Economics Views

December 22, 2010

When your horse shows signs of incapacity,
turn him out to graze.

Horace—not just horses, but politicians also; especially those suffering from aegri somnia!

Wedded bliss is rare.
Marriages that are contracted in haste tend to be regretted at leisure. That may apply as much to the political variety as the conjugal one. Britain’s Coalition between Tories and LibDems illustrates the point.

It requires conceit to be suppressed.
At the outset, there was a good deal of optimism; each party feigning compromise and goodwill. It didn’t last. As 2010 drew to a close, barely six months after the deal was signed, each distrusted the other.

Some people find that impossibly hard.
Will they stay together for a while longer or separate immediately? Probably, the former. A rupture now, leading to an election in a few weeks time, would destroy the LibDems. Their popular support is half what it used to be; they’d be lucky to keep more than a handful of seats in Westminster.

Most LibDems, for instance.
Accordingly, while the Business Secretary, a man of inestimable naïveté, may talk about deployment of the “nuclear option,” the threat will not impress colleagues, nor worry partners. The LibDems are as optionless now as their predecessors were in the thirties. They have to live with the marriage they contracted; they have to hope that the economy improves and that the electorate forgets.

Vince Cable was a brief candle.
For the Business Secretary himself, there will be no comeback, no redemption. He’s finished as a politician: ostensibly, still in the Cabinet, he’s effectively out of it. Nobody’ll ever trust him again.

He lacked intelligence and discrimination.
What caused him to say the things he did? Why so indiscreet in front of strangers? Because, it is suggested, he’s a man of extraordinarily bad judgment. His analysis of the banking problem was poor, and the remedy he recommended for it worse; his assessment of the university tuition problem banal, and the solution he proposed for it puerile.

And had no understanding of finance.
But it was his lack of focus on public sector excesses that will weigh most heavily against him. On the day on which news of his indiscretions broke, November’s record borrowings were announced. Did he, the Business Secretary, fret about the deterioration? No. He continued to press for higher levels of social spending. He was another Nero; a man who fiddled discordantly while fiscal Britain burned.

Let’s hope David Cameron is better endowed.
The Prime Minister must get a grip. If happy-clappy spenders aren’t soon disciplined, the country’s inflation rate and credit standing will be threatened. The previous administration missed the chance to time the cuts to coincide with the economy’s upturn (mid-2009 to mid-2011). So the current one has had to delay them until its downturn (2012 and 2013). Politics will become very difficult in that period. It’ll not be a time for bleeding-hearts.

Equities have been performing well.
Hitherto, London’s equity markets have held up well: inclusive of reinvested dividends, the indices have risen recently to all-time records. Easy money and strong profits have been the driving forces. An expectation that the recovery would “broaden and deepen” in the next couple of years added to the optimism.

They’ll continue to do so for a while.
The reality may be less favourable. Economies will slow from the second half of 2011and credit, albeit inappropriately, may be tightened. There’s no near-term threat to the indices, but it’d be surprising if the advances were to continue much beyond late summer.

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