Friday, January 23, 2009 

The recession blues.

We can now at least be grateful for the small mercy that we are officially in recession; we've already become so used to the fact that the news itself has only caused something approaching a small ripple, both markets and the pound recovering from drops earlier in the day, but for those of us who have only distant memories of the last recession, which includes almost all of those in their early to mid-twenties, things are undoubtedly about to become a whole lot bleaker.

While the 1.6% drop in the last quarter was higher than expected, it's the other figures that cast further light on how what started with the poor in America defaulting has now spread across the globe, infecting most severely our already distressed manufacturing base, where output fell by 4.6%. Most surprising probably of all was that even growth in the government sector fell by 0.5%, an indication of how bad things are likely to get. Likewise, the 1.6% growth in retail sales last month may as well be a mirage: boosted by the VAT cut and the panic discounting prior to Christmas, which has continued throughout this month, it simply cannot continue. More household names are likely to close their doors as the months pass.

Much of this was predictable: when you have an extended boom, especially one built upon massively inflated house prices and unprecedented private borrowing, the inevitable bust is always going to be painfully extended. This was the undoubted hubris, not just of the prime minister but of the vast majority of politicians. The last few elections were not fought on the economy, but on the public services and social issues. So too was the next one thought to be: under Cameron, the Conservatives offered even less than Howard and Hague. Sunshine was meant to win the day, the great gods of the macroeconomic cycle having decided that this was the End of History. Even after 9/11 destroyed the tiny basis for that claim, we still imagined the economic case to be sound. This bust is indicative not just of those politicians who believed it, but also the whole school of economic theorists who similarly declared that the free-market was the be all and end all, and that only governments and regulation were to blame for not delivering the full benefits of unleashing it wholesale.

In short, hardly anyone saw this coming when it was so completely predictable. You would therefore expect that the response would be humility from all sides, admitting they were wrong. With the exception of the odd columnist in the Times, this has been noticeable for its absence. No one really thinks that Gordon Brown, who whilst not arrogant is as stubborn as feasibly imaginable, is going to own up and admit that his claim to have abolished boom and bust was wrong, but the least he should be doing is now coming straight with us and saying that we face an exceptionally bleak economic prospect over the next year. We are not, as he repeatedly claimed, among the best placed to weather the financial storm; we are in fact one of the worst placed. This though too has been following the pattern which has emerged over the past 6 months. When Alistair Darling said in his Grauniad interview that we were facing the worst economic situation for over half a century, he was denounced. He was right. When George Osborne suggested that the amount of debt were taking on was likely to cause a run on the pound, he was criticised. He was right. When David Cameron now says that we could well have to go cap in hand to the IMF, he too might well be proved right. Nothing should be ruled out.

This isn't to agree with the Conservative's predictable positioning, which is to blame everything on Labour. If they had won in 2005 we would now be facing the exact same recession, possibly an even worse one if they had quickly introduced some of the policies which featured in John Redwood's later economic review. Labour's claims that this is all the fault of a global crisis are equally hollow. Countries which had far tighter regulated banking systems and the absence of such an inflated property bubble are not facing the same problems. Either one or the other can cause disaster, for which see Spain, which has a tight system of banking regulation but an absurdly out of control property market. For the former, we have not just one or two but three people to blame. The Financial Services Authority and and the tri-partite system of financial regulation was the direct creation of Brown, Balls and Gus O'Donnell. Paul Mason, who thankfully has a longer memory than others, recalls a speech by Blair towards the end of his tenure which was highly critical of the FSA for being too burdensome, for inhibiting the perfectly efficient and non-fradulent business of companies which were doubtless complaining too him about it all being so unfair. Who knows, perhaps it even included Northern Rock. Likewise, later in 2007 Gordon Brown, in his Mansion House speech, suggested to doubtless warm applause that the City was on the edge of a new golden age. It was instead on the edge of a precipice, but it's easy to mistake one for the other.

Neither the bankers, the politicians or the regulators are those will suffer the most from this recession, however much we would like it to be the case. Instead it's going to be the poorest, the ordinary workers now about to be drafted into James Purnell's welfare reform experiment. Already even the slightest thing to resemble largesse is being denounced, whether it be the "underserving" likes of Afghan families living in supposed mansions, the radio station for prisons which cost a massive £2 million, or less easy to justify, the bonuses for Northern Rock workers. They were though after all taking a leaf out of the book of their former bosses, so who could really blame them? Our apoplexy will not turn on those who brought us into this mess, but on those supposedly taking liberties. What already resembles a cruel nation will turn even crueller. What should be an opportunity for the left seems to have already been spurned, not helped by the fact that an authoratarian party masquerading as left-wing has been in power for approaching 12 years. Things can only get better, but they'll probably only get worse before that happens.

Labels: , , , ,

Share |

Monday, January 05, 2009 

Godwin's law and Tory economic policy.

One of the old rules of debate, long before the invention of Godwin's law, was that the first person to bring up the Nazis lost. Unless you want to look like Rick in the Young Ones, even in these times when calling Labour ZaNuLiarBore or similar is considered the height of wit and sophistication, or calling Gordon Brown a one-eyed communist passes for enlightened discourse, it's mostly still looked down upon.

Iain Dale, the nation's premier serious blogger is obviously beyond such subtleties. Opening his article on Comment is Free, he invokes everyone's favourite propaganda minister (no, not Alastair Campbell, or Andy Coulson):

Gordon Brown and his ministers seem to have adopted the Goebbels principle of propaganda, hoping that the more often they repeat an allegation, the more likely a gullible public is to believe it. Over the past month they have repeatedly accused the Conservatives and David Cameron of adopting a "do nothing" approach to the recession, in the hope that Cameron can be made out to be heartless and uncaring. James Purnell's interviews on the Today Programme and 5 Live this morning were classic examples of the genre. Goebbels would have nodded approvingly.

Yeah, shame about him giving his children cyanide pills before he and his wife blew their own brains out, otherwise we could have asked him personally what he thought of Labour's media strategy. By the same token, Dale must surely be concerned about how the Conservatives have repeatedly suggested that the country is either "going bankrupt", "near bankruptcy" or "bankrupt", all of which have been the Tories' refrain for quite some time now, with even less basis in facts than the accusation that the Conservatives are a "do nothing" party. Dale lists some of the other policies proposed by his party, but few of them have been praised by those outside of it, and others such as the proposed tax break for employers have been derided. Few of them would provide anything resembling a stimulus, or one more likely to be spent than saved, which is what is needed, and while the jury is still out on the VAT cut, even fewer of their promises seem to actually add up.

The same can of course be said of the government's policies, which do indeed also deserve criticise, but today's new announcement by the Tories for tax cuts for savers are especially wide of the mark. Welcome as further incentives to save would be once we're out of a recession, it's the opposite of what's needed right now, as Tom Freeman points out. The Conservatives can though of course say whatever the hell they like when they're in opposition, as they're not suddenly going to become the party of government and have to introduce their announced plans immediately, and unsurprisingly the Tory press has lapped up Cameron's latest pronouncement, as they were meant to.

All the rhetoric however masks the fact that if the Conservatives had been in power rather than Labour, they would have in all likelihood have let the market rip even further. Yes, taxes might well have been lower, the public services might well have not had as much money pumped in, the deficit might not be quite so high, but we would almost certainly be in much the same hole. It has taken the recession for the Conservatives to rediscover the "morality" of saving rather than going into debt, and that's something that should always be remembered now that parties of all political shapes and colours decide that capitalism might well need taming after all.

Labels: , , , , , ,

Share |

Thursday, November 20, 2008 

Those Conservative economic travails.

This must be a truly strange time to be a supporter of the Conservative party. To enter cliché for a moment, all the chickens have finally came home to roost. The man who promised an end to Tory boom and bust has succeeded in abolishing boom, while the prospects for the bust look increasingly ominous. The economy which he boasted was among the best placed to deal with the global downturn is in actual fact one of the worst placed to deal with it, according to the IMF and the European Union. Unrelenting, the Labour party believes that the solution is to borrow more to fund the tax cuts to stimulate the economy. As Larry Elliot has pointed out, this is a direct contradiction of what Gordon Brown formerly believed. At the weekend the same man attended a conference which he claimed would back up his solution to the downturn; it did nothing of the sort, and predictably only agreed to more or less meet again. Gordon Brown, by rights, ought to be finished.

Instead, it's the Tories themselves that look as though they're the ones in need of some sort of a stimulus. By contrast to Brown, who seems unaccountably at the moment to be walking on water when he should be sinking like a brick to the bottom, they're the ones looking washed up. Nothing they do at the moment can get a look in, or when it does it's almost immediately knocked down for its flaws. Take their hastily cobbled together policy on tax breaks for employers, which was dismissed almost universally as being the kind of tax con which the Conservatives have so often accused Labour of pulling. This week's panic was, with it looking almost certain that there will be at least £15bn worth of tax cuts in Monday's pre-budget report, the minimum needed for it to be minimally beneficial, to declare that they would, despite everything which they've previously said, not stick to Labour's spending plans for at least the first year should they win the next election. In any event this was always a false promise, but such was the apparent anxiety within the party over the floundering response to Gordon Brown's sudden found decisiveness that red meat had to be tossed to those who have always wanted tax cuts before anything else.

Even this though leaves the party looking contradictory, or at least at first glance it does. On the surface it looks like a standard, fiscally conservative measure: you can't borrow your way out of a crisis, so don't try. Instead, spending cuts will have to be found. Yet the Tories are still committed to spending the same as Labour on the NHS, the police and on education, whilst refusing to say where the cuts would be made. Even abandoning ID cards, as they promise, will not immediately summon up the £20bn that they are forecast to cost once they are fully introduced. The figures simply don't add up. As a consequence, the Conservatives are again being accused of being the do nothing party, and it's an insult that for the moment appears to be sticking.

Some of this is undoubtedly thoroughly unfair on the Conservatives. An element of their plight at least is that the media has become bored of the prospect of the Conservatives sleepwalking towards victory at the next election, and with Brown's sudden self-proclaimed saving of the global economy, they have a new horse to get behind, even if it's the same one they were previously saying was only fit for the glue factory. Also influencing it though is that despite all the plaudits mystifyingly bestowed upon George Osborne, such as politician of the year, they have been absolutely hopeless on the economy ever since the run on Northern Rock. Their immediate tactic was to portray the potential nationalisation as a return to old Labour, which could have worked if they had a realistic alternative policy. Gordon Brown took fright, which is partly why they dithered and dithered and made things worse by not doing it sooner. The problem was that the Tories didn't have an alternative, and that everyone got so fed up with waiting for them to come up with one that Vince the Cable suddenly emerged as the politician who knew what he was talking about, given pride of place as the first man to turn to for analysis which ought to have been coming from the real opposition.

The other reason though is that they like Brown and New Labour truly believed the rhetoric. They honestly thought that the economy was now an area of consensus, that growth was natural and endless, and that it was social policy on which they should concentrate. A nasty and pernicious social policy it is, calling a society broken when is isn't and which their solutions for fixing are the opposite of what is needed, but a policy it was, and one which the conservative press especially were fully behind. They may have made some murmurings on personal debt, but they offered no substantive opposition to the government on its spending and borrowing plans, and as Labour has rightly pointed to, they even proposed loosening the regulation on mortgages. Their belief, like Labour's, was that we didn't need to worry about not actually making anything, it was making London the city in which to do financial business which mattered most. In fairness, many of us became caught up in this fantasy: that neoliberalism, despite all the evidence to the contrary, could deliver, and that through almost indiscernible redistribution, played down at every opportunity, that the proles would not become too upset at being continuously shafted. The latter it seems can still be contained, for now, but it was neoliberalism itself which has come in for the mightiest of shocks.

From being 28 points ahead at one point in the craziest poll, the Conservatives are now down to just 3 points in front, within the margin of error, in the mirror craziest poll. Unlike New Labour prior to 97, whenever things aren't going their way, the Conservative approach seems to be to panic. Last year, during Brown's brief honeymoon, there were murmurings of defenestrating David Cameron, such was the concern that the change in leader would affect their fortunes. Luckily, Brown succeeding at shooting himself in the foot not just once but on numerous occasions, first through a dismal conference speech, then over the election which never was, then the obsession with 42 days, then the 10p tax rate etc etc, coupled with Osborne's moment of supposed genius, the raising of the inheritance tax level to £1m. This time round Osborne himself is the casualty, not helped by his dalliances with yachts and trying to win in an unpleasantness contest with Peter Mandelson.

The really strange thing is that the Conservatives have arrived at the right policy in the circumstances in a completely Byzantine way. Although their claims that we are among the most heavily indebted nations in terms of GDP is bogus, even if you include the nationalisations, PFI and pensions, they are right that we should not be further adding to those figures without explaining fully and comprehensively that this means taxes are going to have to rise significantly, or that spending is going to have to be cut considerably to return at some point to equilibrium. After a crisis that was caused by private-sector debt, the public-sector should not be seeking to emulate it. If we are going to have tax cuts, then we should be funding them appropriately by either cutting the ludicrous number of databases we are planning or which are in use, abandoning ID cards, getting rid of Trident and not replacing it, not "investing" in aircraft carriers, by getting out of Afghanistan and Iraq now and by raising the top rate of tax on the richest considerably. It was our indulgence of them that led to this mess, and while our politicians should more than shame the blame, they should also help to pay for it, by also closing down the loopholes that allow so many to evade tax altogether. The party that again seems to be leading the way is the Liberal Democrats, who are flat-lining in the polls and have more problems it seems than the Conservatives. That, sadly, is modern justice.

Labels: , , , , , , , ,

Share |

About

  • This is septicisle
profile

Links

Powered by Blogger
and Blogger Templates