past, Europe has been prone to revolution because its Governments do not pay attention to the people. Plus ça change. It may be time therefore for a new rising. And the first of the tyrants to bite the dust? The unspeakable Commissioners, of course!

Next Year’s PSBR, Brown’s wee-bit housie, too, in ruin

December 3, 2009

The best laid schemes o’ mice an’ men gang aft agley.

Robert Burns’ Allegory turned Irony—two hundred years ago, the English were thought to be oppressing the Scots; now, it’s the other way round.

Britain’s public finances are in an appalling mess.  Ten years ago, they were arguably the best in the developed world; today, they are unambiguously the worst.  The deterioration has been the result partly of bad luck and partly of bad judgment.  It’ll take years to rebalance the accounts and, in the process, there’ll be a good deal of pain.  What’s yet to be decided is how the pain should be distributed between the innocent and the guilty.

The arithmetic is fairly straightforward:  if both GDP and public spending were to be growing at their trend rates, PSBR would stay fairly constant.  If, however, the former should soften, but the latter not, there’d be trouble.  A 1% shortfall in GDP would, ceteris paribus, cause net taxation to decline by about 1½%.  That, given an overall tax rate of 50%, would cause the PSBR to rise by ¾% of GDP.

In 2009, Britain’s GDP fell by more than 4½% (i.e. by 6½% relative to trend).  That alone would account for a deterioration in the deficit of about 5% of GDP.  But political decisions made things much worse.  Most importantly, the Government or the Bank (it’s not clear who was responsible for the misjudgement) decided to bail out the failed Scottish banks.  Precisely how much money was committed isn’t clear, but it was at least £60 bns (4% of GDP).   Additionally, the Treasury was persuaded to spend a good deal of other money (perhaps 2% of GDP)—the PM’s thinking was that such indulgence would make the economics decline less severe!  In total, therefore, the PSBP may deteriorate by about 11% of GDP in the current year:  from 4% to 15%.

What then is the outlook for 2010?   Not good.  The Treasury had been hoping that activity would recover strongly and that banking assets might be sold profitably.  Neither forecast looks likely to be fulfilled.  GDP is set to be anaemic and disposals of banking assets, prejudiced by developments in Dubai, modest or unprofitable or both.  On unchanged spending policies, PSBR in 2010 might be 16%, perhaps more than 17%.

There’s only way to bring it into acceptable territory:  sizeable and sustained spending cuts.  Tax increases would be largely counterproductive—driving business out of the country and thereby reducing tax collections.  It’s unpalatable (and neither Cameron or Brown seems to be prepared to acknowledge the seriousness of the condition), but the reality is that public spending has to be cut, in nominal terms, by 2% a year for at least 5 years, and possibly for 10.

What specifically needs to be done?   Salaries of public sector workers have to be reduced by 5% immediately and then frozen.  The retirement age has to be lifted to 70 and then adjusted in line with life expectancy.  RBS and HBOS have to be broken up (the latter lifted out of Lloyds) and the non-money transmission parts sold.  The Middle Eastern wars (certainly illegitimate, probably illegal) have to be ended.  Negotiations to reduce the cost of association with the EU (probably a referendum relating to membership) have to be begun.

Will any of this happen?   Very unlikely.  Instead, the authorities will faff around with higher taxes and a continuingly bloated public sector.  They’ll bring the PSBR down to 14% and claim they’ve done a good job!

The first casualty of war: truth.

November 11, 2009

Every nation, though sincerely desiring peace,

 pursues policies which make peace impossible.


Norman Angell—there are enough instances when conflict is unavoidable not to have to put up with it when it isn’t!



Remembrance Sunday figuring prominently in their thoughts, many week-end editorials touched on the future of the war in Afghanistan.  Most newspapers had been supportive of the case for hostilities during the early stages of the operation, but, eight years after inception, some decided finally to ask if things were going to plan, if the likely benefit would compensate for the manifest cost.  The surprise was, not that the questions were being posed, but that they hadn’t been previously!

The truth is that the rationale for war was always non-existent.  A punitive raid in the aftermath of 9/11 was possibly justified, but occupation certainly wasn’t.  The Romans in their heyday understood the difference; so did the Brits in theirs.  The raid was surgical, quick and cheap.  It didn’t always succeed, but was usually salutary.  Sadly, Bush and Blair knew nothing of history—nor indeed of anything else.

They’d wanted to bring Osama-bin-Laden in chains to Washington.  And when the bombing raids failed to smoke him out, they fell into the trap of full-scale occupation.  Regime change became the new objective.  In order for democracy to work, the new mantra said, the country’s infrastructure had to be rebuilt; the educational curriculum redesigned. 

Soldiers were asked to be civil engineers on the one hand, social workers on the other.  Meanwhile, the Taliban, its coffers enriched by the corruption of local officials and the reinstatement of heroine trading, rebuilt military capability and perfected guerrilla tactics.  The fight became an unequal one.  The soldiers did not did not win “hearts and minds.”  They’d failed in this sense in Vietnam, Northern Ireland and Iraq.  And they failed also in Afghanistan.  The Taliban was disliked when in power, but became popular (faute de mieux) when it wasn’t.  It was the foreign invader who was disliked and distrusted by locals.  Allied casualties, unsurprisingly, climbed remorselessly.

The originating villains of the piece, the demonic duo who’d misjudged the situation so disastrously in its early stages had long since departed the scene.  But those who’d taken their places were mired in dilemma.  To withdraw would open them to the charge of appeasement and cowardice.  To fight on would raise the body count for no good reason.

And anyway, it was too late by then.  If a reversal of policy were to have been implemented, it would have had to be done immediately after taking office.  Obama and Brown had missed the opportunity.  They’d talked instead of their commitment to the struggle, of their hopes for eventual victory.  A U-turn at that stage would have dealt them a telling electoral blow.  It would have been seen as a sign of vacillation—worse even than appeasement.  Both politicians were caught, therefore, like LBJ in the sixties, in the tentacles of a war not of their making.

Britain will shortly have another chance to escape.  Next spring there’s to be a general election and Brown will be dismissed.  Cameron will take over.  And what will he do?   Nobody knows, of course.  If he were to be true to his word, he’d continue to fight.  But he’s not.  In certain circumstances, he’s prepared shamelessly to renege on promises.  If his position on Europe is anything to go by, what he says one day is the opposite of what he’ll say the next.



The reality, and very few will acknowledge it, is that the current con­flict has grown out of the bias with which Governments in Britain and the States have intervened in the past in the Middle East.  It parallels developments in religion in Europe in the seventeenth century!   Until the “dis­parity” ends, there’s not much chance of peace. 

By sending troops to Afghanistan, the potential terrorists’ perception of injustice will have been increased not diminished.  Violence has to be used sparingly if it is not to become counterproductive.  There’s al­ways a risk of its “jus­ti­fy­ing” re­taliation. 

What is clear in any event is that the war thus far hasn’t reduced the risks to the UK and US, but raised them.  Journalists writing in the Sunday papers know that to be the truth, but daren’t acknowledge it!   Politicians, a fortiori, likewise.  Very sad.

Confucius, he say: economise or agonise.

November 2, 2009

Crisis, written in Chinese, is composed of two characters:

danger and opportunity.

Yes, but the danger part affects many people; the opportunity part very few.

Speaking in Shanghai at the end of last week, China’s Commerce Minister, Chen Deming, said he thought there’d be risks associated with an early discontinuation of economics stimulus measures. Though global activity had shown signs of significant improvement, he fretted that the crisis wasn’t over. Things might deteriorate again. Another thirties-style slump couldn’t be ruled out.

His remarks probably caused eyebrows to be raised around in the world. It was one thing for an official from a manifestly troubled economy to argue the case for maintaining a reflationary stance. It was quite another for the representative of the world’s most vibrant economy to do so. Was he telling his audience that all was not well in the PRC? Were the summer’s reports of a quickening rate of growth of GDP wholly the result of heightened public expenditures? Might the acceleration therefore prove unsustainable?

Maybe. It’s possible that Minister Chen was hinting that the private sector seemed not to be doing what the Government had hoped. Local Authorities built houses when told to, and Navies ordered frigates, but would the Consumer step up his spending or the Industrialist his investment. Perhaps not. Similarly, the Central Bank might have cut official interest rates in line with policy, but had commercial banks passed on the benefit to customers or kept it for themselves?

It might be that the Chinese in 2009 were beginning to experience conditions comparable to those in Japan in the nineties, in America in the thirties. Though higher public spending initially rippled through the economy, lifting employment and posing extra demand for raw materials, there might not have been any perceptible impact on the private sector. The people might have stayed sullenly gloomy, unconvinced by the shenanigans of their political leaders.

Welcome to the real world. Economics is not physics. People are not inanimate. Their response to a stimulus varies from one time to another. They have an agenda of their own (and memories of the past that affect responses in the future). It means that the authorities can’t make the economy behave as they wish it would. And, sometimes, infuriatingly, Le Châtelier’s Principle takes over: people’s cussedness comes to the fore, and then they seem almost to wish to subvert the objectives of their Government.

To some degree, that’s happening at the moment in America, Europe and Japan. Perhaps in China also. In the old world, the ratio of response to stimulus has been extraordinarily low: a pathetically small quickening in consequence of an unprecedentedly large reflation. Has China’s experience been similar? Do the authorities fear that, when the spending splurge comes to an end, activity will sink again; arguably, falling to a level lower than that which would have occurred in the absence of the public spending!

It’s too early to be certain, but the initial auguries are not good. It’s possible that Minister Chen did not put his anxieties strongly enough. It’s possible that in both worlds, developed and developing, activity will disappoint. After rallying insipidly in the spring and summer, momentum will be lost in the autumn. And, crucially, there’ll be nothing much the authorities will be able to do to remedy the condition. They couldn’t in the States in the thirties; nor in Japan in the nineties; nor anywhere in the world perhaps in the coming decade!

If winning isn’t important, why do they keep score?

October 30, 2009

In play there are two pleasures for your choosing:
The one is winning, and the other losing.

Lord Byron—But if winning isn’t important, why do they keep the score?

One of the more admirable characteristics of Old Etonians and Old Paul­ines is their highly developed sense of sportsmanship.  They don’t like to win too easily.  And to ensure they don’t, they’re quite prepared to score own goals. Cricket isn’t just their game; it’s their morality.

Messrs. Cameron and Osborne have been demonstrating the phe­no­menon in recent weeks.  As soon as it began to look as if their Party’s lead in the opinion polls was unassailable, they sporting­ly set about evening up the odds. How did they do so? By affect­ing to misunderstand the realities sur­rounding Europe on the one hand, Banks on the other!

Cameron started the process. He was brilliant. In a sequence of evasions and half-truths, he showed that he could be every bit as perfidious as Brown and Clegg. He let it be known that he might not live up to his promise to stage a referendum on the European Constitution. That slap in the face for the Tory rank-and-file work­ed wonders. It caused the Party’s opi­nion poll lead to fall by 5%.  But it clearly wasn’t enough.  Something else had to be done.

Osborne was up to the task.  Speaking in the City a couple of days ago, he killed two birds with a single stone. He suggested that bank­ers be given a generous dollop of shares rather than a sizeable bucket of money. “Toe-curlingly stupid!” said a close colleague admiringly. The recommended thera­py managed simultaneously to offend voters and bankers. A master­stroke!

The only danger was that, having developed a taste for playing the fool, nei­th­er of these gentlemen would be able to resist the temp­tation to continue do­ing so. Both Europe and Banking were going to be big factors in the next elec­tion. Now that the score sheet was more even­ly balanced, it’d do no harm to think logically about the issues.

Cameron had to say unambiguously that the EU Constitution was dead. The Irish had killed it. The proposition that the Republic’s second vote super­seded its first one was valid only if every other coun­try in the Union (all being presumed equal) were also to have a second bite of the cherry. That argument, logically impeccable, would de­lay matters for long enough to secure for Britain the Re­fer­endum it had been promised.

Osborne, meanwhile, should make the point that the banking crisis had only turned into a banking catastrophe when taxpayers were asked to bail out RBS and HBOS. Had that mistake not been made, had the delinquents had been allowed to fail (depositors being pro­tect­ed on a sliding scale), today’s problems would be much reduc­ed. If chairmen, board mem­bers, and employees had had to seek jobs elsewhere, their bonuses would now be minimal, probably non-existent.

It’s not too late to bring a dose of sanity to the situation. Let the Tories state that, within three months of their taking office, the failed Scottish banks would be required to sell off all their non-money-transmission activities. If they failed to do so, liquidators would take over. There’d be imposed disposals and enforced dis­missals. What price bonuses then?

If to be done, ’twere well it were done quickly.

October 26, 2009

If other people are going to talk,

conversation becomes impossible.




James McNeill Whistler─the conceit of politicians!  the vanity of broadcasting executives!


The BBC is much like Gordon Brown:  long on promises, but short on results; aiming ambitiously for the extraordinary, but achieving disappointingly the mundane.  Each, of course, is the product of public sector culture.  Each, therefore, affects humility to hide arrogance; feigns egalitarianism to camouflage authoritarianism. 

For some time, both were lucky.  That made their faults tolerable.  No longer.  Both now seem irretrievably accident-prone.   It’ll not be long before each is cast, unremembered, into history’s dustbin.

Gordon Brown intended last year to boost economics activity and thereby alleviate the recession, but, having not a clue about the mechanics of the process, stumbled into policies that inhibited aggregate spending and intensified communal agony!   Similarly, the BBC intended last week, when it invited Nick Griffin to appear on Question Time, to treat the BNP fairly, but, having not a clue about fairness, managed only to shot itself and the liberal establishment in the foot.  For both Brown and Beeb, the laws of unintended consequences operated with devastating severity.  Being unskilled gunners, they missed the target and caused collateral damage on a huge scale!

What Brown should have done was cut public spending; not hike it.  He should have reduced the headcount of bureaucrats, not increased it.  He should have left the failed bankers to the fate their incompetence deserved; not bailed them out by impoverishing the rest of us.

He might have used the funds saved from doing so to reduce taxes:  personal allowances lifted aggressively; employers’ national insurance abolished for modest salaries; and corporation tax halved across the board.  The objective would have been the protection of jobs.  To that end, employment costs had to tumble.  New businesses had to be tempted to open in Britain; old ones to stay. 

Poor Brown has achieved the opposite.  He’s raised costs and driven away jobs.  He’s indulged those who waste resources (bankers and bureaucrats) and persecuted those who generate them (private sector workers).  As a result, he’ll have deepened and lengthened the recession. 

The BBC has behaved with comparable ineptitude.  It wanted to show Nick Griffin in a poor light, but was so heavy-handed in its bias that it caused the general public to feel sorry for him!   The Question Time panellists and audience were packed with people whose positions seemed more extreme than the BNP’s, and whose general morality was distinctly dubious.  A spectacular own goal!

The simple fact is that Griffin is an elected representative of the people.  He’s not a member of a quango, nodded into power by establishment chums.  He’s not an apparatchik who’s swanned into the legislature, unloved by voters, because of the “safe seat” status of his constituency.  He’s a man who, against all the odds, appealed to the people, and was approved by them.  For the Hains and Straws to treat him with contempt demonstrates their contempt also for voters.

The BBC likewise.  How can it treat Hain and Straw respectfully, but Griffin disrespectfully?   The latter is a probable racist; but the former are unambiguous warmongers.  Does Auntie really believe the former to be a greater sin than the latter?   And who says, in any case, that she should decide these matters?   Do members of the BBC—its Director General or its Board of Governors or its Editorial Staff—have so spotless a moral record that they can afford to cast the first stone?

In the final analysis, it is the people who will decide.  They’ll shortly have a chance to make their views known.  In the Westminster elections, their preferences will become clearer.  In all probability, Brown’s boys will be slaughtered.  In rural and suburban areas, the slayers will be the Tories and Ukip; in industrial cities, the Tories and BNP; in Scotland, Wales and Ireland, the Tories and Regionalists. 

It’s Schumpeter, applied to politics.  Recessions are necessary, desirable even, because they give the country the chance to change the political guard.  Voters are enfranchised to dismiss the bad and replace it with an alternative—potentially something better.

Sadly, the option to do the same to the BBC is rarely provided.  But the pressures are building inexorably.  If the public demonstrates a persistent preference, politicians will eventually respond.  In the period of fiscal austerity that lies ahead, it is likely that the Broadcaster’s revenues will be cut and cut again.  That’ll provoke many squeals of indignation from within, but very few from without.  Rightly so; no quarter extended to the organisation that chose not to televise the “Ashes”!

Getting rid of the bad doesn’t necessarily mean installing the good.  But it does provide some possibility of amelioration.  Brown and the BBC won’t improve of their own accord, and they won’t depart unless forced to.  It’s undignified of them to have outstayed their welcome for so long.  They now need to be told firmly and unambiguously to quit.



Corrections that are delayed are severe.

October 17, 2009

Truth will sooner come out of error than confusion.




Francis Bacon─in which case, the Europeans must shortly be headed for lots of truth!



The EZ’s August trade numbers were poor:  exports very weak, and imports moderately so.  The seasonal adjustment may have been a little inaccurate, but the overwhelming message was that things were not going according to plan.  Europe was headed, not for a robust recovery, but a very anaemic one. 

It was performing in much the same way as Japan.  There’d been a modest inventory rebuild and industrial production had recorded several small monthly gains.  But consumption remained in the doldrums.  And exports likewise.

Why couldn’t Europe take advantage of (reportedly) strong demand in Asia, in Latin America and in the oil producing world?   Arguably because it was uncompetitive.  The euro had risen sharply, but the region’s inflation rate was only slightly lower than that elsewhere in the world.

What had gone wrong?   Labour costs!   In Germany, for instance, GDP had fallen 7% in the last eighteen months, but employment had barely declined.  As a result, productivity had plunged and unit labour costs soared.  Measured in euros, they’d climbed by 6% per annum over this period; in dollars, by more like 10% per annum. 

Even Germany, its technical virtuosity notwithstanding, couldn’t compete in such circumstances.  France, Italy and Spain were devastated.  National Governments were frantic.  The ECB knew it’d messed up.  Even that pinnacle of complacency, the Commission, was worried.

Either the currency had to sustain a sizeable devaluation (30% plus); or the unemployment rate had to climb very sharply (5% plus).  It wasn’t a happy picture.  There’d be severe disenchantment.  Who’d be blamed?   With luck, the odium would fall most heavily on those who deserved it most:  the ECB in Frankfurt and the Commission in Brussels!



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