Monday, 30 March 2009

A welcome call for austerity

It's always nice to read something in a national newspaper supporting what one has written for months. Today Libby Purvis, writing in The Times, emitted a call for a bit of common sense to be applied to the public sector. Her main theme was that the public sector must pare-back on all non-essential expenditure and must apply a real-world view to what is essential.

Hundreds of commentators far more knowledgeable and lucid than my mere self have made the same point over and over for years because the public sector has been sucking life from the productive sector through the dead weight of pointless and very expensive interference. What I find so pleasurable about Miss Purvis's contribution is that she had the guts to use the noun "austerity" to define the proper approach.

Both my regular readers will know I have been arguing for public and private sector austerity for some time. Not out of any sense of wanting people to suffer, because austerity is not a recipe for suffering. Austerity is a recipe for being able to cope with whatever the world throws at you. Austerity is about cutting out the frills and living firmly within your means. It is about sitting back while your neighbours acquire endless gadgets on the never-never. It is about eschewing credit that does nothing other than advance the acquisition of ephemeral pleasures in return for a higher price than if you waited until you had the cash in the bank. It is about putting aside something for a rainy day because rainy days happen whether or not they are expected or deserved.

It never occurred to most of those of my parents' generation to borrow money for treats because they knew borrowed money is expensive money. Both their day-to-day lives and their long term financial wellbeing was based on spending only what you can afford, and part of what had to be afforded was a little protection by way of a lump sum in the bank or building society. That attitude did not generate unsustainable demand and it did not create precarious employment based on such demand, but it did give stability. It gave stability because it limited the number of outside events that could rock the family financial boat. Of course unemployment could do so, but changes in interest rates, fluctuations in the fortunes of the stock market and the calling-in of credit could not.

Contrary to the desires of our current government, one consequence of the recession is that little people have been saving more according to a report in last Saturday's Times. Orders that they must spend so the country could return to the prosperous pomp of yesteryear appear to have met with the response: "bugger that, old chap, I'm protecting myself". When put in a difficult position common sense comes to the fore. Fancy economic theories are nothing compared to real life and real life requires people to find a way to pay bills and prepare for an uncertain future. The only way they can do so is by marshalling the limited resources at their disposal. That which is obvious is being practised, namely that credit is a luxury and security lies in living within your means.

There is, as far as I know, nothing magical about public sector spending (apart from the ability of that sector to deliver a staggeringly small return for the amount it spends). The argument that recent increases in public sector spending have to be maintained in order to prevent a bigger slowdown in the economy than would otherwise be suffered seems to me to miss the point. One might as well argue that businesses must stay afloat to keep their employees in wages so that they can spend to keep the economy going. That argument is a non-starter, however, because loss making businesses have to lay people off or fold when they have insufficient income to keep going.

We are in a time of significant restructuring. The loony left argues that capitalism has failed and must be scrapped. When all they can offer is the economic miracle of the Soviet Union I feel comfortable rejecting their suggestion. The failure was not of capitalism but of consumerism. In the private sector consumerism manifests itself in (i) people buying stuff on credit rather than waiting, saving and only buying when they have the money to do so and (ii) spending everything (with or without utilising credit) rather than setting something aside for the future. That is changing, people are now repaying credit card debt and putting money aside. It is a change in culture, a change in the way money is seen. Public sector spending on fripperies such as a dance development officer for Blackpool or a head of the NHS low carbon programme for Cornwall and the Isles of Scilly is consumerism on a different scale but the problem with it is the same. Yes, spending money on anything creates jobs. Spending it on crap you can't afford creates jobs now but it also creates a liability for the future. That liability carries a huge price both in lost hope for those rendered unemployed when the illusion is burst and for lost spending power for those who need to repay their debts.

Miss Purvis is right to call for austerity. It is already being practised by the little people. One day government might learn that what is good for the little people is good for the public sector too.

Poor Gordon's millinery conundrum

The excitement is mounting in anticipation of the G20 meeting in east London in a couple of days. I'm sure I read somewhere that it is expected to cost the UK taxpayer around £50million. There's not a lot we can do about that, these self-indulgent beanos are going to take place whether we like it or not and whether or not they have any chance of achieving anything, every so often it has to be our turn to pay for the tea and biscuits.

Although I am always delighted to witness poor Gordon being humiliated, it is quite a relief that President Obama decided to attend after early doubts; the fall of my country down the pecking order caused by a Presidential snub would have been painful.

What intrigues me today is which hat Gordon will be wearing. In his brief time as the worst Prime Minister in history he has plonked a wide variety of headgear atop his overheated brain. No doubt one consequence of being out of his depth is that he cannot maintain a consistent position. Not only is he constantly buffered by events, a risk for any political leader in current circumstances, but he has actively volunteered inconsistency in some of his most important and widely publicised speeches.

Right at the start of his time as Prime Minister he made his first leader's speech to the 2007 Labour Party Conference. When addressing the issue of the EU he said "At all times we will stand up for the British national interest. And I accept my responsibility to write in detail into the amended European Treaty the red lines we have negotiated for Britain." Fair enough, that's nice and clear, he recognised that the interests of the UK are different from the interests of other European countries. No one will dispute that, all the other European countries feel the same about their own national interests.

So how does this play when he is talking to Europe? Last week he made an excruciating speech to the European Parliament in which there wasn't, of course, any mention of differences of opinion but praise for the EU working together and forging an alliance with the USA to lead the world to a promised land of ... well, it's not clear what exactly, but it's going to happen because The EU is a single entity with a united position on everything. "I passionately want Europe to be leading on the world stage", "I propose that we as Europe take a central role", "I propose that Europe takes the lead". All good stuff but hardly consistent with putting Britain first.

And how does that compare to his speech to Congress a couple of weeks ago. Oh dear. On that occasion it was Britain and the US marching together and leading the world to fresh green pastures. A footnote, long after the glorious unity of the UK and US had been flogged to death, contained mention of Europe. But there was no "Europe is leading and you are coming with us", it was "America and Britain will lead and succeed".

So which hat will he be wearing this week? British, European, UK-US or EU-US? Perhaps he has been busy designing a new bonnet, just in time for Easter.

Sunday, 29 March 2009

Anti-Earth Hour

Many things irritate me. Some things make me cross. Few make me want to tear out what is left of my hair. "Earth Hour" falls squarely into the last category. Even if I had been seduced by the patent clap-trappery of catastrophic man-made global warming I would still rage against this latest example of loud-mouthed vacuousness.

And it is just the latest example. The first big instance was Live Aid in 1985. The previous year a bunch of has-been entertainers released a record under the name Band Aid to raise money for starving brown people in Africa. It sold well so the following year they organised a large number of concerts to be held around the world on the same day, the event was called Live Aid. It raised a lot of money from the little people and did a little to help some of the poorest communities in Africa, but I always had my doubts about the real motives of many of those who took part. Some were successful singers and musicians, others were has-beens who had successfully turned a lot of money into large houses, fast cars and Colombian nose-talc and were facing a future of relative penury unless they re-launched their careers. My contrarian nature objected to being told by people worth (or once worth) millions that I should pay towards their chosen cause from my meagre resources. Had they made a polite request thing would have been different, but I was being ordered to do it by people who, as far as I could tell, spent more on cocaine every year than I spent on food. The real loud-mouths have demanded massive appearance fees to talk about poverty ever since. Some organisations have been stupid enough to pay those fees in return for speeches containing nothing but platitudes laced with profanities.

There was quite a gap until the next big event. In that time a whole generation of so-called popular entertainers had made easy fortunes and blown them in the conventional manner, they were ripe for an opportunity to return to the good times. Along came Live8 in 2005. Twenty years on from the event that would eradicate hunger and misery, there was still hunger and misery in exactly the same places as two decades before. More concerts were arranged. This time successful artistes were in relatively short supply and has-beens were very much the soup of the day. It was another futile gesture achieving a little at huge cost compared to the benefits achieved. Like it's predecessor it allowed some defunct quasi-musical careers to be revived, for which the nation's drug dealers are very grateful.

Grandiose gestures are never the answer to problems.

I have seen nothing to make me think for one second that man-made global warming is a problem (if it exists at all, I think it probably does but the evidence is sketchy). Even if I did, turning the lights off in FatBigot Towers for one hour on a Saturday in March will achieve absolutely nothing. Turning off the lights in every home in the world for one hour will achieve absolutely nothing. Demand for electricity will fall for one hour, so what? So nothing.

The whole thing is a futile gesture promoted by those who believe in fairy tales and those who just want to get their faces on television and their names in the newspapers. I thought of reacting to it by turning my lights on, running the washing machine and dishwasher and utilising every other juice-consuming appliance I have, but that would just waste my money and would be as futile a gesture as turning everything off.

I will only be on this planet for a limited time. When I am gone I will be reduced to ashes which, I hope, will be put to use in family horticultural endeavours. In the meantime I intend to spend my time doing useful things. As Earth Hour started I sat down to a splendid feast at a wonderful local Thai restaurant. It's a mile walk from FatBigot Towers, but worth every step. No futile gestures there because they have a business to run, they have staff to pay and they have the future to think about. The real future, the future of keeping food on the tables of their customers in order to keep food on the tables of their staff. It was a far more productive thing to do than join hands with naive hippies in an act of pathetic nothingness.

Saturday, 28 March 2009

The problem with "public" services

Something that has perplexed me for a long time is why we put up with government providing so-called public services. Ask the little people two questions and I think I know what the answers will be. "Would you send your children to an independent school if you could afford to?" "Would you use private healthcare if you could afford to do so?" There will be some who will answer in the negative on grounds of political ideology, but my guess is that the vast majority would give affirmative answers. Then ask them why they would use private-sector services and my guess is that they would say they are better than the services offered by the State. It would, of course, be fair to point out that many of the answers would not be based on direct knowledge of the superior quality of private-sector schools and hospitals (although increasing numbers are now receiving treatment in private hospitals where they have had to wait too long for a new NHS hip or the removal of a gall bladder). However, one factor cannot, in my view, be denied namely that those providing services in the private sector have to keep their standards high or they will lose customers.

Current provision of education and healthcare by the State is sought to be justified by three main arguments. First that the little people cannot afford to buy these services privately, secondly that there are some services (such as emergency medicine) which are not routinely provided by the private sector and thirdly that universal provision can only be guaranteed by the State delivering the service. Each of them has something going for it, but not much.

It is undoubtedly true that Mr Average on £27,000-ish a year would probably find it very difficult if not impossible to fund his childrens' education and his family's healthcare if it had to come out of his wages. But that is an argument for the cost of these services being borne by all through, in effect, insurance. After all, that is what taxes spent on healthcare and education really amount to, they are insurance premiums collected from the many and spent when they are needed. There is absolutely no need to go one step further and say that because Mr Ordinary can only receive these services because everyone else pays premiums as well, so the collector of the premiums must provide the services. I am not aware of calls for the Prudential and Norwich Union to have in-house teams of builders and mechanics to provide the service required by a customer who makes a claim on his household or motor policy.

It is also undoubtedly true that the provision of emergency medical cover is not routinely undertaken by private healthcare companies. That simply gives rise to the most important question in the English language: "so what?". The reasons they don't offer this service are that their customer base is not wide enough to justify the enormous infrastructure costs of a 24-hour emergency department and the costs of premiums would be too high to attract sufficient customers to cover those costs. These limitations do not mean the private sector cannot provide emergency medicine and the limitations themselves will not apply if the government is simply the funder of health care.

What is not true, in my opinion, is that universal provision can only be guaranteed if the State is the direct provider. There is a need for universal provision but this can be assured by contractual and/or statutory duties to provide services to Scumsville as a condition of having the contract to provide services to Nicetown. The State can retain a responsibility to provide services if no one else is prepared to do so for the money offered. I can be fairly sure that power would rarely if ever have to be used.

It seems to me that the problem with State education and healthcare is that they are provided by the State rather than just funded by the State. It leaves them open to political interference which, as we have seen in spades, creates huge difficulties for those actually delivering the services at the bottom of the pyramid. Constant chopping and changing of performance criteria does nobody any favours. One manifestation of that problem is that a top-down nationwide system of anything requires so many layers of bureaucracy that vast sums of money are consumed passing information back and forth.

My most serious concern is that government run services are affected by the need to satisfy the government first and the consumer second. What actually happens in schools and hospitals is what the government requires to happen, and even that fails to be achieved in too many instances. Some of these requirements are intended to improve the service for the consumer, but not all. Now, the government will say they are all aimed at benefitting the consumer because the government thinks it is best placed to define what the consumer wants. I don't think that is so, nor do I think it can ever be so because there is no such thing as a single set of desires or values of the users of all schools and all medical services. Furthermore, when government wishes to use these public services for the purpose of social engineering there is a necessary conflict between what it wants and what the little people want. If there were no such conflict there would be no case for social engineering. By its very nature social engineering is about trying to coerce the little people into changing their ways and that automatically creates conflict.

If the top-down model of providing these important services were sound we should be able to expect uniform excellence after sixty and more years of honing the model. Instead we find governments of both parties launching more top-down re-structurings and constantly fiddling with their day-to-day operation. The concept of State provision is, in my view, fundamentally flawed. It does not work, it has never worked and it can never work. Government should be striving to find ways in which it can fund these services at acceptable cost to the taxpayer while keeping its interfering nose out of things it has no capacity or ability to manage.

Thursday, 26 March 2009

Rights and irresponsibilities

A couple of days ago the government launched a discussion about what it calls "rights and responsibilities". The Green Paper in which the scope of the discussion is contained sets out the government's position clearly. They seek to establish a new Bill of Rights. There is no special magic in the words "Bill of Rights" because there is no universal legal or linguistic limitation on what a state or government can include in something it calls a Bill of Rights. It could include fundamental constitutional principles only, or it could add specific laws of a non-constitutional nature. Following the latter course merely stores up problems for later.

Constitutional principles are all about the powers of the institutions known collectively as the State. In the UK those institutions grew up in various ways over time and many of the limitations on their powers are defined solely by convention. In recent times many of the ancient conventions (some of which are not actually particularly ancient) have been ignored by governments of both parties in favour of the unsupportable "I'm in office, therefore I'll do it how I want". Margaret Thatcher was noted for riding roughshod over her cabinet when she felt their collective view was wrong and that attitude has been taken further in the Blair and Brown years by the virtual abolition of cabinet government, with decisions being taken by a small cabal of the Prime Minister's trusted advisors (not all of whom are members of the government let alone the cabinet). The relationship between the executive and the legislature has also changed beyond recognition with policy announcements being leaked to the press and then announced to the press long before they are put to Parliament. Debate of important new legislation is curtailed like never before and some very serious issues are not allowed to be debated at all.

These changes of approach could not have occurred if the powers of the Prime Minister, the cabinet, the executive as a whole and the legislature were enshrined with specificity in an overriding constitutional document. I can see a case for such a document being produced provided it is limited to defining the powers of the main institutions of the State and contains a method of enforcement. The exercise is far more easily said than done, but that does not make it impossible.

What makes me shiver in anticipation of something truly ghastly is the present government's notion of a constitutional document setting out the responsibilities of the little people to each other and to the State. At the moment we owe one duty to both each other and to the institutions of the State. We must comply with the law. Nothing else is needed and nothing else is appropriate. If I breach my neighbour's legal rights he can seek a remedy against me through the courts. If I breach the criminal law the State can prosecute me through the criminal courts. In either event I will have done the same thing, I will have failed to comply with the law.

That is not to say that we are not subject to all sorts of forces that compel us to act in particular ways even though the law does not require us to do so. Most of us try to be polite and to treat people with respect, others aren't particularly bothered and others again are rude and insensitive. How we behave in ordinary everyday situations is a product of our upbringing and our own values of what is right and wrong. It is impossible to legislate for politeness, for helping little old ladies across the road, for community bulb-planting sessions and all the other nicenesses we do to make our lives less shallow and empty than they would otherwise be. Actually, that isn't right. Legislation can be passed and we can have Community Politeness Officers stationed at every supermarket check-out to hand a fixed penalty notice to those who fails to utter a please or a thank you. In the real world, however, legislation of such a nature would swiftly bring the law into even greater disrepute than the 3,000-odd new offences created over the last decade.

Against that background we have this Green Paper discussing rights and responsibilities. Most of it is concerned with enshrining the responsibilities of the little people into some sort of advisory code. The Green Paper specifically says that the government does not propose for such a code to have the force of law, yet there are lots of lines in the document and one does not even need to read between them to see that that is exactly what they have in mind. Time and again they mention specific responsibilities, such as attending court to give evidence and reporting activity consistent with money-laundering, and assert that they are not responsibilities compelled by law, whereas they are compelled by law. They suggest the code might contain a responsibility to treat NHS staff and other public sector employees with respect. Why just public sector, why not the lady behind the bacon counter at the supermarket and the waiter who serves your bowel-burning curry? If the public sector deserves special treatment those working in it will want to receive that special treatment not just hear that people are being invited to treat them particularly well. They suggest it should contain a statement of our responsibility to protect the environment, yet different people view environmental issues in different ways - paper bag or plastic bag, which is more "green"? You might be surprised by the answer, or you might not, it rather depends how you define "green".

And then the vital question arises. What possible use is any such code unless it can be enforced? In truth there is an answer to that rhetorical question because one can look at the Highway Code and find a set of guidance about how to drive with safety and consideration that has served the country well for many years and does not, directly, have the force of law. Some of the guidance in the Highway Code reflects the law but it is failure to comply with the law that is an offence not failure to comply with the Code itself. However, failure to comply with advisory aspects of the Code can be taken into account by a court when considering whether someone was driving without due care and attention. What started out as a guide to help those who might not understand the risks involved in driving has morphed over the years into a piece of quasi-legislation.

There might seem no harm in legislation saying, in effect, "please be nice to each other" but it's hard to believe it will stop there. It must be considered against the current background of law including the catch-all law against "anti-social behaviour". At present being rude to a hospital receptionist is probably not caught by that law (although it runs the risk of you having to wait longer to be seen by a nurse or doctor). But for how long will that be the case if there is a new Responsibilities Code?

Another theme running through the Green Paper is Human Rights. It is said over and again that we now have a Human Rights Act that defines our rights but not our responsibilities. It is pointed out, correctly, that one person's right is another person's responsibility. It is then asserted, incorrectly, that because our rights are now defined so our responsibilities should be codified. That is, to my mind, an illogical leap. If I have the right to privacy it follows automatically that you do not have the right to interfere with my privacy; the responsibility is implicit in the right it is not a separate thing, they are two sides of the same coin. Create a code of responsibilities and you risk creating free-standing responsibilities without correlative rights. The more detailed the code, the greater the chance of this happening.

We have seen a worrying trend over the last decade to create broad catch-all offences that are enforceable by fixed penalty notice and are far too open to interpretation by the day-glo jacketed minor functionary with power to issue such notices. The penalties cost but the additional cost and trouble of appealing against them is far greater. It contributes to a sense of the little people being put-upon by the State, where the easy targets are made to pay while real criminals escape with a warning. A Responsibilities Code is ripe with opportunities for this pattern to be widened.

At heart I am troubled by the very concept that the responsibilities of the little people to the State are constitutional matters. They are not, they are matters for the law. True constitutional issues are concerned with the power of the State not with how the little people comply with the manifestations of that power. They operate at a different level from the laws made pursuant to those constitutional powers. The State should exercise its powers through clearly defined laws so that the little people know that engaging in those defined activities risks incurring a penalty. The laws by which the State criminalises certain activities are not constitutional laws, they are laws made using powers the constitution gives the State. Our obligation to comply with those laws is also not a constitutional matter, it is merely the necessary consequence of the laws themselves.

The greatest danger is that a supposedly constitutional document will be used to promote party-political policies for which there is not universal support. Calling them constitutional matters will seek to lift those policies out of the realm of debate and make them immutable. The most obvious example in the Green Paper is the right to medical care free at the point of delivery. That is not a constitutional issue, it is a purely political issue. It seems to be an attempt to lock us into a State-run NHS until the end of time. Maybe that is wise, but there are arguments against it which should not be shut-out from debate and, indeed, which might become more persuasive to the little people in the future than they are today.

One thing which is fairly clear is that this exercise is looking to the next general election rather than looking to make good law. The government wants to present itself as the little people's friend and will pretend that this Green Paper and any resulting legislation have that effect. It seems to me that it is a confused and potentially dangerous move which, if recent history is anything to go by, will be riddled with provisions allowing for new law by Ministerial fiat.

Exit green power, enter the 1970s

Some of us are old enough to remember life under the Labour-Conservative consensus of 1964-1979. A long stint of Labour government was interrupted by four years in which the nominally Conservative Edward Heath was top dog from 1970-1974, even in those four years nothing really changed. Burdened by uncompetitive nationalised industries, crippling rates of personal taxation and ever increasing union power the country hobbled from crisis to crisis. Much is mentioned of the Winter of Discontent, that awful period from late 1978 until mid 1979 when the unions had the government under a vice-like grip, but I have in mind today the Heath administration. I have it in mind because the country was so utterly shot that electricity supplies were cut. My particular recollection is of Saturday evenings when we had to have dinner early and then make sure we had plenty of candles. Fortunately the cuts were not random so we knew roughly when they were going to happen.

How different life is today, or is it? I wrote about this a while ago and now it's back again. An interesting commentary in The Times (brought to my attention by the most excellent Englishman) raises the prospect of power cuts through lack of supply capacity. Airy-fairy dreams of windmills and wave machines filling the national grid with wholesome juice are proving to be nothing but a nightmare, the costs of developing large-scale wind and wave electricity generation cannot be afforded in these difficult times. And still the year 2020 hovers over the country. That is when a number of perfectly serviceable coal-fired power stations must be closed to comply with an EU "green" edict.

But we mustn't worry, we have a Secretary of State for Energy and Climate change. He has quite an easy role in this. All he has to do is find a few hundred million quid out of the billions now swilling in the red column of the government ledger and we can have new coal-fired power stations before the deadline. If they get a bit behind, which they will because almost every building project commissioned by central government does, he can pretend to be French and say the EU edict would damage the national interest and must be ignored. Ah, but I forget the politics of the thing. The next general election is at most a touch over fourteen months away. Another cold winter and widespread power cuts might happen, they were very close this winter, but a dying government can always pay a vast sum to France for a little top-up from its magnificently efficient nuclear network. Why risk the wrath of the Greenies when the problem can be adjourned through use of yet more unaffordable borrowed money?

Let's go forward to 2010. There is, I suppose, always the possibility that Labour will win the next general election. Nothing is impossible, after all they still score almost 30% in opinion polls despite their solidly proven ineptitude and corruption. More likely is a Conservative victory. Just what the current Secretary of State for Energy and Climate Change needs to get him off the hook. Imagine what it will be like for his successor. Freshly appointed and having access to all the inside information for the first time. It will be too late to say "Thanks but no thanks, Prime Minister, that's a poisoned chalice". The obvious, but distinctly un-green option will have to be taken up. In a way that would be appropriate because the current minister will have used up all the yellow, leaving just blue to solve the problem.

That much, I would suggest, is fairly obvious (unless something extraordinary happens in the next year or so). But my mind is caught by the fact that in 2010 the government of the UK will have to worry about how to keep the lights on, the fridges cold and the computers surfing. What an extraordinary thought that is. Some 35 years after the socialist consensus put the lights out on a regular basis, a new Prime Minister will warn that the same will have to happen again if we don't use one of our most abundant natural resources to prevent it. In fact he will have to warn of something much more serious. Then it was a few hours once or twice a week, loss of a substantial part of our generating capacity will be far worse. He will be harangued by Greenies, hippies, anti-thisses and anti-thats, yet if he did what they wanted they would be first in line to complain when their oven cuts out before their tofu and raffia casserole is ready.

How have we come to this position? How can it be that we are only a decade away from running out of electricity? There are many reasons, of course, some of which I have touched on in previous posts. Today I am simply mesmerised by the thought that twelve years of the current administration has resulted in nothing to address this long-known problem other than the hope that windmills and untested wave harnessing technology could possibly be an answer.

Let's try to put it is context. Thirty-five years ago colour television was a luxury, and there were only three channels. Radio was long or medium wave. No one had heard of compact discs or personal computers. Fax machines were in their infancy. Only posh cars had heated rear windows. Supermarket wine racks (if they had one at all) contained liebfraumilch and cotes-du-rhone. Indian and Chinese restaurants were an exotic rarity in most of the country. In short, the UK was a different and far less comfortable place than it is today. Yet we are faced with the prospect of widespread discomfort unless we do something very obvious and, compared to the other options, very cheap.

It just goes to show how damaging the Greenie agenda can be when it is not countered by common sense and an appreciation by government of its duty to keep the lights on.

Wednesday, 25 March 2009

Underwear - the key to economic recovery

One of the most interesting things about current economic strife is that no one knows what to do about it. "What nonsense!" you cry, but it's true. There is not a single person on the planet who knows what to do. All that any of us can say is that we believe one course of action or another is likely to be beneficial, and even then others will disagree that the outcome we predict for our preferred option is desirable in any event. Even if we all agreed on the perfect result, we can only ever believe that certain actions will get us there; we cannot know they will because the problems being encountered at present are unprecedented and take place in a world that is very different from the 1930s when the nearest comparison occurred.

The effects (good or bad) of moves made so far by national governments to kick-start their dormant economies cannot be predicted as a matter of knowledge nor with any degree of certainty. And, perhaps most importantly, existing measures will play-out differently in different countries such that one might benefit from leaving things as they are and another might benefit from a further initiative. I believe it is a combination of lack of superhuman foresight and the need to do what is right for their own country that causes some leaders of Western countries to resist poor Gordon's calls for concerted action.

So far the only country following anything like the path he advocates is the USA, although it would take an excruciating degree of naivety for anyone to believe they are following that path because poor Gordon argues for it. The US government, more than any other in the Northern Hemisphere, acts purely out of what it considers the best interests of the country for which it has responsibility. What it proposes might be right or it might be wrong, that debate is being held in its legislature and through its news networks. You won't hear many high-falutin' calls for America to sacrifice its own interests in support of the so-called world economy. What you will hear, and what has been heard already, is debate about the effect President Obama's plans are likely to have on the financial well-being of the American people. Possible effects on international trade come into the equation but from a purely US perspective. Once they have finished the debate and voted for a particular package of measures the matter will not be over, because then they will have to see how those measures work in practice. The most experienced, highly qualified and ostensibly sensible economists will disagree amongst themselves both about the suitability of the final package and about the effect it will have. I find that rather refreshing because it reminds us that we are dealing with a process of educated guesswork rather than science.

Against that background I am left, yet again, perplexed by poor Gordon. Germany and France say "hold on, oh one-eyed Scottish idiot of the Manse, we need to see whether the vast sum we have already forked-out has had any effect before we throw more good money after bad." Gordon says "No no no, continental brothers and sisters, I am right, you must stimulate further and you must do so in the manner I have devised." Two questions come to mind.

First, how can it be wrong to sit back and observe the effects of current policies before changing them? After all it is not a zero-sum game. Further so-called stimulation comes at a price and over-stimulation is risky (as any fat middle-aged man with a weak heart can tell you, especially when Joanna Lumley is involved). It always used to be said that changes in central bank interest rates take a year or so to work their way through the system. Although part of their effect could often be judged after a month or two, they had a widespread influence on highly sophisticated economies and it was hardly surprising that the full consequences could not be judged quickly. When a strategic policy is initiated at enormous cost in unprecedented circumstances it becomes particularly important to allow it to have its influence (if any) and decide what to do next only when the effect of the first move can be evaluated.

Secondly, who is poor Gordon to tell them what to do? I don't just mean that his disastrous stewardship of the UK economy is hardly evidence of good judgment on his part, but it's just not his call. Indeed, it's not his call in two respects. Not only is management of the economy of a particular country the exclusive responsibility of its own government, but the very concept that the same pattern of governmental action will suit everyone is patently absurd.

Of course his current pointless globetrotting at the expense of the UK taxpayer is more about trying to bolster his image before the next round of excoriating opinion polls appear than it is about saving the world. At least, that is the reality. It is not necessarily how poor Gordon sees it. Everywhere he goes he is being told "thank you, but we'll do it our way". Sometimes, as in the European Parliament yesterday, he is told something rather more forthright. His reaction is, as always, not to listen and consider what others have to say, but to descend into a froth of self-indulgent fury that anyone should question his uniquely brilliant analysis. That is about to cause a bit of a problem.

This time next week London will be awash with the bigwigs of the twenty most rapidly shrinking economies in the world. It is Gordon's big moment, or so he thinks. He should have the courage and integrity to say "frankly chaps, we're all guessing here and this is my best guess ...". It might allow him to win influence and befriend people. Instead he will continue to claim that everyone agrees with him. He won't shift an inch because he doesn't have the moral or intellectual strength to do so. A summit which could have been used to consider a range of strategic policies is likely, instead, to be dedicated to finding a form of words to spare his blushes.

This week we have seen both his glove-puppet Chancellor of the Exchequer and his placeman Governor of the Bank of England so frustrated with his intransigence that they have taken the unprecedented step of refuting his approach in public while he is out of the country. They assert that the UK cannot afford further government borrowing in an attempt to re-kick-start the economy. They might be right, they might be wrong. Over the pond President Obama might find support for his case that the US can afford to follow such a path. He might be right, he might be wrong. Germany isn't prepared to follow suit because it's economy was not burdened with excessive debt and it feels no need to adopt that burden in order to show unity with anyone. Frau Merkel might be right, she might be wrong. The inescapable fact is it is all a matter of opinion and judgment and those with direct responsibility to the citizens of any country must be allowed to follow the course they think right.

I rail from time to time against the very concept of one-size-fits-all, whether it be in economic management, in the internal laws of different countries, in voting systems or in pretty much anything. It seems to me to be an especially inapt concept for national economies. Not only do they all operate differently, with differing balances of manufacturing and service industries, they also operate against different cultural backgrounds. Countries such as France and Sweden are wedded to massive welfare states and until their populations vote for something different they will continue to be so. That's their choice. Some think them barking mad, some think they don't go far enough. But it's their choice. Other countries look on and decide whether they like what they see. We adopt some of the things they do because we think they will be beneficial here, other of their choices are considered inappropriate to the way we like to live in the UK. It's not a matter of us being right and them being wrong, or vice versa, it is a matter of the government of each country doing what it thinks is right for that country and taking its chances at the next general election. When it comes to macro-economic policy exactly the same applies.

No one knows what will best, and fastest, lift the countries of the developed world out of recession. Of all the heads of government of the G20 nations, poor Gordon is the only one who claims there is a single answer and that it must be set in stone for everyone. There is no more chance of it fitting each national economy than there is of a single size of underwear being appropriate for all.

Saving is at a premium

Sometimes life plumbs such depths of pointlessness that you will do anything to pass the time. I had such a moment yesterday and found myself reading an announcement in a newspaper of the current rates of interest offered by a bank to savers. It was really quite scary, so I had a look at what other banks offer savers.

Obviously the exact details differ from bank to bank but the general pattern seems to be about 0.1%pa for savings accounts where you can pay in and withdraw at will, 1.25% where you have to pay in a certain amount each month and have to give at least a month's notice to make a withdrawal (or forfeit interest in lieu) and 2.5% where your money is inaccessible for a year. There are also numerous special deals paying up to 6% on small amounts for a short time, presumably to draw in customers in the hope they will stay with the bank once the interest rate falls at the end of the promotional period.

A couple of weeks ago I was talking to a family member who was withdrawing some of his savings from his bank because the return was hardly worth having. He is in business in a small way on his own account, owns his home outright and lives modestly, He decided to withdraw as much as he needed to buy the maximum permissible holding of Premium Bonds. For those who don't know, Premium Bonds are a national lottery of an unusual kind. You buy a Bond for between £100 and £30,000 and each pound of your holding is given a unique number and entered into a monthly draw. Prizes range between £25 and £1million and it is claimed that each number has a 36,000-to-1 chance of winning a prize. The really clever bit is that your numbers are entered into the draw every month until you decide you've had enough at which point you can redeem your bonds for the amount you paid for them. A permanent lottery in which you never lose your stake. Except that you do lose a bit of your stake through inflation because £100 "invested" in 2008, or 1998, or 1988 or whenever can only be redeemed for £100 today. I should add that there is another clever bit, all winnings are tax-free.

If you have £20,000 sitting in the bank earning, say, 1.5% you earn a massive £300 on which you will have to pay income tax of at least 20%, making it a cash return of at most £240. Inflation at 3% reduced the value of £20,000 by £600, making a total loss of £360; it's not a very attractive situation. In fact Premium Bonds are statistically even less attractive because the total value of prizes represents, when compared to the total value of all Bonds issued, annual interest of only 1%. That some lucky people receive very substantial prizes is taken into account in this calculation, so the return for most people will be far less than 1%. As far as I can recall I have had £500 in Premium Bonds for over ten years and so far have won one prize of £50.

It might seem silly to risk transferring savings from an account that paid some interest to one which gives just a hope of getting a return, but it is easy to understand why people might do so when they know they are going to lose money anyway. Why not accept the likelihood of a loss through inflation and take a chance of getting far more than any bank could pay you? It has the added fun of any winnings being free of tax and I'm sure that for many the satisfaction of receiving something, however small, that the Treasury cannot claw-back is worth far more than the measly alternative rewards paid at the moment by banks.

Monday, 23 March 2009

A brief thought about non-jobs

In the comments to my previous offering, Mr Dan asked whether I could specify what I mean by a "non-job". One of the points I put was that the public sector should shed "non-jobs", but I did not explain what I meant by "non-jobs"; so here goes.

In the real world jobs exist because they achieve something. A small factory has people who seek orders for their products, people who actually make the products, people who pack the products, people who deal with the paperwork, people who deal with the business's tax affairs, cleaners, tea-makers and goodness only knows how many others. All of those jobs can exist only for so long as the result of their combined efforts is a profitable business. Mrs Darjeeling the tea-lady never goes anywhere near the machines, but she is a necessary part of the team because British workers need cups of tea.

What you don't find in small factories is people being employed unless their work is thought to contribute to the overall effectiveness of the business. For example, they don't employ a Five-a-Day Outreach Advisor to give readings on the virtues of broccoli in the canteen at lunchtime. Nor do they employ five people in the accounts office when the work can be done by four. Nor do they pay for design consultants to create a new corporate logo unless they see a clear need to do so. The reason none of these items of expenditure is incurred is that it would add unnecessary costs to the business; the additional costs would be unnecessary because any benefit they might deliver would be less than the cost. The managers of each business must decide on its own priorities and exercise their judgment, I believe the trendy jargon is that they undertake a cost-benefit analysis. Sometimes they will be right, sometimes they will be wrong. If they are wrong too often or by too big a margin, the whole business will be at risk.

What amounts to a non-job in the public sector depends on how you define the proper role of the public sector and how you measure the benefit. In the private sector it's relatively easy because you can measure costs in pounds and receipts in pounds and deduce that a surplus of the former over the latter means something has to change. In the public sector it is not so easy because the perceived benefit of a particular item of expenditure might be political rather than economic, in which case there will always be room for debate whether it is justified.

My idea of a public sector non-job is necessarily affected by my view of the proper role of the State. For example, I see no good reason for the State to tell people what to eat. We all receive quite enough information on that subject throughout our lives from parents, teachers, friends, spouses, television and radio that there is no need for a single penny of tax to be spent on the matter. Exit Healthy Eating Initative Facilitators and Five-a-Day Counsellors, non-jobs of the first water.

Then there is wholly pointless and unnecessary bureaucracy. Perhaps the best example comes with so-called regional government. We have Regional Assemblies, whatever they might be, and many a regional quango with specific non-resonsibility for housing and planning. They do nothing that cannot be done, and is not done, by central and local government. Prime candidates for the out-tray.

From there we can move to the cost of governmental megalomania and distrust. These unfortunate and inappropriate qualities manifest themselves most obviously in the setting and monitoring of targets. Targets for schools, targets for the police, targets for hospitals, targets for local authorities, targets for everyone other than government ministers. Targets are set because our current government wants to be in control, because it wants to be seen to be in control and because it does not trust those who actually have to provide services to the public to exercise their own judgment in how best to use the resources allocated to them. Legions of paper-pushers are engaged in disseminating the targets and monitoring whether they have been met. To my mind they are non-jobs because the whole process is flawed. Give each regional police force its budget for the year, give each state school its budget for the year, do the same for each local health authority (or whatever they are now called) and each local authority and let them use the money as they see fit. There is plenty of free local monitoring of the efficiency of these local service providers. That is not to say they will always use the money to best advantage, but meeting arbitrary targets won't do that either. So out go the targeting paper-pushers, they do non-jobs.

These are just a few examples, but I hope they give a taste for what I mean by non-jobs. Essentially they fall into two categories - jobs that should not exist because they do things the government should not be involved with and jobs that exist because government gets more involved than in needs to in areas in which it has some legitimate role. These jobs do not "add value" as the saying goes. All they do is suck up money.

Saturday, 21 March 2009

The aggregate demand for wasting money

One of the great joys of blogging is receiving comments that put a different point of view. It's mildly irritating to find a view you have taken time to express might be based on foundations of slush, although the irritation is not with the commenter but with oneself for not taking into account a relevant point (or, indeed, being completely fundament over mammary papilla). The result of the exercise is increased understanding of the topic you have discussed which, to some of us, is always a joy. What is not much of a joy is receiving short snide comments which provide no explanation of the alleged error in our reasoning and are nothing more than insults. I don't receive many of those but a few arrive from time to time. It would be wrong to delete them, however tempting it might be. The only comments I delete are true "spam" such as automatic links to commercial sites which have been left here because some wording I have used triggered a reaction in a computer somewhere else.

An occasional insulter has returned recently after some weeks doing other things. Whenever I throw out one of my half-baked pieces on matters economic there is a chance that he will pop in to tell me I don't know what I'm talking about. There is no debate, just assertion of a different view without explanation of why that view is so obviously superior to my own that I should spare the world any further ignorant offerings. I should make one thing clear. I don't claim to "know" about economics. All I do is put forward my views and attempt to justify them with reasoning. If they are completely misconceived then they are completely misconceived, but neither I nor anyone who finds them a little persuasive is likely to change his mind by someone chipping in with "that's nonsense" or words to that effect. One reason I write essays rather than single paragraphs containing nothing but conclusions is so that my reasoning (such as it is) is available for all to demolish if they think they can. From time to time comments are left attempting to do exactly that, and it's huge fun. They believe they have proved me wrong and are happy, I believe I have proved them wrong and am ecstatic.

A couple of days ago I had the temerity to suggest that the government should cut its expenditure because it is borrowing vast sums of money and the less it spends on unnecessary fripperies the more it can devote to repaying that borrowing. I don't find that a difficult concept. Apparently I was completely wrong. My lurking insulter crept out from under a cheese to tell me I had ignored the effect public-sector redundancies would have on what he called "aggregate demand". No doubt he will be surprised to learn that I am familiar with the term "aggregate demand" and have at least a passing knowledge of what it means. To see whether I can elicit a second insult in a few days, I want to discuss why dispensing with pointless paper-pushers is likely to be of overall benefit to the economy. I will keep my "reasoning" as short as I can because my point is essentially simple.

Let's start with a simple observation, an observation with which everyone might be able to agree. If public sector employment is, of itself, a net benefit to the economy it follows that every government should seek to employ as many people as possible. As a factory closes the government should take on those who lose their jobs and give them something to do, or even give them nothing to do but just maintain their incomes at the previous level. Yet governments do not do this, for the very obvious reason that it would be a loss-making exercise. Much of the public sector does not produce anything and merely adds to the costs of the productive sector of the economy.

That is not to say that the public sector does not confer benefits. As things are currently arranged, defence of the Realm, the emergency services, the NHS, State education and social security benefits (any many other things as well) are paid for out of taxes. They add costs to business but they also deliver a benefit which would otherwise have to be paid for through other means. This piece of waffle is not an appropriate time to deal with issues concerning those "beneficial" tax-funded services.

However, far too much of the public sector delivers no discernible benefit and is pure dead-weight cost. It does things that no sane person would ever think of paying for with his own money. That is the structural problem I referred to in my last epistle. To argue that it should not be challenged because of the effect on "aggregate demand" is, in my opinion, misguided. Of course if taxpayers pay salaries totalling hundreds of millions of pounds to hundreds of thousands of government employees who do nothing but shuffle paper for no purpose, the dismissal of those people will remove an awful lot of spending power from the economy. But it will do so only because that spending power was handed to people with non-jobs in the first place. Keep them in place until the trump of doom and they will be a dead-weight cost until the trump of doom. If you think they should be kept in place, why not add another 100,000 to the number so that "aggregate demand" (paid for by unaffordable government borrowing) can be boosted and the path from recession can be eased? If those in place at the moment were not there, who would suggest they should be added to the public payroll to boost "aggregate demand"?

It goes without saying that matters should be approached according to current circumstances, but that does not necessarily mean that cutting out the dead-weight should be delayed until we are out of recession for fear of making matters worse by exacerbating falling demand. There is just as sound an argument for saying that this is exactly the time to cut out the wholly unproductive parts of the public sector. Do it now and the recession might go on a little longer or be a little deeper. Frankly there is every sign of it being horrendously long and deep in any event. I can see an argument for starting with as clean a slate as possible once we are in a position to recover. Surely it is better to build from a position in which dead-weight does not continue to hamper the productive economy.

Thursday, 19 March 2009

The bloated state questioned at last

I don't watch Question Time every week, indeed today was the first time I have caught it for over a month because either the panellists have included people guaranteed to boil my highly pressurised blood or the programme has come from outside England. Tonight I was looking forward to Tessa Jowell having to talk about the economy on a panel also including Ken Clarke and Vince Cable. She was, not surprisingly, hopeless. What really caught my ear, however, was the regular spewing of common sense from a cheerful plump lady called Fern Britton.

Apparently Miss Britton presents a daytime television programme. I didn't know that, but I did know her to be the daughter of the excellent actor Tony Britton and to have hosted a cookery show some years ago. Whatever the topic raised this evening she would smile benignly, issue a little sigh and say the obvious. Not for her any dogmatic spin or party-line soundbite. On the recession she informed us that if we borrow money we have to pay it back and doing so will mean a reduced standard of living if we have borrowed too much. I'm sure I heard a rustling of paper in the background as she let that bombshell go, perhaps it was Tessa Jowell looking for a briefing paper to see whether the government's current line of spin agrees or disagrees with Fern. On public spending Fern told us that it all has to be paid for so we can't have everything we might want any time we might want it. At this point poor Tessa went green, I don't think she had ever heard of such a concept. And so it went on, topic after topic. Music to my chubby little ears.

It is a happy coincidence that today also saw a heavyweight newspaper feature the unaffordability of the bloated State on it's front page. The Times brought to the fore an issue discussed often in the world of blogology but rarely, so far, in the more widely-witnessed world of the major news media. At long last the endlessly expanding State is seen as a problem not a solution. Seeing the State as a benefit is giving way to an appreciation of the dead-weight cost it attaches to the rest of the country. The argument is being played-out in a range of different circumstances, but a common theme underpins them all. Wages are being cut in the private sector in a bid to keep businesses afloat, wages in the State sector are increasing. Jobs are being shed in the private sector to cut costs or because a business has folded completely, the State sector is recruiting more people to shuffle paper. Private pensions have been, and continue to be, macerated while State sector pensions remain unaffected (in fact some are run as private pension schemes, hence calls from the government's financial backers in the powerful State sector unions for the Treasury to bail them out). Many other examples can be given. Miss Britton addressed all these points by making the simple observation that things have to be paid for.

An interesting snippet contained in one of the articles in the Times estimates that a rise in unemployment of one million is likely to cost the Treasury about £15billion a year through a combination of increased benefits payments and decreased tax revenues, with up to a further £3billion of reduced revenue from loss of taxes when wages are reduced in the private sector. I haven't seen the workings behind this estimate, but a cost of £18billion for the loss of one million jobs equates to £18,000 a head. It might well be that the calculation is based on the loss of enormous numbers of financial sector jobs which paid high salaries and, therefore, provided substantial tax revenue. It might also include knock-on effects such as reduced VAT receipts when those who are out of work are not spending as they previously did. However it is worked out, we can be sure that a saving would be made by the private sector employers who made those million people redundant, even though they would have to make substantial severance payments to many staff. That saving will preserve many more jobs provided the businesses concerned are able to survive current difficulties.

On the State making someone redundant it is hard to see that there will be anything other than a credit on the Treasury's ledger. Any benefits payable to an ex-State employee will be a fraction of their salary (in all but the very rarest of cases) and the income tax and national insurance they paid was neutral in the account because that money came from the Treasury in the first place. Take someone aged 35 on a salary of £30,000 who has worked as a civil servant for ten years. After the Treasury has paid itself tax and national insurance out of this gross salary, he will actually cost something around £23,000 to employ. His redundancy pay will be £3,500. The saving will be around £19,500 in the first year minus anything he receives in benefits (minus also knock on tax losses through him not spending as he did before). The same person in the private sector would cost the Treasury lost income tax and employee's national insurance contributions totalling about £7,000, plus lost employer's national insurance contributions of around £3,800. Benefit costs and lost knock-on effects would be the same. So, a private sector redundancy of someone of that age and on that salary costs the Revenue around £10,800 in the first year whereas a public sector redundancy saves around £19,500. In any subsequent years that he remains unemployed the figure of £10,800 stays the same but the figure of £19,500 goes up by the size of the one-off redundancy payment to £23,000. These figures are very rough and ready but they give an indication of the inescapable fact that thinning the private sector reduces net government revenues whereas thinning the public sector increases them.

Faced with the spectre of government borrowing of a size that would require massive tax hikes to be imposed when the recession is finally over, it seems obvious to my simple mind that the government should seek to reduce its revenue shortfall and thereby reduce the debt hanging over the post-recession economy. If this message gains momentum, as it might do now that The Times has dipped its toe in the waters, it might become politically feasible to question the very existence of a majority of State employment. More importantly, we might have the debate that really needs to be held into the benefits the wealth-producing private sector could provide if only it were not held back by the dead-weight cost of paying for the bloated and unproductive State.

It's a very unpleasant debate because it involves arguing that people should lose their jobs. I don't want to see a single diligent person joining the dole queue, but the issue is not about individuals it is about structure. Where a structure is fundamentally flawed it must be corrected. In the real world that impacts on real people. But if you cower away from the correction because it will be unpleasant for some in the short term, you can be assured the problem will only get worse. One day it will have to be addressed. The longer it takes, the more unpleasant the outcome will be.

Beyond reasonable doubt , 27 years on

In 1982 a man called Hodgson was convicted of murder. He confessed to killing a woman in 1979 when arrested but pleaded "not guilty" at trial and claimed he was prone to telling lies. DNA tests were science fiction at the time, but blood tests were not and his blood type matched that of the likely murderer. A jury of twelve ordinary people convicted him. In 1983 he appealed against his conviction, relying on technical legal arguments about the conduct of the trial. That appeal failed and he spent twenty seven years in prison. The 18th of March 2009 will probably be the happiest day of his life because his conviction was overturned by the Court of Appeal. It was overturned for one reason and one reason only, DNA tests carried out on the physical evidence collected thirty one years before proved that he was not the killer.

The only argument against capital punishment that I have ever found persuasive is that mistakes can be made, even where the state of knowledge at the date of trial admits of no doubt. The other arguments against the death penalty are that it is disproportionately harsh under any circumstances and that it is State-sanctioned murder that is no different from any other murder.

The first argument falls, in my view, when people such as Mussolini and Ceausescu come to be considered. Their executions healed their countries. The evil they perpetrated in ordering campaigns of mass murder created social divisions which dissolved on the very public extinction of the lives of the main perpetrators. Of course they are extreme examples, but the argument I challenge is that capital punishment cannot be allowed because it is always out of proportion to the crime. In such examples I do not believe it is, so the argument of principle must fall.

The second argument simply doesn't get off the starting-blocks. If execution following trial is to be equated to murder then imprisonment following trial must be equated to kidnapping, the imposition of a fine must be equated to theft and a community service penalty must amount to slavery. It's all a complete nonsense because it conflates penalties imposed by society collectively for breaching the most fundamental standards of that society with the standards themselves. Yet they are different things.

No doubt the case of Mr Hodgson will be used by some as a stick to beat the police. They will be entirely wrong. There is no serious suggestion that the police misbehaved in any way. Mr Hodgson had admitted the murder to others before he was even arrested. Sadly, he is one of life's unfortunates who does such things for reasons the rest of us cannot really understand. Even such people know whether they actually did what they admitted. From time to time a case arises in which they are able to find substantive evidence to support that underlying knowledge so that they get a second chance. For Mr Hodgson that chance comes at fifty-seven years of age and after spending almost half his life behind bars.

Mr Hodgson was convicted of murder because the evidence presented at his trial in 1982 satisfied a jury of twelve random citizens of his guilt beyond reasonable doubt. There is no reason to think the jury took the matter lightly. In my few years of work in the criminal courts before I concentrated my career on my abiding love of the law of contract, I appeared in only one murder trial. My client had admitted the offence in a taped interview with his experienced and highly competent solicitor sitting next to him. He pleaded "not guilty" when the case got to the Old Bailey for trial and gave hopelessly weak evidence seeking to extract himself from the overwhelming force of the evidence against him. His position really was utterly hopeless, yet the jury took hours to return a guilty verdict. They had to consider his evidence and discuss whether there might be something to his excuses. They were not wrong to take time because they, and they alone, had to decide whether a young man should be found guilty of a crime that carried a mandatory life sentence. That is a serious responsibility, exactly the same responsibility that was borne by the jury at Mr Hodgson's trial.

"Beyond reasonable doubt" can only ever mean "beyond reasonable doubt according to what we know today". In 1982 DNA was a twinkle in the eye of a Petri dish, today it is the first point of reference in many cases of sexual and/or physical assault. In ten years time we can be pretty sure that current forensic science will look like examining sheep's entrails to find proof of tomorrow's weather. Things always move on. The test for a jury in a criminal case remains the same, it is whether they are satisfied beyond reasonable doubt of the guilt of the defendant. The elements that can cause or dispel doubt do change, hence the long-overdue acquittal of Mr Hodgson.

Had he wiggled his feet beneath a hangman's noose the reversal of this particular miscarriage of justice would have been an empty gesture.

Tuesday, 17 March 2009

A sad tale

A neighbour is moving out tomorrow in very sad circumstances. She came to this area just over a year ago and bought her flat at the peak of the market. She knew it was the peak of the market but was expecting a baby and wanted a place of her own for her child to grow up in. On viewing a nearby flat she fell in love with it immediately, it was just the size, location and layout she wanted. As a professional person employed on a good salary by a good firm all was set fair. Let the property market fall, it wouldn't matter because she bought at a price she could afford and she bought a home not an investment.

Over the year after she moved in builders scurried hither and yon providing a new bathroom and kitchen, a re-wire, re-plastering ancient walls and all the other things necessary to turn a very nice flat into a very nice modern flat. And then the bombshell hit. Redundancy. All of a sudden the affordable became hopelessly unaffordable. Selling was not an option without something in the region of £50,000 in the bank to cover the difference between the likely sale price and the cost of redeeming the mortgage. So she is letting the property for the best rent she can get and moving in with a family member until such time, if ever, that her dream home can be reality again.

Of course there are thousands up and down the country facing a similar predicament and my neighbour at least has a little wriggle room in that she is a highly qualified lady for whom there is a realistic hope of a return to well paid employment in the not too distant future. In the short-term, however, she knows that as the mother of a small child there will be few positions she could take without making sacrifices over the care of her child that she is simply not prepared to make. This week has seen the removal van arrive and tomorrow she moves out, perhaps never to live here again.

Talking to her last week I was surprised at how sanguine she was about the whole thing. There was a shrug of the shoulders, a sigh and "oh well, it could be worse, I could have borrowed a lot more and then I'd really be stuck". As she explained, letting the flat gives her a chance of being able to keep it in the long term, a chance she would not have had if she had borrowed a lot more because the shortfall between loan repayments and rent would have been unsustainable. She has a chance to recover, unlike so many who have lost their jobs or will do so as the slump works its way through.

It's such a shame because she has been an excellent neighbour. It is all the more of a shame because her dream, a dream that was entirely realistic when she moved in, has been shattered. I wish her well.

Sunday, 15 March 2009

A thought on protectionism

We are beginning to see more and more references to "protectionism" in discussions of current economic woes. It is condemned from every quarter, but it seems to me that much of this criticism is overreaction caused by lack of clear definition. "Protectionism" is not a single concept or a single policy. The elements often brought under the umbrella description are a mix of legitimate political considerations and economic factors. Although some can be criticised as unnecessary or unfair, I'm not sure they cannot be defended.

At heart, protectionism is about restricting access to markets, yet there are restrictions in place at all times and in all countries. For example, immigration controls restrict access from overseas to domestic employment markets and requirements for formal qualifications restrict access to certain employment markets even for those in the country. Similarly, domestic quality control regulations (whether imposed entirely domestically or by a body such as the EU) protect markets from importers who cannot match the necessary quality threshold. And, of course, import tariffs restrict access by adding to the cost of a potential importer's goods. Tariffs might be imposed by one country against all others or, as with tariffs dictated by the EU, by a bloc of countries. All of these are protectionist measures because they protect domestic markets (narrowly or widely defined) at the expense of foreign businesses.

Each of the restrictions I have mentioned can be imposed for a range of reasons. Indeed, different countries might impose the same restrictions but for different reasons; some cultural, some economic and some political. Moreover, a country might impose the same restriction at different times for different reasons. If we have exhausted our home-grown production of a particular product but there is demand for more, we are likely to welcome supplies from overseas; when circumstances change and demand for the product falls it is perfectly legitimate to expect that demand to be met by domestic production so that the fall in demand does not have a greater impact on UK jobs than it might otherwise have. At another time there might be concern that the quality of that same product available from overseas is so far below the quality of the home-made item that thought might be given to imposing regulations which have the effect of protecting domestic producers at the expense of foreigners. The permutations are endless.

How one approaches protectionism depends, in great part, on how one views the alleged downside. What is the problem with protecting domestic markets from foreign competition? In principle there can be many, of which three stand out. Isolating your market from innovations from overseas can lead to stagnation in the quality of what you produce. We only need to look at the goods produced in the old Soviet bloc for evidence of that. Isolating your market can lead to tit-for-tat measures being taken elsewhere that do you more harm than good through lost income from exports. Isolating your market can also do enormous harm to poorer overseas countries who have grown dependent on being able to sell to you. Each of these factors will weigh differently depending on personal values, but each is capable of being a very strong argument against restricting free trade.

Ironically, many of those who argue strongest against protection of domestic markets tend to also argue strongest against free market theories. These are the one-world hippies who consider it important that the UK buys goods from tin-pot African dictatorships while doing nothing about the dictators. Of almost equal irony is current bleating from the likes of poor Gordon against American threats of protectionism. He covered this in his recent speech to Congress and paused, but applause was there none. In substance he was saying "you should not protect American businesses because it will damage British businesses", yet in saying that he is also saying "I want you to protect British businesses". You see, that is the ultimate irony in all this. We can attach the label "protectionist" or "isolationist" and seek to condemn certain positions taken in other countries, but all it ever amounts to is an argument that they should not take any step to harm us. Condemning protectionism is itself protectionist.

Then there is the purely political angle. I should say, the entirely legitimate purely political angle. It's all very well being avidly free-trade or internationalist, but every government is responsible for the people of the country it governs. That doesn't seem a very modern thing to say. These days we are harangued to be concerned about the EU more than our own country and about the whole world more than the EU, but that is just hot air. The UK government has to answer to the people of the UK, just as the US government has to answer to the people who elected it to office and the same applies in France, South Africa, Iceland, New Zealand and all points in between. It even applies to those countries whose governments have no democratic mandate. The US is adopting a "buy American" policy in its own interest because it fears the short-term damage from buying foreign rather than American. Don't forget that it wasn't so very long ago that "Buy British" was a central policy of UK governments of both parties.

The only legitimate concern for any government introducing protectionist measures is whether they will do more harm than good. They might be beneficial in the short-term but not in the long term, in which case they can be reversed when the time is right. They might not be beneficial at all, in which case that government will have to answer to its people for an error of judgment. I wrote some months ago about the absurdity of our Parliament setting targets for reductions in carbon dioxide emissions when people were at risk of dying from cold (here). That piece was titled "A simple matter of duty". The same title could apply to the correct approach to protectionist measures. It is a matter of duty for government to protect its own people first and worry about our foreign chums second. If that means taking steps that will do others harm but will provide us with a benefit then so be it.

Protectionism is not necessarily bad. It is a matter of balance, usually between short term benefit and long term detriment.

Friday, 13 March 2009

A little clear blue water

Today saw a potentially important step towards the next general election, which must be held within the next fifteen months. It seems quite a long time when you put it in months, but it will soon pass. What was witnessed today was a purely strategic move by David Cameron, the leader of the Conservatives, to put a clear dividing line between him as potential Prime Minister and poor Gordon. He made a speech acknowledging that his party did not say enough about the likely problems from excessive credit building up in the economy. As reported, it does not appear that Mr Cameron apologised for anything although the BBC was, as always, keen to dress it up in both the heading and the first paragraph as an acceptance of partial responsibility for the mess and an apology for that error. After casting aside the BBC's pro-government slant, I asked myself what Mr Cameron was playing at.

The current government has a majority over all other parties in the House of Commons of, I believe, sixty seats. This is a sufficient majority to ensure passage of all but the most controversial measures it puts forward. Their majorities following the general elections of 1997 and 2002 exceeded one hundred seats. There has never been the slightest sniff of poor Gordon's economic conjuring tricks being voted down over the last twelve years no matter how strongly the Conservatives argued for a different strategy. Not just that, but the current government does not share the content of detailed civil service briefings with the opposition, so Mr Cameron's party has not had anything like as much inside information as poor Gordon and his merry men. The consequence of this is that there was absolutely nothing Mr Cameron's party could have done to prevent or limit poor Gordon's boom of doom.

So why has he expressed regret about not opposing the government more vociferously? And why has he done so now? I cannot speak for him, but from the comfort of FatBigot Towers it seems to me that his speech is all about showing himself to be humble and subject to human fallibility so as to show up poor Gordon's utter lack of these qualities. It's actually a nice little two-pronged attack. First, we see a sensible man leading the opposition compared to the dysfunctional Prime Minister. The second prong is a little more subtle. Mr Cameron is saying, in substance, "if only we'd told him, it might have helped" followed by a deep sigh of remorse. That raises the question whether it would have helped. When we ask that question the only possible answer is that it would not have changed the disastrous course the government was following. Poor Gordon is shown up yet again, he cannot turn round and say "you should have told me and then I would have changed course" because we know it would have made no difference. So, rather than Mr Cameron saying his party is partly to blame we find that it is not to blame at all because there was nothing that could be done to infiltrate the Brownian thick skull.

And why now? To have done so immediately after poor Gordon's rant to journalists about being entirely free of blame for the recession would have sounded opportunist. Let the story circulate, let the message sink in that poor Gordon has completely lost grasp of reality and once that is the current mind-set of the sturdy Brits, hammer the contrast home and widen the gap between how the incumbent is perceived and how the only potential alternative Prime Minister is perceived. It's rather a neat move.

There are still those who seek to dismiss the Conservatives as a credible alternative government by arguing that they do not have a comprehensive policy platform. In fact the only area in which their likely policies at the general election have not been spelled out in detail is the economy. No doubt they could have shouted about their other prospective policies rather more than they have, but it would have been pretty pointless over the last year or so when everything has been so dominated by the threat of recession and now the threat of depression. In this respect things are rather different from the final year of John Major's administration. At that time the economy was genuinely strong and stable, perhaps more so than at any time since the War. His government was being questioned not about the state of the economy but about other matters including the perceived under-funding of health and education. A smell of overall staleness and a sense that they'd had their time were pervasive messages, pressed home by a Labour opposition with new, alternative policies. Those policies were, in many respects, less worked-through than the initiatives the Conservatives have published in recent months, yet they were in the public eye and they caught that eye by seeming to be different.

Much can change in the next year, just as it has in the last. The formulation of a credible economic policy simply cannot happen today because it could be blown apart tomorrow, as the government is seeing with its own panicky efforts to sort out the mess. One pattern that is already set is that the government has chosen the route of bigger and bigger national (and international) government as the answer to all woes. Those of us who believe it a sure-fire failure have little to achieve by putting forward a structurally different proposal to deal with things as at Friday the thirteenth of March 2009. If our opinion of the government's preferred option is correct, by the middle of summer our own preferred structure will need substantial amendment. Mr Cameron and his team know this. Their best tactic is to sit back, watch initiatives and interventions fall flat and present their own fully-formed alternative only when it is too late for poor Gordon to steal it, implement it, watch it fail and blame the Conservatives.

Mr Cameron would do well to continue highlighting not just the government's failures but also the difference between his calmness and openness and poor Gordon's secretive panic. Today was a good start, let's see if he can keep it up.

Thursday, 12 March 2009

An idea from Bexhill-on-Sea

An interesting contribution in the Letters columns of The Times today came from someone in Bexhill-on-Sea. She suggested that, instead of the government pouring money into banks, it should pay-off personal indebtedness so that the economy could be revived by the little people spending again. She wrote: "This would make it possible for people to spend money again on large items, such as cars and furniture; it would kickstart the housing market ..." At this point I felt an icy shiver down the spine, but there was worse to come. "Rather than heap blame on those in debt, let us instead remember that if it were not for people's willingness to go into debt we would never have had a boom in the first place." Her proposal is to wipe-off all personal debt (although not made clear in the letter, it seems home-purchase loans would not be included).

There is a certain illusory logic to her argument because a lot more jobs are directly dependent on the continuing flow of little individual transactions through the tills of small businesses than on the result of individual corporate mega-deals or huge lumps of inter-bank lending. Eradicating current personal indebtedness would give people more spending power, but not, I think, in the way she suggested.

You see, there are two very different aspects to the effect of credit on consumer spending and they work against each other. On the one hand, expanding credit gives people more money to spend today. On the other hand, once they have taken out credit they have less money to spend tomorrow. The reason they have less money to spend tomorrow is because tomorrow they have to pay interest on the money they spent today and they have to repay the capital debt. If you wipe-off a debt of £5,000 today the only additional money made available for the happy beneficiary to spend tomorrow is the money they would otherwise use servicing that debt.

A quick bit of research suggests to me that average credit card interest rates are currently somewhere north of 20%pa. Call it 24% and, to keep it all nice and simple, let's call that 2% a month. If you owe £5,000 and have to pay 2% a month, you are forking out £100 each month. No doubt additional spending power of £100 a month for all those currently owing £5,000 or more on credit cards could make a significant difference to the small shopkeepers of the country. Ah, but maybe not as much as we might hope. Those who actually owe £10,000 and have seen their monthly repayments rise from £75 to £200 might think better of spending their additional £100 a month booty, and use it instead to make additional repayments against the other £5,000 they owe, after all they have to pay very hefty interest on it. Nonetheless, wiping-off a certain level of consumer indebtedness would free-up some extra spending money and this could save jobs.

The other way businesses could be saved is by those who have had a certain amount of debt paid for them borrowing the same amount again. In the example I have given, you find the government paying-off £5,000 so you rack-up another £5,000 on your piece of plastic by feeding your addiction to unnecessary fripperies. That throws money into the tills of the shops selling fridges with two doors, suitcases with wheels and little wooden racks full of decorative thimbles. But once it's spent, it's spent. Then you are in the position you were before the government gave you another £5,000, namely you are stuck with a £10,000 debt.

Credit does not provide limitless opportunities for ever-expanding consumer spending because the day must always come when the cost of repaying what you have already borrowed becomes so high that you cannot afford to borrow any more. In other words, the limit to consumer credit lies not in the amount of credit offered but in the amount of money available to repay the borrowing.

For months I have been bleating like a deranged goat about the problem of unsustainable credit. That is not to say that all credit is unsustainable. Credit is a facility to allow us to pay over time for something we wish to possess today. Large purchases, such as houses and cars, are not readily affordable for most people without credit. Every prospective purchaser has to balance how much he can afford to repay out of his monthly income against the desirability of having the thing now rather than saving up and having it later. Some conclude that they cannot afford a car at all, others buy one for £3,000 over five years, others buy one for £40,000 over three years; what can be afforded is a matter for individual budgets. The one inescapable fact is that you can only repay what you can afford to repay. When it comes to smaller things costing just a few hundred pounds - beds, televisions, chairs, dishwashers and the like - credit allows people to buy them a little bit earlier than if they had saved but overall it just makes them much more expensive than they would otherwise be.

The essential difference between sustainable and unsustainable credit is that sustainable credit is based on fact and unsustainable credit is based on unrealistic hope. Sustainable credit is paid for now from money you have and in the future from money you reasonably expect to have. Unsustainable credit is paid for now from money you either have or borrow, and in the future from money you can only hope to receive.

The correspondent's proposal is for all personal debt (excluding home-purchase loans) to be wiped-off, not just part. It seems to carry with it the necessity not to allow such indebtedness to arise again. I will leave to one side the obvious moral argument that it is obscene to allow the spendthrift to wallow in thousands of pounds worth of fancy home cinema arrangements and other electronic wizardry they acquired on the never-never while the prudent make do with a small fat telly, a single-doored fridge and the abject poverty of no bidet. I will also leave aside the obvious fact that everyone will have to pay the cost of the write-off because it won't just happen by magic. How, as she suggests, will the big purchases be made? Cars will be just as unaffordable without credit as they have been for years. Her other example was furniture, much of that could be saved for over a relatively short period without undue difficulty, but while it is being saved for other purchases will be forgone. And how will it kick-start the housing market? (Not that I am suggesting for one second that the housing market should do anything other than fall by another 20% or so to reach a genuinely affordable level.)

The answer, of course, is that the big purchases will still need credit and restricting credit for small purchases cannot affect the housing market directly. The only likely consequence of wiping-off existing credit card and personal loan debt is that cash spending in shops will increase. I certainly don't have a problem with the concept that that would save many small businesses, both shops and those who supply them. It will transfer some spending from finance companies to florists and from banks to bakeries. But it won't do anything for big purchases.

Therein lies both the strength and the weakness of her suggestion. Insofar as she wants to eradicate some of the means by which people have borrowed beyond their capacity to repay, I am with her all the way. I would happily see credit cards abolished tomorrow without shedding even one thousandth of a tear. They cause far more trouble than they are worth. Yet the fact remains that many businesses became dependent on the short-term additional sales they made to people using expensive forms of personal credit. Those businesses are first in the firing line if consumer credit is restricted heavily. The reason they are in jeopardy is that they were built on a foundation of pretend money. Remove the pretend money and you have a necessarily more stable economy, albeit one with a smaller overall turnover than before.

That is what poor Gordon's boom of doom was based on - an awful lot of people borrowing more than they could afford to repay. The correspondent from Bexhill wrote "... if it were not for people's willingness to go into debt we would never have had a boom in the first place", as though the boom were a good thing and something we should seek to replicate and continue to the end of time. The boom was never anything more than a bust waiting to happen because the time had to come when the unaffordability of a massive chunk of consumer credit could no longer be hidden inside yet further personal borrowing. Payback day had to arrive.

The problems arising when payback day arrives depend on many factors. As things have turned out its arrival coincided with, and perhaps was brought forward by, the pickle banks got themselves into. Yet even without current banking problems there was a structural difficulty caused by overspending. As people spend more over a lengthy period businesses react to increased receipts by expanding to meet perceived future demand. Shops hire more staff because they are busier, they open more branches because they expect to be busier still; their new staff earn money which they spend in other shops who also expand, and so the whole merry-go-round turns.

It all seems so wonderful until you realise that a proportion of the money being spent must dry up when the credit card is full. It would be a different day for different people, but eventually it would have to happen to so many people that overall spending on the optional extras of life would slow down. And where does that leave the shops? There's less in the till yet fixed costs remain the same, and there's the new branch they have just opened and which isn't yet covering the rent. Something has to give. What gives first is the most flexible of all costs, wages, and that means jobs. And lost jobs means lost income for the unlucky few. And lost income for them means less spending by them. And less spending by them means more lost jobs elsewhere. Of course it's not just shops but they are a good illustration of the problem.

We can "boom" our way out of recession, as called for by the letter I am discussing, but we can only do so for a short time. The same structural problem of unsustainable credit that we are now witnessing will happen again and again because there really is no such thing as a free lunch. Make Mr Visa pay for lunch today and it might seem free, but you will have to pay the price eventually and you'll pay him 2% a month in the meantime. No one should look on poor Gordon's boom of doom as anything but a disaster. It might have seemed great for those who found jobs and enjoyed a decent income for a few years, but too many of them are now in more pain than if they had never had the job in the first place. And, sadly, there are many more who will find themselves in that position in the months ahead.