Monday, 28 June 2010

Mission accomplished, now let's play cricket

It took a special combination of organisational incompetence and lack of will for our brave lads to manipulate themselves into a severe thrashing at the hands of the Hun.

I watched the first half and knew that the purple patch of flowing football played by England just before going in for a cup of tea and half an orange would be addressed by the German coaching staff. And so it was, according to the radio commentary I heard intermittently during the last 45 minutes.

What a contrast the two teams were. With one or two exceptions England had all the flair and experience but in this match as in the first three they were forced to play in a way that was not natural for most of the players. Germany, on the other hand, have a system and their players are selected for their ability to play to that system (a system which is itself devised with the main strengths of their best players in mind). If you want to produce a harmonious and fluent barbershop sound it's best not to pick Shirley Bassey, Englebert Humperdinck, Celine Dion and Tom Jones and tell each of them they are the star of the show.

Yes, Mr Lampard scored a perfectly good equaliser when the score was 2-1 in favour of Fritz and things might, just might, have been different had the referee and linesman's view not been impaired by brown envelopes stuffed with newly printed Euros. Nonetheless, the Krauts would have solidified their midfield and defence at half time just as they did with the score at 2-1.

Overall England's tournament was the shambles predicted here just two weeks ago. At least South Africa's reserve team is giving us a little pride on the cricket field.

Sunday, 27 June 2010

Economic structure is more important than detail

Now that some tentative first steps have been taken on the long path to reducing government spending to affordable levels it is worth asking whether the forecasts included in the Budget papers are as important as the shift of emphasis away from big government. I don't mean the "structural deficit" because that is just a way of describing part of the shortfall between spending and income. I mean the general ethos of reducing the influence of government in people's lives and, therefore, reducing the cost of government.

What is it that those who bail-out bankrupt governments require? One thing first - reduced government spending. Other conditions apply in most cases, but that is and always will be the first requirement. No individual, company, council, state or nation can stay solvent if it spends more than it can afford to repay. Our Keynesian friends babble on about the knock-on effects of reduced spending and argue that cuts now result in the loss of later gains that their spending choices would deliver.

How can the International Monetary Fund and the European Central Bank require spending to be cut hard and quickly if the effect of doing so is to make the borrower country less able to repay the loan? Yet they do impose that requirement whenever they lend to a western government. It is sheer madness according to the ex-Chancellor Mr Darling and now according to the current US President, Mr Obama, who has encouraged European governments to continue trying to stoke-up consumer demand. Both sides cannot be right. It cannot even sensibly be said that they are addressing different issues because the lenders need to be repaid over time and any step taken now that limits the chance of being repaid next year is not one they would be wise to encourage.

I wonder whether the key to understanding the apparent conflict lies not in economics but in politics. It is good politics to be able to boast of economic growth. We saw that first-hand in the UK as the housing price bubble delivered votes for the Labour government because it made people feel wealthier and allowed them to borrow and spend against their new-found wealth. For very obvious reasons the government claimed credit for that feel-good factor and, when the level of unaffordable debt was exposed, distanced itself from the other side of the bubble coin. So far the new government has not taken any steps to deflate the house price bubble because they know it could lose votes.

Interestingly, under John Major's government house prices fell hugely between 1989 and about 1991 and then flat-lined for a few years. During that period came the general election of 1992 and little evidence appeared that deflation of the house price bubble cost the government any substantial number of votes. I didn't hear anyone blaming the government for the nominal value of their house falling by more than half because they knew it had jumped artificially and very quickly in the previous few years. As an example, some friends of mine had their house valued at £375,000 in 1989 and at £150,000 in 1992, they had bought for about £120,000 in 1986. In a six-year period it had risen in value by 25%, an average of more than 4% a year which wasn't all that far away from general inflation. The huge spike was not real and people knew it was not real. The recent huge spike is not real and people know it is not real but the game has changed somewhat because far more people have borrowed against the bubble equity. Now bursting that bubble would raise fears that didn't arise to the same extent eighteen or so years ago.

Not only do people feel wealthier if they are told the "value" of their home has increased, they also feel the country is wealthier if GDP rises. There is no counterbalancing factor of the type evidenced by perceptions of the false spike of house prices in the late 1980s, yet the situation is the same. Why did GDP rise constantly through the 2000s? Of course numerous factors applied but one was the increased economic activity caused by borrowing money we could not afford to repay. Every time quarterly figures appear and inform us that GDP has risen by 2.7% is seems to be treated as setting a new lower benchmark for the acceptable level of economic activity in the country. We have achieved a level of activity and will suffer if that level of activity falls, or so goes the theory. It is as artificial as my friends' house going up in "value" from £120,000 to £375,000 because it has foundations of sand.

To Mr Obama and Mr Darling the maintenance of a falsely inflated GDP figure is an end in itself, presumably because of the possible political consequences of the figure falling. They cannot want to maintain that false and unaffordable level of GDP for reasons of economics because the price of continuing to spend more than you can afford is serious long-term penury. The lenders and the governments of European countries seem to take the view that it is time to stop pretending that unaffordable consumer debt should be replaced by unaffordable government debt simply to maintain a level of economic activity that is necessarily dependent on unaffordable debt.

It really doesn't matter if this approach leads to a fall-back into recession because the substance of the matter will be that the economy shrinks to the size we can afford rather than being kept at a size we cannot afford. At the moment the structure is wrong. Getting the structure right is the only way of ensuring both stability and affordability in the future. To my mind it is far more important than the technical detail of whether GDP is going up, down, in, out or shaking it all about. If our current government had the courage to include deflation of the housing bubble in its plan we could get there much quicker. It doesn't matter whether their predictions are accurate, what matters is that the balance of the economy - the structure - is sustainable. They could be billions out in their predictions of borrowing and spending levels a couple of years down the line, but that will not concern those on whom they rely to fund our broken economy while the costs of Gordon Brown's decade of incompetence are wrung out bit by bit.

While throwing these words together I noticed that the good Mr Economicus has written on the same subject in far more erudite terms, he is always worth a read (his marvelous piece on the illusion of GDP should be branded into the wallpaper at the Treasury).

Thursday, 24 June 2010

Final humiliation postponed until Sunday - updated

Our boys played rather well against Slovenia, apart from the first fifteen minutes and the last ten. Mr Milner on the right was highly effective, not least because the ball was kicked to him from time to time and Mr Gerrard stayed on the left (well, he is from Liverpool) rather than straying infield and getting in everyone's way. Mr Terry organised the defence extremely well but still holes opened and we only scraped a 1-0 victory. Still, it was enough to progress to the next round.

Germany. On Sunday. Oh well, there's another one in four years.

Oh dear

Monday, 21 June 2010

Should VAT rise?

When government has been spending more than it has received it faces the obvious choice of spending less or increasing its revenue. There is much mumbling about tomorrow's budget containing an increase in the rate of VAT - perhaps by increasing the rate from 17.5% or by making VAT chargeable on items currently exempt such as food or by introducing variable rates to that some items are charged at a higher rate.

VAT is a curious tax because it operates in different ways in different situations.

Take a manufacturer of chairs. He buys raw materials costing £100 plus VAT. He is registered for VAT so he can reclaim the VAT he pays on those materials, they actually cost him £100. It costs him £70 to turn those materials into a chair. So it costs him £170 to make a chair. One might think he could sell the chair for £190 and make a profit of £20, but not so because he must charge VAT at 17.5%. If he sold at £190 that would comprise £161.70 plus VAT of £28.30 (£28.30 being 17.5% of £161.70). In order to cover his costs he must sell for at least £199.75. As the good Mr Wadsworth has pointed out, in this situation VAT is a cost to business rather than a sales tax.

On the other hand, take a lawyer. He charges £100 an hour plus VAT. His customer is billed £117.50 for every hour. A customer who is registered for VAT and incurs the charge in the course of his business can reclaim the VAT, so he actually pays £100 an hour. Mr Ordinary who wants advice about his neighbour's intrusive hedge (a quality my hedge no longer has) must pay £117.50 an hour and cannot reclaim the VAT. Different customers are paying different amounts for the same thing although the lawyer receives the same amount.

In practice work done for commercial clients often incurs a higher charging rate. One reason for this is that those who can claim back the VAT can be charged more yet still end up paying less than Mr Ordinary. For example, charging £115 an hour plus VAT costs the client £115 an hour because he gets the tax back. The real winner is the lawyer, a win he would not be able to secure if it weren't for VAT.

Then take the effect of VAT on those with fixed spending power. Mr Average has £100 a week to spend after council tax. He must buy food, electricity, gas, water, transport, clothes, furniture and appliances for his home and everything else he might want out of £100 a week. In his mind all potential expenditure is graded according to importance. If food goes up he might opt for cheaper baked beans but he must still eat, there is only so much he can do to reduce his food bill. So also with electricity gas and water, he might be able to reduce consumption but that can only be done to a certain extent. If the prices of these items go up because of additional VAT the suppliers might be able to absorb some of the additional cost (thereby reducing profit margins and tax receipts, as per the manufacturer of chairs) but they can only absorb so much. Mr Average will find his spending power eroded and it is inevitable that the items dropped from his list of desires will be items that are subject to VAT. The new telly waits until next year, the holiday at the Happy Camper Caravan Boutique is not taken, old trousers are mended not replaced.

There might be a slight increase in tax revenues (at the cost of Mr Average's standard of living falling) but only to the extent that he pays more in VAT out of his £100 than he would otherwise have done. It is not a one-way street, however, because he has to forgo things he would otherwise have bought and on which he would have paid VAT and on which the recipient of his cash would have paid tax. To take a simple illustration, say £70 out of his £100 was previously spent on VAT-able purchases (meaning, in effect, he spent £30 on non-VAT-able food). Out of that £70 of spending the VAT is £10.43, so he paid £10.43 in tax and £89.57 on goodies. Increase the range of foods on which VAT is charged and increase the rate so that £80 is spent on VAT-able items and the rate is 20% not 17.5% and he pays £13.33 in tax. He also has £13.33 less to spend. At the old VAT rate of 17.5% that sum of £13.33 would have generated £1.98 in VAT, so the revenue gains £2.90 (£13.33 - £10.43) but loses £1.98, a nett gain of 92p and it loses income or corporation taxes on the £13.33 he no longer spends at Mr Patel's Merry Mart.

Increasing VAT for Mr Average is hardly worthwhile and might actually lose tax revenue. Where an increase will be effective in raising revenue is in forcing people with some spare cash to divert some that would otherwise be saved in order to protect their standard of living. Mr Above-Average might have £120 a week to spend but be in the habit of saving £20. His spending habits are the same as Mr Average but, on the figures I have used above, he can afford to spend an extra £13.33 a week (or part thereof) to keep his standard of living roughly the same.

And then there is the black economy, that mysterious part of the turnover of builders, plumbers, electricians and the like who are always extremely busy but never disclose sufficient turnover to make them register for VAT. Saving £35 on a £200 job by using Dave Dodgy rather than Colin Clean turns into a saving of £40 if VAT rises to 20%, many a Colin might then find himself tempted to join Dave on the wrong side of the fence to retain business, thereby losing the Treasury all the VAT he previously generated.

As a generator of tax revenue VAT relies on chair manufacturers being able to sell their goods at a substantial profit, on consumers maintaining their spending and eating into reserves (or borrowing) and on businesses not keeping money off the books. The higher the VAT rate, the greater the price of a chair must be to break even, the more consumers must eat into reserves (or borrow) and the greater the temptation for businesses to hide their turnover (there are legitimate ways of doing this). It might result in a boost of revenue but the price is a high one because of the consequences to the Treasury and to the economy as a whole of these three factors.

Friday, 18 June 2010

Second humiliation achieved with room to spare

Algeria. Yes, Algeria. Our multi-millionaire nancy boys scrambled to a nil-nil draw against Algeria. There is only one thing you need to know about the Algerian national team. Any Algerian players with the talent to play football at the highest level play for France like Zingazang Zebedee, or whatever his name was. The remainder form a team on a par with Outer Mongolia, Nepal and Scotland. And we could only manage a nil-nil draw.

Looking on as an outsider to the finer points of the game of international ball-kicking it seemed obvious what went wrong. Both the manager and Mr Beckham, hired to act as an inspiration for the lads, wore poorly cut single breasted light grey suits. Neither leadership nor inspiration can come from anyone dressed like a deputy librarian.

On the right we had Mr Johnson and Mr Lennon, both fleet-footed players who should trouble any defence. For most of the game Mr Johnson did most of the attacking along the right wing, it would have been easy for Mr Lennon to have done some too if only he had been passed the ball. Nothing either of them did caused any trouble to the Algerian defenders and I know why. Tattoos. Both are heavily tattooed and were worried that too much sweating might make the ink run.

On the left we had Mr Cole in defence, who did well, while the attacking was in the hands of ... I'll have a think and see if any example comes to mind.

Except for a five minute spell shortly before half time there was no sign of anyone wanting to take control of midfield. During that exceptional period there were short passes galore to by-pass and befuddle the mediocre opposition, but then nothing.

Curiously Mr Rooney, the fast footed but slow brained thug on whom so many of our slender hopes are pinned, seemed determined not to get his kit dirty. It was very kind of him to keep the national laundry bill down but he should be told that we would prefer him to make at least a little effort every few minutes.

Overall it was a shapeless, disorganised and thoroughly incompetent performance agaist spirited but limited opponents. A true World Cup humiliation.

Two down, one to go.

Thursday, 17 June 2010

Hedging my bets

Hedges are the finest protection against traffic noise yet devised, a two foot depth of dense leaves allows little sound to permeate, it also provides privacy from passing prying noses. Unfortunately they need quite a lot of work to keep them in good order. The time has come for the hedge at FatBigot Towers to undergo its five-yearly thinning.

It's all about leaves, you see. Leaves grow on relatively young wood. Once a stem has been in place for four or more years it tends not to produce leaves - that task is passed on to the fresher wood higher up the plant because that wood is more exposed to the sun and one of the main purposes of leaves is photosynthesis. There is little point wasting your energy sprouting leaves at the base when far more productive growth can take place further up. Also, the taller the plant the more shade it casts on itself, thereby making basal leaves even less effective. That is why old hedges often develop gaps at the base. The precise way your hedge will behave depends on its position and the type of plant it is, box grows differently from privet which is different from laurel or yew. Most hedges in London are privet, as is that at my modest hovel.

To keep a decent thickness of foliage towards the bottom of the plant you have to take out old stems that no longer deliver the goods. New shoots will emerge from the stump and, being new growth, will grow leaves as soon as they can - namely, while they are still quite short - thereby filling the gap.

One of the perverse pleasures of thinning a hedge is that the whole thing looks a complete mess if you've done it properly. Where there were thick stems and no leaves there are now no thick stems, so the gap is larger than it was before. And while you're doing the job you might as well give the whole thing a big trim back both in height and depth because they have the habit of expanding gradually year by year. This removes green leaves and exposes brown twigs, so you end up with an oblongy shape of apparently dead brush and a series of big holes at the base. On completion of the task I stand back and admire my handiwork, only to receive looks of dismay and disgust from all non-horticultural types who happen to be passing by. But I get the last laugh because a few handfuls of bonemeal and a good watering (for the hedge, not me) should result in the whole thing turning into a dense mass of bright green deliciousness within just a few weeks.

This task was last undertaken five years ago. It took all weekend and on the Monday I was in an ambulance on my way to the coronary care unit. Causation or coincidence? Over the next few days I hope to find out.

Monday, 14 June 2010

You'd have to be ill to risk this illness

I have just read an item on the BBC news website. It reports American research as showing that showerheads are breeding grounds for bacteria. No one should be surprised at that, I am sure I've read it before and it's obvious anyway. When you turn off the shower some water remains lodged in the showerhead and sits there until the next time it is used. All sorts of little buglets can make themselves cosy in the once warm water and breed as only buglets do. In a few hours there might be millions of the blighters. What terribly dangerous things showers are. Until you turn them on, at which point the little buggers get flushed out. Some, no doubt, will remain and expose you to a risk lower than you take by washing yesterday's dinner plates by hand.

The line that particularly caught my attention said "If you are getting a face full of water when you first turn your shower on, that means you are probably getting a particularly high load of Mycobacterium avium, which may not be too healthy". OK, we'll allow him "may" when he meant "might". There is clearly no need for panic, to add to the lack of need for this sort of pointless research. Getting a particularly high load of something with a long name is only potentially "not too ... healthy", so there's not much to worry about.

Ah, but there is something to worry about and it is nothing to do with long words to describe very small things. You can only get "a face full of water when you first turn your shower on" if you are a complete moron. You might like a cold shower, you might like it hot, or you might like it somewhere in between, but you cannot know the temperature of the water until it is running and has established its par temperature. Even the best thermostatically controlled showers do not deliver water instantly at the temperature chosen by the fastidious user. You have to wait for it to run a while mixing hot and cold so that your desires can be met. Only a fool would stand under a shower, turn it on and hope for the best.

I have a vague recollection from a couple of years ago of people suing hotels because they were either scalded of frozen by the water from the shower. Obviously morons do exist and use hotel showers despite not knowing the temperature setting of the device. Even in the home someone might have changed the thermostatic control without you noticing or, if you have a basic mixer tap the hot might be hotter or less hot than it was yesterday so you have to test it with a hand or some other part of your anatomy that is more able to withstand variations than your most tender regions.

This is all so obvious that to stand under a shower and turn it on can be the practice of only the seriously mentally ill. Anyone unable to cope with such a simple exercise without putting themselves in peril of burns or chilblains will hardly worry about also getting a high dose of bacteria. And if you don't clean the showerhead you also deserve everything you get.

What a load of twaddle.

Sunday, 13 June 2010

One humiliation accomplished, two to go

We played America. Not at baseball or basketball but at what they like to call "sacker". Some say America is a force to be reckoned with in the game of ball-kicking, after all four of the team have played in the English Premier League and most of the others have experience of playing (usually in the reserves and lower leagues) in Europe.

Our boys all play in the Premier League. We have defenders who know how to defend against good players, the American team has defenders who struggle to get a game for their clubs when the forwards who would oppose them are no great shakes. We have midfielders who control matches against the best sides in the world, they have two chaps of no interest to any big club in the world. We have strikers who score goals from impossible positions, they have a man with the first name Landon.

We scored early on, a very good goal. Perhaps it was the worst possible start because it encouraged the overpaid nancy boys to think it would be a stroll in the park. Mr Rooney, a player of even smaller brain than his star predecessor Mr Gascoine, couldn't understand why the lesser beings of the American opposition were not moving out of the way to let him through and stopped trying. Mr Lampard, a fine player and one of the few articulate chaps in the squad never got going - as is so often the case when he plays alongside his footballing clone Mr Gerrard. No one seemed to know what to do and the team simply did not play as a team.

The goalie will get the blame because of his Sprake-esque error. In truth it shouldn't have mattered had he let in three flukey goals because England should have scored enough to ensure a comfortable victory.

I have had a feeling of doom about this World Cup campaign for several months. Of course you never know what will happen next because many a side has performed badly in its first match only to improve enormously with each further contest. Somehow I can't see it this time. There is no sign of a core strategy, a style of play that reflects both the combined talents of the players and the style of play that has made them successful in domestic football.

Alf Ramsey had a strategy designed to bring the best from the squad. It was a reflective strategy based on the qualities the players showed every week for their clubs rather than being an idealistic plan with which the players were forced to comply. He adopted that strategy by observing how most of his available players played best and selected his squad with that strategy in mind, leaving out some very good players because they were too individualistic whereas those he selected played best when adopting the same team format. Bobby Robson did the same, albeit with the exception of picking Mr Gascoine and forcing him to comply to the pattern that was natural to the rest of the squad.

Against America England did not play as a team. There was no sign that they were playing to a collective plan nor that they were playing together in a way that felt natural for them. To draw 1-1 against a side with one of the weakest central defensive formations in the tournament is nothing less than abject failure. Next we face Algeria. I will be in the curry house, which has installed a telly at the back of the restaurant. We might scrape a win, my guess is another 1-1 draw with Rooney getting a yellow card by kicking a small Arab in retaliation for a gibe about his ears. The final match might result in a slender victory against Slovenia but the USA will beat both those teams and score more goals than us; so Slovenia v Algeria will decide the fate of our brave lads.

Oh well, there will be another one in four year's time.

Friday, 11 June 2010

The problem with new graduates

By coincidence, the subject raised in Mr Stan's latest missive cropped up in conversation today when I chewed the fat with a couple of old friends. Mr Stan pointed out the futility of pushing up to fifty percent (by number, not amputation) of young people into university and saddling them with huge debts to pay for course fees and maintenance costs and he proposed a way out. The friends I was talking to included a chap in his forties whose son has just finished a degree in International Studies, or something like.

I recall talking to the boy about it before he went to an obscure midlands Polytechnic that used to specialise in engineering draughtsmanship until it pretended to be a university and started creaming in fees for courses in waffly nonsense. It doesn't offer courses in engineering draughtsmanship any more, that would be far too useful. He explained that the course concentrated on the study of international organisations like the UN and its many sub-constructs. It seemed to me to be just the sort of thing you should pay for if you want to waste three years of your life. But I digress.

The boy's father said his son was about to graduate and had been looking for work. The positions he seemed likely to be able to fill were just the sorts of jobs he could have obtained three years ago as a school-leaver with A-levels. Of course he is not an 18 year-old with A-levels he is a 21 year-old with a degree, yet his starting rung on the ladder of work appears to be what it was three years ago.

This doesn't surprise me because the "old-fashioned" demarcation between "graduate jobs" and "non-graduate jobs" was based on substance not pieces of paper. Some jobs required young people whose brains had been extended by true academic study so that they had something extra to offer by reason of their advanced education. That is not to say that others could not move into those positions by proving themselves to have the wherewithal despite not having had the formal academic training, but the job required an extended mind so graduates were the first port of call for the employer. It presupposed that a university degree in certain subjects would equip the graduate with the necessary skills. Employers learned over time which universities and courses produced people best suited for junior positions in their businesses. I do not ignore that any degree course will provide a graduate with knowledge he or she would not otherwise have but acquiring knowledge is different from brain-training.

I suppose it is inevitable that having more people going to university will not change job prospects very much. After all the presence of more graduates cannot create new "graduate jobs". The same jobs are available whether the applicants have been to university or not because businesses need what they need and those needs do not change when more applicants have more certificates.

Two rather unfortunate consequences flow from this. One is that graduates, like my friend's son, find they are no better placed than they were when they left school; indeed they are in a worse position because they now have heavy debts to pay off. The other is that many first degrees are not valued by employers any greater than they value A-levels, so youngsters with first degrees in nonsense from the new wave of quasi-universities are under pressure to commit more money and more time to obtaining a Master's degree in the hope that it will provide an edge when the time for work comes. That is the course my friend's son is minded to follow because his first degree appears to give him no advantage over a school-leaver.

The other friend involved in the conversation has a granddaughter who has been offered a job provided she completes a Master's degree. Ten years ago that job would have required only a 2:2 Bachelor's degree but now everyone seems to receive a 2:1 or First so the prospective employer has upped the stakes. She and/or her parents will incur another £15,000 of debt in order for that extra degree to be obtained.

Except in the fields of work in which specialist qualifications are required we seem to be approaching a position in which most bachelor's degrees from most universities carry no more weight than A-levels. I find it desperately sad to hear of graduates working in call centres or as junior managers in fast food outlets. The sadness is not in the fact that the particular people are in those particular jobs, they might be exactly the right jobs for them. The sadness is in the false expectation generated in the teenagers who have been pumped into universities.

"Get a degree and you'll get a better job" is patent nonsense, although it was exactly the lie told to justify the last government's target of half the country going to university. There is no sea of unfilled jobs that can only be filled if there are more graduates. Nor are there very many positions in which a degree will allow a junior employee to perform better than he would had he started at eighteen and worked at it for three years rather than being at university for that period.

I have known my friend's son since he was one year old. He is not academically gifted. He's far from thick but he could never do a job that required someone clever. He wants a "graduate job" because he is a graduate. He will be disappointed, all the more so for having a student loan to repay when he finally starts work. My other friend's granddaughter is academically gifted. She already has the qualification to do the job she wants to do, but because the market is flooded with young people with degrees she has to spend another year and a lot of money getting a qualification she does not need.

It's a real dog's breakfast. It's also a classic example of the consequences of government seeking short-term popularity by promising benefits it could never deliver. The result is not young people springing into splendidly well payed jobs that did not exist before, it is young people doing the same job they would always have done but starting it later and with thousands of pounds of debt around their neck.

Wednesday, 9 June 2010

Cuts for the long term

It has been interesting to read the reaction of ministers under the previous government to the news that government spending is to be cut hard as soon as possible. Their position is being led by the former Chancellor Alistair Darling. His argument now, as during the recent election campaign, is that government expenditure must be maintained to keep sales churning and should only be reduced when the economy is producing more so that private sector demand is already in place to take over and fuel consumerism when government demand is reduced.

More interesting has been the position taken by the IMF and the European Central Bank in relation to the collapsing Euro-zone economies, a position echoed belatedly by one former minister in the last government. They are all citing the structure of an economy as being more important than transient issues such as this year's level of consumer demand. Yet again my mind goes back to 1976 when the previous Labour government had to beg a massive cash injection from the IMF in order to be able to pay its bills. Among the conditions attached to the IMF loan was a requirement to reduce government spending. Among the conditions attached to the bail-out of bankrupt Greece is a requirement to reduce government expenditure. Among the criticisms of his former colleagues made by ex-minister Lord Myners is their failure to recognise the need to reduce government expenditure.

Mr Darling's argument looks only at the short term. In a way that is understandable. Politicians are scared of some words, one of which is recession. If you can avoid, delay, soften or end recession any path that achieved that end is attractive to those whose careers depend on recession being avoided, delayed, softened or ended. The problem is that it looks at the wrong measure. Recession is, of itself, a pretty meaningless concept. What does it matter if Gross Domestic Product falls by 1% for two consecutive quarters? Why is that awful whereas one quarter's fall of 2% is ok provided the next quarter does not also decline? The answer does not lie in the magic word "recession" it lies in the causes of a sustained fall in economic activity. That there is a sustained fall is consistent with there being an underlying fault but it is not proof that any such fault exists, so recession of itself proves nothing. Similarly a consistent rise in economic activity does not prove that the economy is healthy because the rise might be caused by an unsustainable bubble of credit, as we have seen recently.

The long-term health of a national economy can only be assessed by looking at the overall structure of things and judging whether it is affordable in the long term. In this exercise both the quantity and quality of government expenditure figure large because government takes such an enormous share of national income. Importantly, it is necessary to look at both quantity and quality of government spending because they each have a significant impact albeit in different ways.

The quality issue is being addressed by such matters as ditching pointless quangos and other non-jobs that achieve nothing other than consuming tax revenue. It is also being addressed by trying to ensure that areas of government that do provide some benefit deliver a far larger bang-per-buck. These are not matters that can be addressed easily by international lenders because they are very case-specific and, in some instances, politically sensitive.

The quantity of government spending is a different matter. It affects the whole of the national economy drastically. Every penny government spends must come from one of three tranches of income - yesterday's tax, today's tax or tomorrow's tax. When some emergency arrives that requires exceptional government spending it can use savings made out of yesterday's tax (don't laugh, I'm talking theoretically here). If that is not enough it can channel some of today's tax into the pot and if that is still not enough it can borrow and then repay that borrowing from tomorrow's tax. None of it comes for free. Once the situation is reached of ordinary day-to-day government spending (as opposed to exceptional costs associated with, for example, essential military conflict) requiring borrowing against tomorrow's tax for year after year, you have an obvious structural problem.

Economic growth and its resultant larger tax-take can address that problem to a degree but only to a degree. As the private sector earns more there are entirely reasonable pressures for public sector salaries also to increase, thereby absorbing much of the increased tax revenue and limiting the ability of economic growth to make a significant dent in government debt. There is also the political temptation to spend increased receipts on new pet projects to buy votes at the next election. To pretend, as Mr Darling does, that it is good value to borrow at 4% to maintain aggregate demand that currently produces a 0.1% growth in GDP is to ignore three essential facts.

First, the cost is out of all proportion to the benefit. Secondly, demand is only of a long-term benefit if it results from increased wealth-production rather than from borrowing today to shore-up a standard of living you cannot afford tomorrow. Thirdly, borrowing today means interest payments tomorrow, thereby reducing the amount you would otherwise be able to spend tomorrow and, by definition, reducing tomorrow's demand. So, if you borrow today to support today's demand you do it by reducing tomorrow's demand. Unless, of course, the way you spend it today leads to greater wealth and an increase in tomorrow's demand above what it would otherwise be - something that no government in history has been able to achieve.

No international lender can descend into the minutiae of a particular borrower's economy and seek to identify individual items that will affect the overall long-term sustainability of the whole economy. What can be done is to look at the quantity of government spending, assess the long-term cost if it is maintained and say "sorry chaps, you can't afford to spend that much, I will lend provided you spend less." He is not bothered about maintaining demand this year, he is looking to the overall structure and knows that whatever the level of overall demand in the domestic economy excessive government spending will not be affordable.

If Mr Darling were right the international lenders would not be imposing any conditions on the loans they make. They would want government spending to remain as it is or even increase, they would say "spend more and boost demand, that will increase wealth". Yet they don't say that because they know it is nonsense. They know they will receive interest and the repayment of the capital sum they advance now (and the sums they might be asked to advance in the future) only if governments live within their means.

What matters is not the position this quarter or next or even the position this time next year. What matters is whether a national economy is sufficiently well-balanced to pay for itself (and thereby allow its people to enjoy the fruits of their labour) in the long term. If it is not, those who are asked to bail it out with loans will want an extra return on their money to reflect the risk of default. The institutions that lend to governments comprise other governments as well as private finance bodies, and none of these can afford to forgo interest or capital repayments. Nor do they particularly want to receive a very high return because high interest payable on government debt carries the threat of losing absolutely vast sums if default occurs. Of course they are happy to receive big profits while default is avoided but they know the best long-term investments are those that accumulate steadily not those that can make or lose a fortune over a short period.

It really does not matter if the UK slips back into recession - on any definition it is hardly out of recession anyway. What really matters is that the effect of government on economic activity is not so detrimental that the the nation cannot pay for itself. Once it slips over the edge and cannot pay for itself that imbalance must be dealt with before worrying about anything else. Maybe it will cause the loss of some jobs and a decline in overall spending power this year and next, but that merely reflects that pre-existing levels of both employment in the public sector and consumer demand could not be afforded.

Monday, 7 June 2010

Why it's going to be painful

At long last Mr Cameron had lifted his head above the parapet and said what everyone knows - government expenditure will have to be reduced by far more than anyone had the guts to say during the election campaign. He said the finances are even worse than he expected, although I doubt if they are much worse because he had a team of generally competent people working for him who only needed to read the blogs of Mr Redwood and Mr Tyler to find a very close approximation to the true horror bequeathed by the most incompetent government in modern history.

Mr Cameron said, quite correctly, that cuts must be made to expenditure because what was inherited cannot be afforded and he said there will be pain. Part of the pain will be felt by those in non-jobs who will have to find something else to do, as I have explained before it is a cruel consequence of creating non-jobs that those who take them in good faith, give up their former careers and then lose their new career. For those who took employment as official State naggers (such as five-a-day consultants, smoking-cessation counsellors and carbon footprint managers) it will be no less than they deserve, but I am sure the hectoring bullies are relatively few in number compared to the administrative staff in their departments who will also have to go.

The reason the pain will be greater than necessary is that hiring useless baggages to suck-up taxes and produce nothing of any value has consequences far beyond their own salaries and pension contributions. They are part of a larger structure, whether it be in local or national government or in a quango. That structure comprises several tiers of employees whose salaries relate, at least in part, to the size of their department. As the department grows through the hiring of people to do nothing, the nominal responsibilities of each head of department increase, carrying with it an inevitable demand that he be paid more. In the tier above him pay must also rise both to maintain differentials and to reflect the supposed additional responsibilities borne by the higher level managers.

Say each head of department was on a salary of £60,000 which increased to £63,000. He or she might have been perfectly happy with £60,000 and undoubtedly they planned their personal financial commitments according to the salary they received. Now they have adjusted their plans to reflect the 5% increase. It might have been no pain to have remained at £60,000 throughout, whereas there is undoubted pain in taking a pay cut of £3,000 a year even when you are on a decent whack. But, of course, the heads of department will still be in place when the non-jobsworths have gone. Either they will have their salaries reduced - a difficult task when the civil service is as heavily Unionised as it is and an even more difficult task because they have the contractual right to receive the salaries that have already been agreed - or their salaries remain in place and the "wasted" additional £3,000 must be clawed back elsewhere.

Then there is office space. In some circumstances an expanded workforce can be housed in existing premises but very often a substantial increase in numbers requires an annex to be rented or bought or the wholesale removal of a department from one building to another. Acquiring and disposing of commercial premises costs money - agents' fees, surveyors' fees, legal fees. Some public bodies have the expertise in house to do some of this work without incurring any out of pocket expenses but most out-source the work so that any problem encountered later can be laid at the door of the external surveyor/solicitor's insurance policy. These fees represent a small annual outlay if spread over the expected lifetime of the new building but they are still additional costs which must be added to the additional costs associated with operating a larger building. On paring-back the workforce you could scale-down your office accommodation but that is also an expensive operation.

Let's take a simple example. Bogshire County Council hires climate change diversity five-a-day outreach empathisers (plus administrative support staff) to work in each department of the council. Their salaries come to £1million a year, acquiring additional office accommodation incurs fees of £40,000, fit-out costs of £100,000 and the extra annual cost of that office accommodation is £50,000. Bogshire can sack the lot and (subject to one-off redundancy payments) save £1million a year. It can't get back the £140,000 it spent on fees and refurbishment and it can't save anything substantial on annual office costs without either selling in a falling market or surrendering the lease on the best terms it can negotiate and then re-acquiring smaller accommodation with all the one-off costs that entails. In order to return to the position it was in before expanding its expenditure beyond affordable levels it would have to eat into the things it was doing before. Assuming there were no non-jobs, useful people doing useful things will have to go or take salary reductions simply to undo the damage caused by hiring useless wasters to do nothing.

Countless further examples can be given of the long-term cost of correcting a structural over-spend. It is a far more expensive exercise than merely getting rid of unnecessary employees.

Thursday, 3 June 2010

Smoking is good for you

A couple of weeks ago I was chatting to one of the owners of my favourite curry house in the restaurant's rear garden and offered him a cigarette. He is only an occasional smoker (a term almost exclusively used by smokers who prefer others to buy the cigarettes they smoke). On lighting the little vitamin stick he inhaled deeply and let out a contented sigh. It is the same sort of sigh I emit at the end of breakfast when I take my first ciggy of the day, only louder and longer because it was a rarer treat for him than it is for me. He did not collapse in a heap or start gibbering, he did not feel the need to steal to fund his next hit; he just sighed. He enjoyed the cigarette. As a smoker I find it impossible to describe the pleasure because it is just part of everyday life, but seeing my friend react as he did reminded me that smoking is a pleasure.

Anti-smokers plug two lines relentlessly. They tell us we only smoke because we are addicted and that smoking is bad for our health. The second might well be true, at least for some smokers, the first is undoubtedly and patently false. If it were the case that smoking is undertaken for no purpose than to feed a drug addiction, I find it impossible to see how it could be such a widespread habit. All over the world people smoke tobacco even though it is not a plant indigenous to their country. They do so despite it costing them money they can ill afford because it gives them something they did not have before. Addiction cannot develop from one taste alone, so even if they do become addicted over time, in the period before they are addicted they smoke solely because inhaling tobacco smoke gives them a pleasure they value at least as much as the money they spend to acquire cigarettes.

One can liken smoking to watching sport or films on television. You can get some for free but if you want more you have to pay. Your choice is to balance the pleasure you derive against the cost. If films don't really toot your flute you might not be prepared to pay anything more than the annual television tax because the number shown on non-subscription channels leaves you satisfied. If you find football and cricket utterly fascinating and can think of nothing better than to spend your evenings and weekends absorbing sporting encounters, you subscribe to Sky Sports 1, 2, 3, ESPN and anything else you can get pumped into your telly.

There is no objectivity about these things because they are matters of personal taste. Some opinionated prig can lecture you about how wasteful it is to spend so much time gawping at the idiot box but in doing so they merely expose their shallow-mindedness. They assume that because they don't do something themselves so others can't possibly get a benefit from it. They assume you to be incapable of forming your own judgment about what is valuable to you and how much you are prepared to pay for it. In short, they fail to realise that we are all different and have different tastes. If challenged to explain how you can justify the cost of numerous optional television channels your answer can only be that you enjoy it and consider it worth the money. No one is in a position to say you do not, cannot or should not enjoy the activity because it is your choice and your choice alone. If the price goes up you face a new choice, should you cut back so that your other bills can still be paid or should you continue the same subscription and make your wife go back on the game; it is the same balancing exercise - how much do you, an individual person, value the film or sports channels. Bert next door might take a different decision but that is neither here nor there, he is not you.

Smoking is also akin to drinking tea. Tea is consumed not just because it contains caffeine, indeed decaffeinated versions are available, it is drunk because ... well, why? The taste? That it is hot? That it is traditional? Frankly, it does not matter. If you want a cup of tea have a cup of tea, you know it will make life better for you even if others cannot stand the stuff. I doubt that any of us can really define the pleasure we get from a cup of tea other than by saying we like it. People might derive all sorts of pleasure, it really doesn't matter. They drink it because it gives them something at a cost they are prepared to pay even if they cannot identify the benefit with any precision.

We can be absolutely certain that people derive a benefit from smoking. The sigh in the garden of the curry house is proof of that as is the prevalence of smoking as a habit all over the world. The one certain downside is the cost. Every smoker has to balance the pleasure he gets against affordability. There is certainly some evidence that smoking can cause health problems for a small number of smokers and no smoker can know whether he or she is at risk. Provided we are informed of the risk we will take it into account alongside price when balancing whether the pleasure we derive is sufficient to justify continuation of the habit.

What is so extraordinary is that the risks are exaggerated enormously these days and some alleged risks are so statistically insignificant as to be pure invention. People know of these non-risks and believe them to be risks, yet still they judge that the pleasure they receive outweighs both cost and risk. If anything, that shows that the pleasure is far higher than any anti-smoking prig could possibly understand.

Yet still they tell us "it's no good for you". Sorry, Mr & Mrs Prig, you couldn't be more wrong. Smokers, like gogglers of movies and televised sport, judge for themselves what is good for them. On one side of the scale they place cost and alleged risk on the other side they place the pleasure they derive. You can measure cost in money but risk and pleasure are matters for individual assessment applying whatever measure any given individual cares to apply. Those who continue to smoke when ciggies are £6 and more a packet and so-called experts tell them they are killing themselves, their children, their friends, neighours and pets, explain by their conduct that smoking is very good for them indeed.

If you don't think it's good for you, don't do it. I haven't spent a single penny at a cinema for almost thirty years because I don't enjoy films sufficiently to be able to justify the cost - films are not good for me. During that time I have spent many thousands of pounds on cigars and cigarettes because I derive a pleasure from their consumption and feel the cost and risk involved are not so high that I cannot justify that expenditure to myself - smoking is good for me.

Wednesday, 2 June 2010

Docks and the presumption of innocence

The presumption of innocence is hugely important. Amongst other things it emphasises that the powers of punishment possessed by the State should only be exercised against individuals whose guilt has been proved by reliable evidence. Numerous inroads have been made into that basic principle in the last twenty years, including requiring accused people to prove their innocence in some circumstances and allowing types of evidence to be given that have been considered unreliable for decades and, in some rare cases, centuries. I do not want to discuss those today but to look at something that occurs every day in criminal courts and which I have always considered fundamentally at odds with the presumption of innocence.

I refer to the practice of the accused person having to sit in the dock. As a general rule of courtroom architecture the dock is an enclosed area towards the rear of the court and faces the judge, lawyers involved in the case sit between the dock and the judge. In some older courts, such as the four original courts at the Central Criminal Court (Old Bailey), the lawyers sit on the side opposite the jury but in almost all newer courts the lawyers sit in rows in front of the judge with the dock behind them.

Many docks are raised above the level of the well of the court and the defendant sits in deliberate, exposed isolation as his fate is decided by everyone before him. His legal team cannot just lean over and ask him a question or pass him a note, they have to move to the back of the court and stretch upwards to get their instructions. It draws attention and disrupts proceedings.

In the civil courts the litigants sit with their lawyers. This is useful because it is often necessary to take further instructions during a case and it can be done quietly and without interrupting the trial if the person you need to speak to is beside you or in the row behind. More than that, both the claimant and the defendant are on the same physical level. Although one of them claims that the other has done something wrong, the presumption of innocence applies also in civil cases and this is reflected by the fact that they sit in the same row of seats no matter how bitter their dispute.

Many High Court judges spend most of their lives working as barristers or solicitors on complex civil disputes and then, on being appointed to the bench, are given a pretty constant diet of serious criminal cases to try. Often this means murders and manslaughters. Although long fraud trials are rarer now than twenty or so years ago they still happen and the usual practice now is to dispense with a dock and allow the defendants to sit with their legal team. That practice was first adopted regularly in the late 1980s when the courtrooms used for such cases simply did not have docks because they were not designed as criminal courts. No problem was encountered of defendants doing a runner during the morning smoking break, it all worked rather well and allowed the proceedings to be got through with the minimum of fuss.

That, indeed, is the practice in most States of the USA. Even in cases of capital murder the accused person sits with his defence team in the well of the court. He might be in handcuffs or ankle cuffs, where there is any serious fear that he will abscond he will be in some sort of restraints, but he is presumed innocent of the charge he faces so he faces that charge without being put on an isolated pedestal at the rear of the court like an exhibit in a freak show.

Where there are very solid grounds for believing an accused person might abscond there are also good grounds for him being placed in an area of the court from which escape is difficult. That is, however, a very rare circumstance. In the normal run of things defendants are not kept in custody before or during their trial. They go home at the end of each day and turn up the next day. When in the car or on the bus going to and from court they are just another person, no one gives them a second glance. But when they get to court they are sent to a special confined area and set apart from everyone else involved in the trial.

It could be said that placing a defendant in the dock suggests nothing about his guilt or innocence and is merely giving him a special place because the case is about him. But that misses the point. Everyone with a need to know who is accused will know it regardless of where he sits. By separating him physically you set him apart from everyone else simply because he has been accused. Yet he is not different simply by reason of being accused, he is still presumed innocent just as the judge, lawyers, jury and court staff are presumed innocent whatever they might actually have done.

Let me link this to current news. Today it is reported that two men have been arrested on suspicion of the murder of PC Keith Blakelock in 1985. I popped into the Old Bailey to watch a few hours' evidence when three people were tried for that murder in 1987. It was headline news at the time and a chum of mine was representing one of them, so I thought I'd take a look. I had an afternoon when my paperwork could wait, so went down to the Old Bailey, donned the wig and gown and went into court. The first thing I did (after bowing to the bench, you always have to do that first) was look up at the dock to see "them". And that is exactly how it was, there was a "them", a trio of brutal murder suspects. I didn't view them as just three blokes I might have been sat near in a pub. They had a different character, they were accused of murder and their very presence in the dock identified them as something different from the rest of us. I cannot pretend I looked on them with the presumption of innocence at the forefront of my mind because I did not. Ghoulish though it was, I felt I was looking at three cold-blooded barbarians who hacked a police officer to death with machetes. As you probably know they were convicted but then freed on appeal due to serious deficiencies in the way evidence was gathered. When gawping at them I was not applying a presumption of innocence, I was doing exactly the opposite and the effect was enhanced by all three of them being in the special naughty box.

Docks have been part of our criminal courtrooms for well over a hundred years. Today they are less appropriate than ever because press and TV reporting of serious crimes has become so sensational that the presumption of innocence is undermined long before an accused person appears in court. The very least that can be done is to ensure the courtroom does not add to the isolation of the accused person from all the other "presumed innocent" people in court.